Government urged to be more aggressive on taxing vacant sites
ESRI’s latest commentary predicts slowdown in housebuilding despite strong demand
The ESRI revised down its housing completions forecast for this year from 23,500 units to 21,000. Photograph: Chris Ratcliffe/Bloomberg
The Economic and Social Research Institute (ESRI) has warned of a slowdown in housebuilding and has urged the Government to take a more “aggressive” approach to taxing vacant sites.
In its latest economic commentary, the institute revised down its housing completions forecast for this year from 23,500 units to 21,000, suggesting the fall-off in supply may be linked to Brexit and/or the slowdown in property price inflation.
The latest official figures suggest property prices in Dublin are now falling for the first time in seven years while price growth nationally has moderated to 2.3 per cent.
The ESRI believes that up to 35,000 housing units need to be built a year to meet the current level of demand. While property price growth has decelerated on foot of the Central Bank’s tougher lending rules, the ESRI said pressure in the housing market has transferred to rents, which are rising by over 8 per cent year on year.
A key issue at the centre of Ireland’s housing problem is the high price of land, which bid up development costs, said the ESRI’s Kieran McQuinn.
He said the Government’s vacant site levy, introduced this year, needed to be more “aggressively priced” if it is to unlock more development land and bolster supply in a meaningful way.
The anti-land hoarding tax, currently set at 3 per cent of the value of the land, will increase to 7 per cent next year.
Prof McQuinn, however, cited a recent Department of Housing report indicating that only 10 local authorities were in a position to impose the levy with only 140 sites registered to be fined.
“This may be due to administrative issues, however, I think the initial rate of 3 per cent is far too low so the sooner it goes to 7 per cent the better,” he said.
Prof McQuinn said differential rates may need to apply depending on how well the land in question is serviced.
After the crash, the Government offered prospective investors a capital gains tax (CGT) exemption if they held on to land for seven years, which has now been phased out.
This was linked to land hoarding, particularly in Dublin, at the same time chronic housing shortages .
Now the Government is pursuing the opposite measure, namely penalising landowners for hoarding land.
In its report, the ESRI noted that the slowdown in headline property price inflation had led to calls for an easing of the Central Bank’s mortgage lending rules.
“While increased pressure concerning affordability are evident in the Irish housing market, it would not be prudent at this stage to relax the macro-prudential regulations overseen by the Central Bank, ” it said.
“It is imperative that domestic policymakers prevent the possibility of another house price-mortgage credit spiral that could emerge if credit was made more freely available,” it said.
The ESRI said the recent slowdown in house price growth is not unexpected given the rapid acceleration in prices previously.
It noted that price growth was now at its lowest level since mid 2013 while in the capital prices were falling.