Leading housing experts have warned the Government not to introduce short-term measures to address the current crisis in Tuesday’s budget, suggesting further tax incentives for buyers would only inflate land values without improving affordability.
"Around the time of the budget, there is always an impetus to announce short-term measures to address the housing market, but the truth is that these can often be counter-productive," Goodbody chief economist Dermot O'Leary told The Irish Times.
He said a number of measures have already been announced that should have positive implications for the long term, but will not impact straight away.
"The most recent of these is the Land Development Agency (LDA) which has the potential to manage land in a strategic way in Ireland for the first time," he said.
The Government is under intense pressure to address the State's housing problems amid a series of trade union-led rallies and sit-in protests. Up to 10,000 people took part in the #RaiseTheRoof protest outside Leinster House in Dublin last week.
However, John McCartney, chief economist with estate agency Savills, said the Government needed to hold its nerve. “We are in a crisis situation now. But with earnings growth picking-up and house-price inflation slowing, the negative trend in housing affordability should begin to reverse,” he said.
“The biggest threat to this is construction inflation, which could work against the uplift in supply. So any measures that increase the cost of delivering residential property – for example, a rumoured increase in the transfer tax on residential investment blocks – should be avoided.”
David Duffy of Property Industry Ireland (PII), the Ibec group that represents property professionals, said housing development has a long lead-in time, and the supply of new homes still does not meet demand.
“For these reasons, PII call on the Government to make the delivery of affordable zoned and serviced land for housing development a priority given its importance in the sustainable delivery of homes,” he said.
“Viability in home-building is key and taxes and charges on construction contribute to the challenges of delivering affordable housing,”
The availability of properties in the private rented sector was also a key concern. Government should ensure that the market remains attractive to small-scale landlords and they do not continue to leave the sector, he said.
University College Dublin academic Orla Hegarty said the cost of housing was economically unsustainable and a threat to competitiveness. "All housing policy needs to be filtered for affordability and, given the budgetary constraints, for maximum impact," she said.
Ms Hegarty said the Government’s Help-to-Buy scheme for first-time buyers should be stopped. “Tax cuts should not be introduced, as this would further inflate land values, without improving affordability, and result in significant loss of revenue which would be difficult to reverse.”
However, Marian Finnegan, chief economist and director of research with Sherry FitzGerald, the country's biggest estate agent, called for the Help-to-Buy scheme to be maintained and extended beyond 2019.
She suggested that buyers outside Dublin had not yet benefitted because so much of the new building was taking place in the capital.
She said Sherry Fitz was seeing a mass exodus of investors from the market, which was reducing supply of rental accommodation and increasing pressure on rents.
“What they’ve done [The Government] is to disincentivise investment via higher tax rates on rental income,” she said.
Since the crash, the Government has introduced USC on rental income, a local property tax and reduced allowable mortgage interest relief, all of which have increased the tax burden, Ms Finnegan said.
Simon Brooke of voluntary housing body Clúid called on the Government to allocate an additional €250 million for capital spending for approved housing bodies (AHBs) and €48 million for current spending on revenue subsidies for new dwellings. "This will enable AHBs to start 5,000 homes in 2019," he said.
Mr Brooke also called for the establishment of a dedicated affordable rental scheme, with appropriate exchequer funding if required, to provide affordable rented housing for the “squeezed middle” – people whose incomes are above the eligibility level for social housing but who cannot afford to pay market rents.
“Most of the larger AHBs have recently been reclassified as ‘on the Government balance sheet’ which threatens future funding, and so will lead to reduced social-housing output,” he said.