New Bacon proposals unlikely to ease crisis in housing

For the last few months, it has been obvious that the Government parties intend to fight the next election on some version of the old Bill Clinton slogan: "It's the economy, stupid."

It knows that its achievements on Northern Ireland, historic though they are, will not win many votes. On the broad issue of sleaze, it has decided that the best policy is to grit its teeth and face down the critics. The slow pace of its response to child poverty and problems facing the health service suggests that it will prefer not to go into battle on those issues. But who needs integrity and equality when you've got prosperity?

This week, for the first time, the Government may have looked down and seen that this safety net is beginning to unravel. Charlie McCreevy, the self-proclaimed most successful finance minister in Europe, discovered that his policy of giving more to those who already have a lot is having the entirely predictable consequence of pouring oil on a blazing economy.

Inflation, which was running at a rate of 1.3 per cent this time last year is now 5.2 per cent. His confident expectation, pronounced as recently as last February, that the average inflation rate for the year 2000 would be just 3 per cent, now looks like being out by as much as 100 per cent.

Meanwhile, the third report from Peter Bacon on a key part of that inflationary boom - the price of houses - amounted to a tacit admission that the policies pursued by the Government on the basis of the previous two reports have failed. Behind the new report's boast that the rate of price increases in the housing market has fallen was the stark reality that the prices themselves are still rising and will almost certainly continue to do so.

And the really bad news is that, even if the new measures adopted as a result of Bacon III work, they will almost certainly not do so quickly enough to help this Government or the deeply troubled Partnership for Prosperity and Fairness.

Few people would argue against many of the new proposals. Exempting first-time buyers of second-hand houses costing up to £150,000 from stamp duty may have relatively little impact on the housing market, but it makes sense on the grounds of equity. Measures to cut planning delays by increasing the number of professional planners are so obviously necessary that the only wonder is that it has taken so long for the Government to catch on.

Some of the plans, though, are either vague, long-term or open to scepticism. We hardly needed Peter Bacon to tell us that better public transport is one of the keys to opening up new areas for development. Given the confusion that still surrounds the Government's transport policies, however, its broad commitment to doing something about it, sometime, is hardly encouraging.

Bacon stresses, too, that certain water schemes are "essential" to the release of land for housing. But in many cases, the schemes he mentions will not be completed for at least two years.

The Sandyford and Lucan high-level reservoirs are scheduled for completion two years from now. Building of the Swords trunk water main will only start next August or September, and the Jordanstown reservoir for north Swords is merely "in early planning".

The same is true of some of the necessary sewerage schemes. Even if the project teams that the Government is to establish succeed in speeding up these developments, their effects on the housing market will not be felt for some time.

And the proposal for an anti-speculative property tax, designed to penalise investors who buy houses which they neither live in nor rent out, seems to be the triumph of hope over expectation. A 2 per cent annual tax on the declared value of the property may have the desired effect. But a look at the small print raises an obvious question - who is going to decide the value of the property?

The discouraging but perhaps unsurprising answer is that the investors themselves will do so. "The tax will be administered on a self-assessment basis, having regard to the annual valuation of the property."

Given what we know about the policing of self-assessment taxes in Ireland, and about the remarkable tendency of house-owners to modestly under-value their homes when we last had a property tax, it requires a great leap of faith to believe that the declared values will always match the real worth of the house. And with a little creative under-valuation, the penalty for speculation becomes negligible in relation to the potential profits.

All of these measures, in any case, miss the central point that by far the largest factor in the house price boom is the massive cost of building land. In the Dublin area, the bulk of this land is held by as few as eight wealthy individuals. So long as the market continues to rise, they have every reason to keep their profits high by letting it out for development very slowly. With up to half the price of a new house now accounted for by the cost of the land, any measures that do not fundamentally undercut their ability to control the market can have only a limited effect on the problem.

One of the ironies of the present situation is that there is not, in the short term, a shortage of development land in the Dublin area. As of now, the Dublin local authorities reckon that there are about 2,600 acres of serviced residential land available in the county, enough for 40,000 houses. The problem is that developers are not building on it because they prefer to hold on in the expectation of even higher profits to come.

And infrastructure alone is not going to change this. Just two months ago the Minister for the Environment, Noel Dempsey, writing in The Irish Times, pointed out that he had responded to builders' demands by allowing local authorities to install temporary sewerage facilities through public-private partnerships in order to speed up development.

But, he wrote, "now that these are available as options, they are not being taken up by the builders to the extent we were led to expect they would - indeed, only a handful of proposals for temporary treatment facilities have been made in the Dublin area."

So why should the new fast-track planning measures and infrastructural projects make any fundamental difference to the willingness of the small group of developers who dominate the market to release building land? Implicitly, both the new Bacon report and the Government response accept that there have to be penalties as well as incentives. There's no point making development easier if the developers insist on holding on to the land.

So how credible are the Government's threats? Its plan is to designate certain areas as Special Development Zones and to tax the owners of undeveloped land within them at a rate of £3,000 a year for each potential site.

There are two obvious problems with this measure. A great deal of serviced land may be outside the SDZs and will therefore continue to be exempt from any penalty for speculation. And if the market continues to boom, £3,000 a year may be well worth paying in order to hold on for potentially massive gains in the future. Since the average price of a new house has doubled in the last four years, developers can afford to take a small hit and still come out well ahead of the game.

There seems, in the Government's response to Bacon, to be some vague recognition that this measure will not in fact be enough. But the notion that it might be necessary to go further is wrapped up in an example of officialese worthy of Sir Humphrey in Yes, Minister.

The Government's Tax Strategy Group in consultation with the Department of the Environment will "examine the scope for and implications of further tax measures designed to bring serviced zoned residential land into development. Any proposal arising from this examination will be considered in the context of Budget 2001." Translation: we may or may not get back to you on that one in 17 months' time.

This is not so much grasping the nettle as contemplating a survey of the possible distribution of nettles in the Irish landscape. The nettle in this case is the proposal, put forward in various forms by bodies ranging from the Labour Party to the Construction Industry Federation, for the public ownership of key development land.

Given the amount of trouble the present system of rezoning and windfall profits is causing for the Government, a way of ending that system and at the same time radically intervening in the housing crisis ought to be very attractive. Yet for some reason, it remains taboo.

So long as that is so, the strategy of asking voters to forget about the sleaze and concentrate on the boom will look like the sort of gamble that only an inveterate punter like Charlie McCreevy would want to risk.