Much of the debate around the Government's response to the new Bacon report on housing will centre on the taxation measures. And these are important, as they are an effort by the Government to calm the market and lessen speculative activity. However, the success of the latest initiative will rest on whether it can significantly increase the supply of housing, as this is the key to regaining long-term stability in the market.
The Government has accepted one of Dr Peter Bacon's main recommendations - the allocation of certain areas as special development zones. In these areas the planning process will be fast-tracked and landowners will face severe tax penalties if land is not developed for housing. In his report, Dr Bacon has identified parcels of land in Dublin, Cork and Galway which he feels would be appropriate special development zones. The Government, however must move quickly on this issue. And it must take a determined approach to putting in place the accompanying infrastructure measures needed to accompany land development. Action taken on foot of the previous Bacon reports has led to an increase in housing supply. But demand has grown much more rapidly than forecast and supply has not kept pace. The key to the long-term success of yesterday's initiatives will rest on whether this balance can be changed.
The other main goal is to cut speculative activity. Stamp duty has been rebalanced to penalise those buying properties for investment and reduce the burden on first-time buyers. And a new tax of 2 per cent per annum - to apply for the next three years - has been imposed on second and subsequent properties bought from now on.
The aim of these measures is to remove many investors from the market, leaving more houses free for first-time buyers. The additional stamp duty charge and the new annual tax will certainly give pause for thought to those purchasing investment property and are a genuine effort by the Government to take some of the heat out of the market.
However there may be some negative side effects; there were warnings yesterday that a shortage of rented accommodation could drive up rents. And there is a risk that the cut in stamp duty for first-time buyers could lead to an increase in the price charged to them for their homes as builders seek to take advantage of their increased ability to pay. Even with the new measures, Dr Bacon forecasts that house prices are still set to rise substantially over the coming five years, albeit more slowly than they have increased in recent years. The Government response to Dr Bacon's report is aimed at trying to restore order to a market which has taken on many of the characteristics of a speculative bubble. It must now work to see through the implementation of the recommendations - particularly the many factors needed to increase housing supply - while hoping that the tax measures succeed in taking some steam out of an overheated market.