The State’s biggest property firms have called on the Government to temporarily reduce the VAT rate on construction “to enable viability and increase affordability”.
In a pre-budget submission, property industry body, Irish Institutional Property (IIP), whose members include Cairn Homes and Ires Reit, said affordability for buyers was continuing to deteriorate on the back of rising construction costs.
“As a result, there is a significant decrease in planning permissions being sought,” it said, noting Government tax policy could play a key role in contributing to the long-term supply of housing.
It called for a temporary reduction in the VAT rate specifically targeted at new, affordable houses and apartments for first-time buyers.
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The group noted that the average cost of delivering a three-bed semidetached house in the Greater Dublin Area was €461,000 (excluding the developer’s margin).
Citing figures from the Society of Chartered Surveyors Ireland (SCSI), it said the VAT cost (at the current 13.5 per cent rate) amounted to €54,832 of the total cost.
“A temporary VAT reduction would therefore be an effective measure to enable viability and increase affordability of newly developed residential property,” IIP chief executive Pat Farrell said.
“Very high construction and financing costs require urgent addressing by policymakers but even with political will, this is unlikely to be fixed in the short term,” he said.
The group’s submission said the so-called soft costs of construction – including taxes – may be easier to change quickly than the hard costs, such as labour and materials.
“This is where taxation policy has a key role to play, and temporary tax reductions should be considered to incentivise development,” Mr Farrell said.
Property group Hines, the company behind the large Cherrywood housing development in south Dublin, noted recently that the absence of VAT on new housing in Northern Ireland resulted in a significant differential in building costs between Dublin and Belfast.
In its submission, IIP said a stable and predictable tax and regulatory regime was key to attracting investment in housing and reaching the Government’s target of delivering an additional 300,000 units by 2030.
“Uncertainty in policy can delay or prevent investment decisions, adding further constraints to an already distressed property market,” Mr Farrell said.
The Government recently announced an overhaul to the State’s rent-pressure-zones system in a bid to attract inward investment.
IIP also called for changes to the Residential Zoned Land Tax regime, including an exemption for 12-months for sites that do not currently have planning permission and are either awaiting a decision or where an application has been refused “to avoid penalising developers for circumstances outside their control”.
