Fianna Fail TD Barry Cowen’s suggestion that VAT be reduced from 13.5 to nine percent for three years is a good idea but comes “a few years too late” according to leading property developer, Michael O’Flynn.
Speaking Tuesday at a Chartered Institute of Management Accountants breakfast briefing in Cork, Mr O’Flynn admitted that when he read the headline about VAT reductions he knew that it would evoke memories of the Galway tent and all the “connotations of the past.”
However, he said he agreed with Mr Cowen’s proposal and insisted that if VAT was reduced in the Budget it would immediately reduce the cost of houses.
“There is no way in the world that if we are not returning VAT that we are going to keep it. People need to trust the industry more. I can tell you that the margins back in the 80’s are a lot less than the VAT margins today. That is how much the whole situation has been impacted.
I remember at the time we had a thing called CRV’s (Certs of Reasonable Value) and we had to prove our business case that we needed a certain price before we could sell a house. I would almost welcome the return of CRV’s. The only way we can increase supply is to improve viability.”
Mr O’Flynn said the government should have been motivating activity through tax cuts over the last few years like they did with the tourism industry where tax was cut from 13 per cent to 9 per cent.
A cut to the rate of VAT on house building has been ruled out by Minister for Finance, Paschal Donohoe. His position puts him in opposition with Fianna Fail who claim that a reduction would help developers build more badly needed homes.
Mr O’Flynn insists it is vital the Government takes steps to cut the cost of private sector development in order to generate significant activity in the housing market.
He stressed that one of the biggest problems faced by the industry involves overpaying for land. He argued that a considerable amount of additional work could be carried out if land could be purchased at the right price.
“The planners will tell us there is plenty land. But there isn’t plenty land that’s available. Farmers won’t sell land and that is their right. So you have to have land that is zoned, available and infrastructure. So there is a lot of issues coming together there. But unfortunately, and not everybody will like me saying it, but people are over paying for land. We have to face up to this.”
He described as “quite extraordinary” a situation where he has walked away from a number of sites in recent times because of cost pressures.
Meanwhile, at a national level Mr O’Flynn says a great deal can be learned from councils in Cork and Meath who have delivered strategic zoning plans to serve their areas.
“I am suggesting that we introduce the system that is in Cork and Meath. Basically there are areas that are not zoned but are considered suitable for zoning. And maybe are the next land land to be zoned or optional or alternative zone. I think the most minor change in the new fast track legislation would enable companies to go a landlord who isn’t zoned. Maybe he is disappointed he is not zoned. And say “Look you know. I am prepared to trade and level so we can build affordable housing at a price that makes sense.” And I think there is a wonderful opportunity to bring that forward and I think that would make a huge difference in relation to the viability issue.”
He also argued that the European Investment Bank should be involved in this country in terms of infrastructure funding.
“Also in relation to development finance perhaps we need a new ICC type model to supplement what our banks can do in terms of their lending to the development industry.”
He added that Ireland needs to set up an SSIA type structure to attract people in to the investment of building property.
“Why do we have to go outside the country at all times to solve our own requirements? Why don’t we set up a structure that people can invest in property? We should look at the very valuable small type of investor who is always a part of the market and is a critical part of supply and rental properties. I don’t think one solution will fix it. I think there are a number of things that need to be done.”
Michael O'Flynn is Managing Director of O'Flynn Construction. The O'Flynn Group operates a number of businesses in Ireland, the UK and mainland Europe. He was one of Ireland's biggest builders during the boom time years.
In recent years Mr O'Flynn began a new era in his life following time served with NAMA and litigation with US investment company, Blackstone, that ended with a peace accord.
