PII Pre-Budget 2019 Submission - June 2018 - Ibec Engineering Network
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PII Pre-Budget 2019
Submission
June 2018
1
PII Pre-Budget 2019 Submission
Summary of Recommendations
Policy Certainty for property investment
• Property Industry Ireland calls on Government to maintain policy certainty for the property
market in Budget 2019
New homes
• Government should retain the Help-to-Buy initiative to December 2021
• The Help-to-Buy initiative grant should be increased to 7.5%, up to a maximum of €20,000, of
the purchase price for urban centre locations outside Dublin until housing supply in those
regions reach the targets in Project Ireland 2040. This will help Government in meeting its aim
of 50% of new home development taking place in the existing built-up footprint of these cities1
• Reduce to 9% the VAT charged on the construction of new homes to be sold for less than
€500,000 for a time-limited period
• Urgently resolve issues around uncertainty relating to the rebate of stamp duty paid for land
for housing development
Rental
• Immediately restore full interest relief against rental income
• Local Property Tax to be allowed as a taxable rental expense
• Retain the Home Renovation Incentive for a further five-year period for rental properties, and
increase the cap on expenditure to €50,000 for refurbing existing vacant properties that will be
new to the rental market particularly to support areas outside of the Greater Dublin Area
• Introduce the option to charge VAT on rent in residential leases, similar to previous waiver of
exemption with ability to cease charging VAT on the rent when the VAT charged matches the
VAT deducted on acquisition/development. This will ensure that any new development for
rental remains for this purpose and makes the build-to-rent model more attractive
• In terms of plant fixtures and furnishings in dwellings, allow the cost to be written off over 5
years rather than the current period of 8 years
• Reform self-administered pension scheme (SAPS) rules to facilitate investment in the
provision of rental through removing the arm’s length rule for a one-year period to allow a
window for existing rental properties to be added to the SAPS. This will ensure that there is
an incentive for landlords to retain properties in the rental market
Better us of the Existing Housing Stock
• Introduce a two-year Capital Gains Tax rate of 20% to encourage the sale of long-term (at
least 24 months) vacant properties in urban centres. This will be of particular interest to units
outside of Dublin.
1 Project Ireland 2040 National Planning Framework
1PII Pre-Budget 2019 Submission
Mobility in the housing market
• Allow relocation expenses to be tax deductible for households moving to a smaller home
(including in the rental market)
• Introduce a stamp duty exemption for households purchasing a smaller home
• Introduce a time-limited exemption from property tax for those moving to a smaller home
(including in the rental market)
Skills
• Introduce a temporary living away from home allowance for EU nationals moving to Ireland
and working in a construction industry sector where there is a skills shortage
• Introduce a returning home moving expenses allowance for Irish nationals returning to Ireland
and working in a construction industry sector where there is a skills shortage. Both these
credits should be in the form of a credit to employees that is passed on in payroll
• Introduce a short-term measure of funding of vocational or third-level courses in a property-
related disciplines to facilitate lower fees/ greater grants for students undertaking these
courses to address the critical shortfall in skills
• Introduce tax measures to encourage take up of apprenticeships
Land Management and Supply
• Introduce a VAT refund for the cost of infrastructure associated with providing services on
residentially zoned land which is to be developed for investment/rental purposes by way of
allowing the exercise of the option to charge VAT on the rent in residential lease
2PII Pre-Budget 2019 Submission
Contents
Summary of Recommendations..................................................................................................... 1
Introduction ..................................................................................................................................... 4
Policy certainty for property investment ....................................................................................... 5
Supply of new homes ..................................................................................................................... 6
New Homes ................................................................................................................................... 6
Rental ............................................................................................................................................ 7
Better use of the existing building stock ......................................................................................... 8
Mobility in the housing market....................................................................................................... 9
Skills ................................................................................................................................................ 9
Land management and supply ..................................................................................................... 10
Notes .............................................................................................................................................. 11
About Property Industry Ireland .................................................................................................. 12
3PII Pre-Budget 2019 Submission
Introduction
Over a decade after the housing market crashed, the supply of homes into the market still does not
meet demand. This illustrates the long lead in time for property development and how deeply the
industry has been affected by the crash. New challenges to industries’ capacity to deliver homes to
meet demand are being identified, in particular, skills shortages in the construction industry. In the
context of a rapidly growing economy, the prospect of further people moving here as a response to
Brexit, and with a need to attract Irish people back and new immigrants to meet broader skills
requirements, these challenges will only become more acute. The Central Bank has taken
responsibility for capital values in housing with the introduction of its macroprudential lending rules,
and it is in this context that Property Industry Ireland makes recommendations to increase supply of
new homes and moderate rents, in particular by making the development of affordable homes viable.
Measures can be introduced to support improvements in design and planning, such as the welcome
introduction of new apartment guidelines that improve the viability of these products, achieving the
dual aims of efficient land use whilst maintaining high standards.
There are also fiscal measures that can support sustainable development in the property market and
deliver much needed housing.
This submission relates specifically to measures that can be announced in Budget 2019. Property
Industry Ireland and Ibec published a separate report in June 2018 on housing policy2 including
recommendations to more broadly reform the taxation of property. Those recommendations relating
directly to taxation and expenditure have been summarised here for convenience:
Recommendations:
• The delivery of service to sites capable of providing units for smaller households should
be prioritised by local authorities.
• The delivery of affordable zoned and serviced land for housing development should be a
key priority for Government given its importance in the viability of home construction at
affordable levels.
• Make sure adequate funding is available for work to develop a system of individual dwelling
registration to track the planning, commencement, completion and demolition of each
dwelling in the State.
• Conduct a review of the cost-benefit of regulation in the construction sector to ensure an
effective but cost-efficient method of construction regulation.
• Enable Ireland to become a world innovation leader in construction by encouraging take-
up of skills, knowledge and technology.
• Establish a single social housing authority to accelerate delivery, achieve better
economies of scale and to attract off-balance sheet investment.
• Enhanced Long-Term Leasing should be a major mechanism for social housing delivery
into the future.
• Cyclical upturns in construction revenues should be used to either invest in infrastructure
that opens more land for residential development or retain the proceeds for investment in
direct build social housing as needs may arise in cyclical downturns.
• Reconvene the Commission on Taxation to consider the lifecycle taxation of housing.
• Move property taxation away from cyclical revenues.
2 Better housing: improving affordability and supply
4PII Pre-Budget 2019 Submission
• Replace recurring commercial property taxation (e.g. commercial rates, vacant site levy
etc) with a land value tax. In the Greater Dublin Area, of all vacant sites included on register
to date (15 June 2018) 37 of 137 (27%) are in state ownership.
• Review the funding of local authorities to ensure that the need for development levies as
a source of income does not undermine the viability of affordable housing development.
• Implement tax neutrality between investment in residential and commercial property.
• Avoid poorly targeted incentives in the property market Ireland’s rental sector will need to
professionalise with a greater share of institutional landlords.
• Continue to support the development of the build-to-rent model.
• Introduce a permanent reduction in VAT for large scale long term rental sector
developments.
• Allow Local Property Tax as a tax-deductible expense for rental properties.
• Advance plans to introduce full interest deductibility.
• Reduce prohibitive regulatory costs for the change of use of vacant dwellings.
• The Expert Group on Future Skills Needs should conduct a comprehensive review of the
entire skills base of the construction sector.
• Better marketing of construction-related apprenticeships and development of new
programmes where gaps exist is needed.
• A greater pooling and sharing specialist skills between public bodies, including local
authorities, involved in planning and construction must occur.
• The National Regeneration and Development Agency must be appropriately resourced
and allowed to take a comprehensive development agency approach to housing delivery,
including identifying and developing appropriate delivery models.
Policy certainty for property investment
The delivery of property to the market has a long lead in time and large sums of money need to be
invested up front, sometimes years in advance of any return being realised. It is important that
Government maintain certainty in the policy of taxation of property. Changes can delay investment
decisions. Any uncertainty puts projects at risk. In both Budget 2017, through changes to rules on
special investment vehicles in property, and Budget 2018, through increases in stamp duty on
commercial property transactions, Government has changed taxation policy on property with serious
consequences for the market, undermining the attractiveness of Irish property to much needed
international investors of scale.
The change in stamp duty had a serious impact on current values as this resulted in a write-down of
the asset values of all commercial property assets. There are also ongoing challenges around the
rebate system for land purchased for housing development and whether the stamp duty paid will be
recoverable as outlined by the Minister in his Budget speech. Uncertainty such as this is anathema to
property development and investment.
It is primarily through projects of scale that Ireland can resolve its housing challenges. For this reason,
it is important that Government maintains certainty in relation to residential property transactions and
on development land.
Recommendations:
• Property Industry Ireland calls on Government to maintain policy certainty for the
property market in Budget 2019
5PII Pre-Budget 2019 Submission
Supply of new homes
New Homes
Different regions of the country are at different stages in the recovery of new housing viability. While
Dublin led with strong house price growth, we now see that this has slowed, with national average
price growth exceeding Dublin. However, this growth is from a low level with many locations still
struggling with the viability of new homes development. Ireland’s other cities, identified in Project
Ireland 2040 National Planning Framework as key for population growth, have only now begun to
reach the point of viability. This includes properties that would benefit from the Help-to-Buy incentive
introduced in Budget 2017. While the scheme is set to finish at the end of 2019, consideration should
be given to extending the scheme to allow the viability of homebuilding outside the urban centres
improve, new supply come on stream and First-time-Buyers avail of the scheme.
Table: Geographical breakdown of HTB claims, to May 1, 2018
HTB Claims
Dublin 2,593
GDA excl. Dublin
County (Meath, Kildare,
Wicklow) 1,815
Cork city and county 644
Galway city and county 272
Limerick city and county 212
Waterford city and
county 165
Rest of Ireland 1,209
Total 6,910
Source: Revenue, Statistics and Economic Research Branch
Targeted and time-bound tax measures could play an important role in reducing the cost of housing
development and encouraging greater supply. The relative imbalance between the strong supply of
commercial property and ongoing weakness in the residential sector is also evidence that margins in
the housing sector are insufficient to support a market equilibrium. A VAT reduction in the residential
sector would help bring the return on capital to a more competitive rate. A reduction in VAT, if delivered
as part of a suite of measures, would deliver a supply response.
There are concerns that supply could not increase in response to a reduction in VAT and supernormal
profits would, therefore, be captured by the developer without an increase in output. This, however,
only holds where supply is constrained exogenously and where profits are ‘normal’. There is strong
evidence margins in the Irish industry are not yet ‘normal’. In this scenario, allied to policy measures
ensuring a market where supply can respond in a timely fashion, the reduction in VAT would function
as the State introducing a time-limited subsidy to de-risk residential development until margins recover
naturally.
In the same vein, it has been argued that a reduction in VAT could flow through to higher land prices.
This only holds, however, when there is significant competition to build new developments in the
sector. Competition to build is evidently not present in the Irish market now and other measures
suggested in earlier sections would ensure land was not constrained. The EU VAT Directive has been
6PII Pre-Budget 2019 Submission
identified as an impediment. As far as we are aware this is not the case. The EU VAT Directives would
allow for a reduction of VAT on construction to 9% but not below that level.
A time-limited reduction in VAT, dependent on market activity, could be part of a suite of measures to
improve the viability of homebuilding, introduced at the same time as other measures aimed at
delivering land to the market. This may contribute to higher profits for some sites that are currently
viable. It would also make some additional sites viable. Our view is that, if credibly time-bound and
carefully designed, a VAT reduction would deliver a supply response from the sector.
Recommendation:
• Government should retain the Help-to-Buy initiative to December 2021
• The Help-to-Buy initiative grant should be increased to 7.5%, up to a maximum of
€20,000, of the purchase price for urban centre locations outside Dublin until housing
supply in those regions reach the targets in Project Ireland 2040. This will help
Government in meeting its aim of 50% of new home development taking place in the
existing built-up footprint of these cities3
• Reduce to 9% the VAT charged on the construction of new homes to be sold for less
than €500,000 for a time-limited period
• Urgently resolve issues around uncertainty relating to the rebate of stamp duty paid for
land for housing development
Rental
While owner-occupied housing will continue to be the main tenure type in the foreseeable future, the
rental market is now playing a growing role providing homes to Ireland’s population, particular in the
urban centres. While Government has taken action to regulate the rental market, there is much that
can be achieved through fiscal measures. Of particular concern to Property Industry Ireland is the
supply of rental accommodation outside of Dublin. While Dublin has proven attractive to professional
build-to-rent development, this model has proven challenging even in Ireland’s other urban centres,
where landlords continue to be private individuals owning between one and three properties.
According to a presentation by Rosalind Carroll, Director, Residential Tenancies Board at a Housing
Agency Conference (May 2017) there were 176,946 landlords in Ireland, of which 70% own only one
property. PII’s recommendations focus on ensuring that this sector of the market is attractive to stay
in and is retained at least until a viable development model for build-to-rent has been developed and
sufficient supply is coming into the new homes market.
Government should also encourage the future investment into rental properties to ensure there is a
sufficient new supply coming into in this sector of the market where there is little interest from
institutional landlords. This is particularly important in the regions outside of the Greater Dublin Area.
Recommendations:
• Immediately restore full interest relief against rental income
• Local Property Tax to be allowed as a taxable rental expense
• Retain the Home Renovation Incentive for a further five-year period for rental
properties, and increase the cap on expenditure to €50,000 for refurbing existing vacant
3 Project Ireland 2040 National Planning Framework
7PII Pre-Budget 2019 Submission
properties that will be new to the rental market particularly to support areas outside of
the Greater Dublin Area
• Introduce the option to charge VAT on rent in residential leases, similar to previous
waiver of exemption with ability to cease charging VAT on the rent when the VAT
charged matches the VAT deducted on acquisition/development. This will ensure that
any new development for rental remains for this purpose and makes the build-to-rent
model more attractive
• In terms of plant fixtures and furnishings in dwellings, allow the cost to be written off
over 5 years rather than the current period of 8 years
• Reform self-administered pension scheme (SAPS) rules to facilitate investment in the
provision of rental through removing the arm’s length rule for a one-year period to allow
a window for existing rental properties to be added to the SAPS. This will ensure that
there is an incentive for landlords to retain properties in the rental market
Better use of the existing building stock
The phenomenon of “hollowed-out” centres is by no means confined to large urban centres as it is
manifest in towns, and villages, throughout the country. Changes in retail and distribution have
resulted in vacant commercial properties in many centres where previously residential uses were
mixed with commercial creating vibrant market towns that operated as regional focus points for
commercial activity. A core reason for this is the nature of ownership of many of these buildings where
their value has diminished as their original uses have become obsolete. The owners in succession -
frequently families - find themselves capital-rich but cash-poor to the extent that they cannot afford
the upkeep, let alone the redevelopment of these premises. Disposal will likely yield poor return but
the overhang of capital gains taxation of one type or another renders even this disposal onerous and
unattractive. Meanwhile the fabric of these buildings, and hence town centres, deteriorates year-on-
year.
The introduction of a once-off time-limited window during which the taxation liability arising from
disposal would be reduced would likely return at least as much revenue as might be realised if the
taxation treatment were to remain unchanged. Eligibility for qualification for properties would be most
sustainably related to the recent announcement of the €4bn Project Ireland 2040 fund for regeneration
for which submissions have been invited. The local activity likely to be generated around this
submission is an ideal opportunity to turn policy into delivery by incentivising disposal, in the way
outlined here, for redevelopment that would require to be assembled as a realistic vision for the
revitalisation of centres large and small. Such an initiative places the NPF and Project Ireland firmly
in the centre of Budget policy in a whole-of-government context.
Recommendation:
• Introduce a two-year Capital Gains Tax rate of 20% to encourage the sale of long-term
(at least 24 months) vacant properties in urban centres. This will be of particular
interest to units outside of Dublin..
8PII Pre-Budget 2019 Submission
Mobility in the housing market
Efficient use of our housing stock is one area that can improve the supply of housing. While no one
should be forced to leave their home, incentives could be introduced to facilitate people to move to
more appropriate housing should they want to.
Recommendations:
• Allow relocation expenses to be tax deductible for households moving to a smaller
home (including in the rental market)
• Introduce a stamp duty exemption for households purchasing a smaller home
• Introduce a time-limited exemption from property tax for those moving to a smaller
home (including in the rental market)
Skills
The construction industry is facing a serious skills shortage. This will only prolong the supply problems
for new homes and increase price pressures in the market. The Central Bank of Ireland (2018)4 found
that while “the construction sector has regained less than one-third of the jobs lost during the crisis”
there is “no evidence of the existence of a large number of unemployed former construction workers
in 2017, suggesting that a large proportion of construction workers who lost their jobs during the crash
are likely to have emigrated”. Property Industry Ireland recommends that Government focus its
attention on ensuring the return of these workers or in highlighting Ireland as an attractive location to
work and live for other EU and non-EU nationals. In particular, Ireland has an opportunity in light of
Brexit to attract back those who had moved to Britain or indeed those EU nationals currently residing
there that could benefit our society. In addition, Government should promote new skills in this market
by making it attractive to study property related subjects.
Recommendations:
• Introduce a temporary living away from home allowance for EU nationals moving to
Ireland and working in a construction industry sector where there is a skills shortage
• Introduce a returning home moving expenses allowance for Irish nationals returning to
Ireland and working in a construction industry sector where there is a skills shortage.
Both these credits should be in the form of a credit to employees that is passed on in
payroll
• Introduce a short-term measure of funding of vocational or third-level courses in a
property-related disciplines to facilitate students undertaking these courses to address
the critical shortfall in skills
• Introduce tax measures to encourage take up of apprenticeships
4 Where are Ireland’s Construction Workers?
9PII Pre-Budget 2019 Submission
Land management and supply
Land is the main raw material for the development of all property types. A secure, sustainable supply
of land for development is therefore essential to ensuring a stable and sustainable property market.
While PII will separately contribute to Government’s policy on land, in particular the National
Regeneration and Development Agency, there are measures that can be taken by Government
through Budget 2019 to ensure that land currently zoned for residential development and in private
ownership is made suitable for housing and provided to the market.
Recommendations:
• Introduce a VAT refund for the cost of infrastructure associated with providing services
on residentially zoned land which is to be developed for investment/rental purposes by
way of allowing the exercise of the option to charge VAT on the rent in residential lease
(see above)
10PII Pre-Budget 2019 Submission
Notes
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11PII Pre-Budget 2019 Submission
About Property Industry
Ireland
Our vision:
A sustainable Irish Property Industry which is creative, responsive, competitive and well-integrated in meeting the
socio-economic needs of all the stakeholders in the built environment
Our mission:
To be the trusted partner and provider of “evidence based” information, policies and strategies for the property
industry at National level, to the Oireachtas, Government, Local Authorities and Agencies, and for the benefit of the
people of Ireland.
Our objectives are to:
1. Be the Leadership Forum in the Industry for the discussion on National Property Issues
2. Develop, propose and support a National Property Strategy, policies and solutions to issues for the benefit
of the nation as a whole
3. Be a research led organisation, which collates and commissions relevant and innovative research on
Ireland's construction sector in order to promote & sustain a competitive economy
4. Be the go-to organisation for Government and the Oireachtas on all aspects of property
5. Work with all stakeholders in the industry to restore it to a sustainable position in the economy
6. Increase membership through demonstrating the achievements and outcomes in relation to national
strategy and policy
PII Council:
Tom Phillips, Tom Phillips + Associates (Chairman) Recent publications:
Aidan O’Hogan, Property Byte Ltd. • The Property Industry – Rebuilding Ireland’s
Patricia O’Brien, BHK Solicitors Economy (2011)
Tony Reddy, Reddy Architecture + Urbanism • Development of infrastructure Bonds (2011)
Padraic Whelan, Deloitte • Real Estate Investment Trusts for Ireland
Michael O’Flynn, O’Flynn Group (2012)
Jim Gallagher, Lafferty • Putting the Residential Property Market on
Mark FitzGerald, Sherry FitzGerald a Sustainable Footing (2012)
Michele Connolly, KPMG Corporate Finance • Planning a better future: a report on reform
Ivan Gaine, Sherry FitzGerald of the Irish Planning System (2012)
David O’Connor, David O’Connor Consulting • Towards a National Property Strategy
David Clarke, Goodbody Stockbrokers (2013)
• Delivering Ireland’s Property Needs (2014)
• A National Spatial and Development Plan
Policy Committee Chairs: for Ireland (2014)
Executive Committee – • The Cost of Construction in Ireland: A
Michael O’Flynn, O’Flynn Group European comparison (2014)
Technical and Construction Issues – • Investing in Social Housing (2014)
Jim Gallagher, Lafferty • Housing Manifesto (2015)
Planning and Development – • Policy Reform to Increase the Delivery of
John Spain, John Spain Associates New Housing (2016)
Funding Initiatives – • Delivering Rebuilding Ireland: PII Pre-
Paddy McElligott, Activate Capital Budget 2017 Submission (2016)
Market Supply and Demand – • Tax Treatment of Rental Income (2017)
Ivan Gaine, Sherry FitzGerald • Rental Strategy Response (2017)
• Pre-Budget 2018 Submission (2017)
• Submission to Rebuilding Ireland Review
Executive: (2017)
David Duffy, Director • Property Industry Ireland (PII) response to
David Howard, Policy Executive Draft Ireland 2040 – Our Plan National
Planning Framework (2017)
• Brexit and Ireland’s Property Sector (2018)
• BCAR – Recommendations for Reform
(2018)
12Property Industry Ireland
84 - 86 Lower Baggot Street
Dublin 2 Ireland
info@propertyindustry.ie
01 605 1666
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