Would a simple tax change help mitigate housing crisis?
With the Dáil resuming this week, the housing crisis in Ireland continues to present a myriad of well documented issues for Housing Minister Eoghan Murphy, who has to carefully navigate between improving the property landscape for first time buyers whilst protecting the interest of tenants and lowering levels of homelessness.
He announced earlier this month proposed strategies to tackle these issues, such as pledging to build an extra 800 social homes next year bringing the total to 3,800 whilst promising to deliver an extra 200 emergency beds in Dublin by the end of the year for homeless people. Other measures included broadening the remit of the Residential Tenancies Board and establishing a new inter-agency group to oversee homeless services.
Many critics have argued that such proposals are not radical enough and fall well short of what is needed to expeditiously address these chronic housing problems facing our citizens. There’s little doubt that Minister Murphy faces a mammoth task in trying dealing with such societal problems and will be expected to explore all logistical avenues that may offer some reprieve for those adversely affected.
An immediate and effective measure the Housing Minister should consider, if not already done so by his Department, is the 7 years Capital Gains Tax (CGT) exemption introduced under Section 64 of the Finance Act 2012 by former Finance Minister Michael Noonan in the Budget of 2012.
CGT is a tax charged at a rate of 33% on the capital gain (proﬁt) made on the disposal of any asset such as property and is payable by the individual making the disposal (sale or transfer). The capital gain is viewed as taxable income and companies are also subject to CGT, either as included in their corporate tax returns or through CGT returns, when companies make a profit from selling or transferring development land.
The relief measure adopted in 2012 as noted above, offered investors who acquired property (land or buildings) commencing from the period of 7 December 2011 and initially up to 31 December 2013 (later extended to 31 December 2014) to avail of CGT exemptions on those properties if they retained ownership for 7 years. The relief was wide ranging and included al property acquired in Ireland and throughout Europe. Those investors who retain the property for longer than 7 years can still avail of the relief up to that time but will be liable for CGT on a proportional basis after that period.
Ireland was in the midst of austerity when this tax relief measure was initially envisaged and enacted. It was an attempt by the then Government to try and encourage investment in the property sector, which was still reeling from the economic downturn.
The fiscal initiative did have the desired effect and contributed significantly to the increase of property sales within the much maligned sector. A direct consequence of this incentive however has been the distortion of the property market. It has merely encouraged those property investors at the relevant periods (from 2011-2014) to adopt a land-hoarding mentality as to avail of such attractive exemptions.
This has left a plethora of buildings and development lands throughout the country, bought during that four year period tied up in a continual state of inertia until the earliest date of January 2019 (the expiration date of the 7 year term for properties purchased after 7 December 2011).
The chronic housing shortages are evident from the 2016 Census figures, which show that a mere 8,800 properties overall were added to Ireland’s housing stock over the past five years as opposed to 225,000 extra homes which were built between 2006 and 2011.
Brendan McDonagh, Chief Executive of the National Asset Management Agency (NAMA) recently told the Oireachtas finance committee that since Nama’s creation in 2009, the agency has disposed either through loan sales or asset sales, land sites with the capacity to deliver 50,000 housing units, while only a mere 3,000 are under construction. He also lay blame with the so-called “land hoarders” for exacerbating the housing crisis on basis that landowners are holding out for higher returns on their property stock.
It is therefore reasonable to assume that in or around January 2019, a large proportion of property as purchased in 2011, will hit the property market and invigorate same. This should make a positive contribution to making available much needed houses for first time buyers and development sites for builders. This in turn will likely ease the rental market as it removes those first time buyers from tenancy agreements and free up rental properties.
If such positive effects could be achieved in January 2019 and onwards to January 2022, some logical thinking could be immediately adopted by the Government to alter the 7 year requirement by simply changing it to 6 years. This would fast-track the direct and indirect benefits of the scheme for the housing market and help mitigate the current housing crisis.
The 2018 budget has yet to be finalised for its October announcement, therefore ample time still remains for the necessary legislative changes to be made and to offer some hope to those who really need it.
Jason O’ Sullivan, is a Solicitor and Public Affairs Consultant at J.O.S Solicitors
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