Originally published in the Irish Daily Mail #Budget18 Analysis, October 11, 2017 by Carol Tallon, Author of the Irish Property Buyers’ Handbook and the Property Insiders series
Another Budget Day speech, another quango in the making.
While the overall housing package for 2018 is €1.83 billion – including €115 million to deliver 4,000 extra social homes by 2019 – there finally appears to be an acceptance that the State does not have the capacity to actually deliver these homes, instead, it falls on the Government to facilitate those who can. As Nama winds up, its expertise will transfer to a new agency, Home Building Finance Ireland or HBFI. With initial funding of €750 million from the Ireland Strategic Investment Fund, this new body will provide affordable finance to residential developers in an attempt to get building kick-started immediately on development-ready sites.
In his speech, Minister for Finance Paschal Donohoe highlighted the increase in planning permissions so far this year and the need for improved infrastructure but warned that increasing capital expenditure at this time would “overheat the construction sector and in turn our economy”. Of course the money has to come from somewhere, starting with the tripling of stamp duty on commercial property transactions and the introduction of a vacant property levy of 3 per cent for 2018 and rising punitively thereafter.
The good news for home buyers – and ready home builders – is the announcement of a scheme to refund this stamp duty if residential development commences on the site within 30 months.
Industry tug-of-war over VAT
It is positive to see financing solutions and initiatives to curb land hoarding by Mr Donohoe; however, this does not address the single greatest obstacle to home building across the country – viability. The cost of construction still exceeds new home values in many parts of Ireland, making new development prohibitive. The construction industry has been calling for a temporary VAT reduction for the last number of years, similar to that granted to the tourism sector. This looked to be gaining support by the main opposition party earlier this year but campaigning was overtaken by other concerns in recent months. Effectively, the Government toyed with the construction industry as you might an anxious child; they dangled the threat of abolishing the controversial Help-to-Buy scheme as a distraction and it worked. The industry dropped its fight for a much-needed, temporary VAT reduction and put all its energy towards maintaining the Help-to-Buy scheme. It is worth noting that there was no mention of this in the Minister’s speech and the tourism VAT rate of 9% has been retained for 2018.
Good day for home builders and home buyers
In previous Budgets, housing initiatives that were generally considered to be pro-industry were effectively anti-consumer and vice versa; but these days, the needs of first-time buyers are more closely aligned with those of developers. Both need building activity to ramp-up, quickly.
Without question, this Budget was neither brave nor transformative for the industry but it was broadly positive for both home buyers and home builders, as seen by the 3 per cent jump in stock price for Cairn Homes as details emerged on Tuesday.