Abolish VAT on new homes so building can start again: REA
15th June 2015
Abolishing development levies and the VAT rate on new homes are the key components to solving the national housing supply crisis, a leading national estate agency has claimed.
A nationwide lack of suitable housing supply, especially in three and four-bed family starter homes, has led to a stagnated property market as builders cannot yet make a profit.
However, Real Estate Alliance (REA) have claimed that the abolition of the 13.5% VAT rate on new homes will help close a gap that is making new homes financially impossible to build.
This should be backed up by the abolition of the Part Five levy for social and affordable housing, a combination of measures which they claim will reduce the cost of a new house by €60,000 on average.
“There is a huge gap in the cost of building and bringing a house to the point of sale and what it can achieve on the open market. Unless this gap is closed, we will not halt and solve the growing national housing crisis,” said REA CEO Philip Farrell.
“In urban areas around the country, the market value of a house is €154 per square foot, based on the Real Estate Alliance average house price survey price of €162,477 at the end of March.
“This rises to €157 per square foot in commuter areas and the larger cities outside Dublin where the average house price is €165,798.
“However, the cost of building and bringing a house to the point of sale in these areas is anything up to €220 per square foot – a figure that is even higher in the capital.
“In an environment where such a big gap exists, there is no incentive to start building, and the State must work to close this uneconomic gap.
“There are only two ways of closing the gap to make it financially viable for builders to build and that is for prices to rise or for the cost of building to be reduced.
“There is an estimated demand for 25,000 new homes in Ireland this year, and supply will fall 10,000 units short of that figure.
“In country and commuter areas where the average value is below €200,000, supply of new homes will remain reduced even if lands become available due to financial issues for developers who need to sell houses above that mark to make a profit.”
Kilkenny REA agent Michael Boyd is one of the promoters of the idea to abolish VAT and Part Five on new homes and feels that two major things have to happen.
“Introducing a zero vat rate on new homes would reduce a €250,000 property to €220,000.
“Secondly, the State needs to abolish Part Five levies, which have not been a success and rein in local development charges which should largely have been replaced by the Local Property Tax (LPT).
“Implementing the above measures should bring a three-bedroomed family home priced at €250,000 down to something in the order of €190,000.
“This will allow building to start, local authorities and private purchasers to buy, banks to lend and the housing market to function, as well as providing massive employment spin offs to the economy.”