Vacant land levy

New vacant land levy should be modelled on the local property tax

The Irish Times reports:  There has been a lot of discussion in the media about the need to increase housing supply and the supply of office space, with concerns expressed about rapidly rising rents and negative impacts on our international competitiveness.

One of the key factors is a properly functioning, competitive and fair development land market, and concerns have been expressed that we do not have such a market.

In a recent report, Housing Supply and Land: Driving Public Action for the Common Good, the National Economic and Social Council (NESC) made the interesting and powerful statement: “Well before the crisis and current logjam, Ireland’s system of land allocation and housing supply was dysfunctional.” It added: “Ownership of large amounts of building land in some areas was very concentrated, and these landowners co-operated rather than competed, contributing to poor land market performance.” NESC concludes: “Public action is needed to reduce the price of land for development.” This is a bracing analysis and recommendation from NESC, one of the key bodies advising the Government and chaired by Martin Fraser, secretary general to the Government.

The NESC perspective is shared by some private sector developers.

Student accommodation

Student accommodation is another area where significant shortages are emerging and a rapidly increased supply is essential. One proposal to boost supply is a zero VAT rate on construction of student accommodation, according to a report in the Sunday Business Post. However, the report quotes Matthew McAdden, co-founder of Ziggurat student accommodation investors in Dublin, that while such a move might make the development of student accommodation “marginally more competitive” than using sites for other purposes, it could push up land prices. McAdden went on to state that changes to the VAT regime: “won’t increase supply. . . tax breaks are not the solution; increasing the supply of land available is . . . We need to see . . . more land coming to the market.”

As regards Dublin, the strange thing is there are significant amounts of vacant land in the inner city that have remained vacant and undeveloped despite 15 years of economic boom (60 hectares according to a city council audit). In recognition of this paradox, the then lord mayor of Dublin, Oisín Quinn, in 2013 set up a vacant land taskforce and it made a detailed submission to government calling for a vacant land levy. The submission noted that vacant sites damage the economic potential and attractiveness of the city for residents, workers, businesses, investors, and visitorsand are magnets for anti-social behaviour, vandalism, and illegal dumping, all of which carry significant costs.

The submission went on to note that vacant development land is the only property category that pays no rates or levies to the city. Because there is no disincentive to a landowner in leaving a site vacant for many years, the task force proposed to introduce a levy which would incentivise and accelerate its development, or foster its sale to those who have the interest – and access to resources – to develop it. The levy would increase supply of development land and moderate its price increases.

Housing Act

It is most welcome the Government has included a vacant land levy in the Urban Regeneration and Housing Act signed into law by President Michael D Higgins on July 28th. Indeed, it is remarkably rapid progress from policy proposal in 2013 to enactment in 2015. However, operation of the levy as set out in the Act could be made simpler, more effective and less costly if its implementation were modelled on the local property tax.

This would mean any owner of a property not paying rates or a tax to the city would be automatically liable for the levy. The owner would then self-assess the market price of the site. There could be some exemptions for charities not currently paying rates.

There is a range of other ways to make the development land market more efficient, such as increasing the availability of public information on who owns what and where, and data on market valuations under the vacant land levy.

NESC referred to the 1973 Kenny report on the price of building land, which advocated a system of active land management linked to measures to capture the land value uplift, or betterment, arising from economic and social development. In one of the great “what ifs” of contemporary Irish history, the Kenny report recommendations were never implemented. As NESC puts it: “To some degree, we are facing the same issues and challenges within the housing market over 40 years later.”

 

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