Charles Flanagan
Question:49 Mr. Flanagan asked the Minister for Finance the reason the changes in law made by him arising from the Bacon report have not been successful in stemming the rise in house prices. [22514/99]
Written Answers. - House Prices.
Last year the Government appointed a team of consultants to prepare a report on the housing market and house prices. The Government speedily reacted to the findings of this report into house prices by Peter Bacon and Associates, and announced a number of measures aimed at addressing the sharp increase in house prices and restoring balance to the housing market. As part of these measures, I made a number of changes to the tax system and these were contained in the Finance (No. 2) Act, 1998. Earlier this year the Government commissioned Peter Bacon and Associates to review the effectiveness of the measures taken last year and to consider other recent developments in the housing sector.
In their second report, the consultants noted that there is widespread consensus that the Government actions, taken last year, have played a key role in achieving a slowdown in the rate of increase in house prices. They stated that the primary impact towards price stability has been achieved through reducing investor demand, promoting liquidity in the second-hand market through the reforms of the stamp duty code and implementing a strategy to address the problem which has been credible to the market.
In the 1999 Finance Act, I acted promptly on a further recommendation contained in the consultants' second report. In response to difficulties identified by the consultants, I amended the conditions attaching to the special low rate of CGT for development land, where this is sold to form part of the supply of housing land. Now, in order to avail of the low 20 per cent rate, the land need only be zoned residential under a county development plan.
I have previously said that the tax measures taken last year and the further amendment to the capital gains tax code contained in this year's Finance Act were only part of an overall balanced package of ongoing measures taken by this Government. There are a number of measures which my colleagues the Minister for the Environment and Local Government and the Minister for Housing and Urban Renewal have announced in this regard. These measures, which have been discussed at length, both inside and outside this House, are aimed at increasing the supply of housing as well as improving the affordability of house purchasing.
In short what could be done in the short-term under the tax code has been done and done promptly. Furthermore, tax measures have been put in place to encourage the increased supply of and for housing development to redress the imbalance between supply and demand in the housing market. Finally, it is worth noting that the Irish Permanent index published in September 1999 contains data which shows that the rise in house prices has begun to decelerate. The index states that in the first eight months of 1999, national house prices grew by 11.3 per cent as against 21.5 per cent over the same period in 1998. Also, the latest quarterly report about house prices produced by the Department of the Environment and Local Government showed that the annual rate of increase for new houses in Dublin for the second quarter of 1999 was the lowest since the last quarter of 1996 and contrasts with a peak rate of over 37 per cent in the first quarter of 1998.