I thank the committee members for the opportunity to speak to them today in relation to this proposed legislation. The Irish Home Builders Association is a constituent association of the Construction Industry Federation and represents hundreds of home builders of all sizes across Ireland. The association supports Irish home builders to deliver quality, affordable homes to home buyers and others.
A priority for the IHBA is to deliver more homes for more people so we can offer people the security of their own home. The past number of years have been particularly difficult for those aspiring home buyers who have struggled against the lack of supply and affordability. Despite the challenges, house builders increased output by 45% last year in comparison to the previous year and 30,000 new homes were constructed in 2022. There are many different reports on how many houses are needed for 2023, from 33,500 in Housing for All and up to 62,000 in a much-publicised Housing Commission report. Whatever the case, the number of houses we need to supply is much greater than the number we are currently building. To deliver more homes we need more zoned land, more infrastructure, more planning permissions and, of course, a viable and affordable product that can be funded.
On announcing the public consultation for the general scheme of the land value sharing and urban development zones Bill in May 2022, the Department of Housing, Local Government and Heritage stated that the land value sharing, LVS, measure was proposed to apply to all new residential zoning and to designated urban development zones. Furthermore, it stated that the proposal was intended to be based on any increase in value which arose because of the zoning, designation and development process. Where applicable, the LVS would replace development contributions.
In June 2022, the IHBA, in conjunction with Property Industry Ireland, PII, and IIP made a submission to Indecon International Economic Consultants, which was appointed by the Minister for Housing, Local Government and Heritage to undertake an independent economic appraisal of proposed LVS options, outlining the key concerns for the industry. Our first request was that existing zoned land should be exempt, as the applicant or owner will not have had the opportunity to price whatever incremental cost of the LVS measure may account for. We must stress that land is a raw material for a house builder, and it is in the best interest of house builders and indeed the subsequent owner that land is purchased as cheaply as possible. All input costs are assessed by financiers and are ultimately passed onto the consumer.
Finance will be achieved for a housing project once it is viable to finance and there is a consumer or market to purchase the home. If input costs are stable, reasonable and sustainable, more first-time buyers will be able to afford a new home. It is in everyone’s interests that there are no further input cost increases. Indeed, any possible reductions in cost inputs will benefit everyone.
In April 2023, the updated general scheme was published, which differs in several critical ways. Changes include expanding the scope of the rules, introducing transitional rules and changing the interaction of the LVS contribution with existing costs, such as Part V obligations and development levies. These are of huge concern to the industry. First, the LVS is being retrospectively applied to existing landowners of zoned land, as opposed to newly zoned land. The tax is applicable at the point of planning for builders. Therefore, it is another input cost that will affect the viability of building and therefore the level of future housing output. Second, whereas the Housing for All plan and the original Bill had suggested that the charge would replace existing development levies, the updated Bill confirms that it will apply in addition to existing Part V and development levy costs. The proposal is therefore contrary to the intention of the uplift in land value being captured by the State to pay for public infrastructure. Where permission is granted for a social or affordable housing development or both, including development by or on behalf of a local authority, such a development will not attract an LVS obligation. This is equivalent to state aid, which will compromise the future development of private housing for all those wishing to purchase their first home. This will increase the cost of land as approved housing bodies, AHBs, the Land Development Agency, LDA, and local authorities will be at a competitive advantage over private house builders who are attempting to purchase land.
These changes in the LVS proposal are significant and, in the industry’s view, run completely contrary to the intentions of land activation, land price stability, attracting investment for residential projects, output and ultimately housing cost stability. The consequences of the current proposals will be the stalling of investment in residential land acquisitions for housing. More than 50% of the housing targets in Housing for All's 156,000 units are private homes. This will require international investment that requires stability and certainty of taxation and cost measures associated with housing delivery.
While there are various estimates, between €5 billion and €10 billion annually will be required from private sources of funding. There will be an increase in output costs as the LVS is now simply another tax on housing output. Some of our members estimate the LVS proposal as currently worded could cost between €8,000 and €35,000 per unit. That obviously depends on location etc.
Landowners will avoid the tax on the uplift when land is zoned. It will increase the cost of land in many instances. It will also increase the cost of housing. If the tax is not recoverable in the house price, new private housing output may stall with many housebuilders simply going out of business.
While there was support in principle and a historic call for land activation measures from the industry, there needs to be a coherent strategy in place for such measures to work in the way they are intended. They need to be supported by a fully resourced and functioning planning system. This is currently not the case. The commercial viability of residential development has become increasingly challenging. The LVS proposal cannot be considered in isolation. A number of factors are of equal consideration in relation to land cost and activation.
There is an upcoming review of the national planning framework. The long-standing position of house builders is that there is simply not enough zoned land in Ireland to cater for changes in immigration, household formation, population growth and access to services. It is simply the case that a lack of zoned and serviced land, in conjunction with exceptional demand, is the real factor behind high land prices in certain locations. There is a backlog in planning decisions from An Bord Pleanála and the High Court, and we estimate between 60,000 and 70,000 are delayed. A new planning and development Bill is progressing through the statutory process. A significant number of housing projects are currently stalled due to infrastructural issues. These include connection to water services, electricity supply, access to roads and public transport, route selection studies and capacity constraints within existing transport and water services. There have also been exceptional cost increases in materials due to the war in Ukraine, Brexit, Covid shutdowns etc., as well as the rising cost of residential development finance.
Housing delivery is being impeded by all of the preceding factors. Introducing yet more changes in public policy on housing is leading to a significant impact on confidence and investment in housing. It is not the right time, due to all of these constraints, and this proposal will introduce yet more uncertainty. The LVS memorandum outlines:
A key challenge in implementing LVS is ensuring that the mechanism captures fair value for the State but avoids disincentivising housing supply. ... [The] risk should not be underestimated particularly if the LVS results in higher costs to housebuilders, rather than reduced land prices.
This incentivisation of the reduction in land prices cannot be applied to land that is retrospectively taxed. The transaction is complete, the contracts signed and a price has been paid. It is not an exaggeration to state that many housebuilders trying to deliver housing units are concerned they may find themselves with sites they can no longer develop due either to viability, a market, or both, that can no longer absorb the cost of these taxes. Housing supply does not happen in isolation and many of the supply determinants are outside the control or resourcing of the house builder. The construction sector provides the necessary infrastructure for Ireland and relies on the State to adequately resource the planning system, and in some cases the legal system to provide planning permissions that will ultimately supply more homes. The current issues with development plans and delays in the planning system is resulting in the LVS tax becoming applicable to sites that would have been brought forward for development were it not for these impediments. Members have provided a number of examples. Planning cannot advance on tier 2 lands until it is proven that all tier 1 lands capable of being developed have been developed. These tier 2 lands, therefore, will be brought forward later in the development plan cycle, which means the LVS tax will apply. Lands dependent on infrastructural, service and road upgrades have been zoned for several development plans. However the delay in delivering the infrastructure means the LVS tax will apply to these lands. This is because of infrastructure delay, and not because of land hoarding.
The LVS explanatory memorandum states:
The main purpose of the proposals is to allow the State to more effectively provide the key infrastructure required to support development, including housing. The measure is therefore closely related to the existing development contributions scheme arrangements connected to the grant of planning permission for development.
Finally, since the Kenny report was published, a number of land capture mechanisms have been introduced by the State. There is a VAT rate of 13.5% on new homes. There are also the section 48 development contribution scheme charges, and the section 49 special contribution scheme charges. There is capital gains tax of 33%, and Part V housing requirements, which has recently increased to 20% of all units on new housing schemes. Consideration should also be given to the stamp duty payable on the purchase of lands at 7%. As a result, we request that implementation of this measure is paused and reviewed in careful detail. This is to avoid unnecessary and unintended consequences, such as discriminatory measures between public and private industry, added costs to the home buyer and further delays to the delivery of much-needed homes. We stress that this measure must be seen in the context of other factors such as the residential zoned land tax, RZLT, national planning framework, NPF, review, material cost increases and infrastructure. It is pointless and counterproductive to introduce yet another tax on housing output.
