Recommendations Nos. 11 and 12 relate to the concern about the required threshold of only 30 days of annual occupancy in order for a property to be considered exempt from the proposed vacant property tax. This threshold is extremely low with regard to international norms. Dr. Gerard Turley, an economist at the University of Galway, noted that in other countries and cities throughout the world that have introduced vacant property taxes, the usual cut-off period is six months. In Ireland's case, it is one month, which is a very low bar to meet.
The idea of a vacant property tax has been long called for. It was very much welcomed. Many people, when they saw the 30-day requirement, came to me believing it meant the property would be considered a vacant property if it were vacant for 30 days when, of course, the opposite is the case. The scheme says that if the property is occupied for just 30 days per year, it is not considered a vacant property. That is not an adequate measure because we are not talking about derelict properties, we are talking about vacant properties. With regard to dereliction, the test of whether one can occupy the property at all may be relevant. However, the problem with vacancy is that properties are being left empty for much of the entire year. We know there are considerable volumes of vacant properties throughout this State that could and should be used to address the housing crisis.
The legislation creates an obligation on owners to provide proof of occupancy in the home in the form of an electricity bill or other documenting proof but, with a low threshold of just 30 days, it is very hard to prove somebody is not there for 30 days if he or she claims to be. The bar becomes quite difficult. Some other states and places have gone for 90 days. If the property is empty or vacant for three quarters or half of the year, it should be considered vacant.
With regard to bringing homes back into use, this very small occupancy period incentivises people to keep the properties not just as holiday homes but as holiday homes for a very tiny period of the year. We have been looking to and calling on people to try to make their properties available even for shorter periods of time. However, a one-month threshold means many of the properties will be holiday homes. It also gives cover to those who sit on properties. I know this. I live in an apartment building in the city centre and I see apartments around me which sit empty because their value and theoretical rent is going up and they can be traded as commodities.
There is an argument that 30 days of occupation in a year is not enough, even for holiday homes, but even if the Minister wished to exempt holiday homes, we have a separate second home tax. It would be possible to refine the measure to treat owners of holiday homes slightly differently from owners of multiple apartments in large apartment blocks which are left vacant other than during a 30-day let to a corporate tenant or, indeed, just 30 days a year of having anybody move in. It allows them to keep the asset empty and continue trading it an asset rather than treating it as a potential home.
If holiday homes are the reason we are having a 30-day requirement versus the standard 90-day or 180-day requirement which is usual everywhere else in the world that has applied a vacant property tax, and if he wishes for such a tax to be effective, the Minister should find a targeted measure to address the holiday home issue. However, he should not provide cover for speculators who trade in vacant houses and properties or make it incredibly easy for them to evade a vacant property tax.
Recommendation No. 13 seeks to deal with the fact that the vacant home tax leaves out derelict properties entirely. The former Civil Engagement Group Senator, Grace O'Sullivan, of the Green Party, first introduced legislation on this issue in the last Oireachtas. We have been calling for measures to tackle vacant properties since 2017 and we are only now seeing some action on that.
When Senator Grace O'Sullivan introduced her Derelict and Vacant Sites Bill 2017, she referred to the need to address both vacant and derelict sites as connected parts of the same problem. Decoupling the issues is short-sighted.
The derelict sites levy is administered by the councils, as we have discussed. If that levy were going back into local authorities, we might see a better application of it. However, as administered, it has been an absolute failure. The local authorities have failed in their collection of the tax. In 2021, only €1.1 million out of the €4.5 million that was owed in derelict site levies was collected by city and county councils, which is a collection rate of 23%. A total of 18 councils failed to collect any levy at all. The derelict site levies, as they currently operate, are not working and are not being applied. We may need to take a carrot-and-stick approach to address this. Pressure must be put on local authorities to apply the levy properly and there should be an incentive whereby the moneys collected from it can be spent on addressing dereliction and building local community amenities and shared public spaces. Alternatively, we may need to introduce national levies that explicitly address derelict sites. We cannot continue with an inadequate measure that is being inadequately applied. In France, the vacant property tax in operation there has had a very useful impact. It is interesting to note that in that jurisdiction, vacant homes and derelicts buildings are addressed through the same legislation.
Recommendation No. 14 relates to the disappointingly low rate of vacant homes tax that has, finally, been proposed. It is to be set at just three times the local property tax rate, which means the tax will amount to only 0.3% of the property value. I am conscious that it may not continue to be the case but property values have massively increased in recent years. In many cases, the increases has been far more than 0.3%. If we want to discourage the actions of speculators who have no interest in delivering housing or renting it out and are, rather, interested in having a portfolio of assets they can trade, we need to ensure the penalties for not putting a property into use are higher than the profits to be gained from simply choosing to leave that property vacant. Property prices increased by 14% between June 2021 and June 2022. A potential fine of 0.3% of the property value, with a requirement that one need only have a tenant in the property for 30 days, versus a 14% hike in the value of the property is a significant imbalance.
Recommendation No. 15 likewise relates to the need to deter property hoarding. It calls for a report on another option for the functioning of the vacant homes tax, which seeks potentially to link the tax to property price inflation. Again, I am conscious that prices can move in both directions and the proposal is one to consider carefully. It is about trying to keep pace with the dynamic whereby price inflation is such that it nullifies the impact of the tax. The recommendation proposes a linking of the two but it would have to be done in a careful way, using a backstop to ensure that if there is a sudden drop in property prices, there would not be a fall in the vacant homes tax.
Recommendation No. 16 calls for a report on the introduction of a stricter definition of "market rent" in the legislation. The current wording allows owners to seek exemptions from the vacant homes tax if they have attempted to rent their property out without success, with the caveat that the property should be offered at market rent. As we know from the operation of the Residential Tenancies Act 2004, the definition of "market rent" currently in use can be quite meaningless. It is defined as whatever a willing tenant and landlord can agree. In an environment in which landlords have all the bargaining power, it is not a meaningful restriction. We could easily see a large number of people claiming false exemptions from the tax on the basis of this weak definition. There is no link to the affordability of the rent or its being in any way index-linked to inflation.
This recommendation asks the Minister to look at using a definition that is stronger and is linked to the data we have from the Residential Tenancies Board, RTB, rather than the vague concept of what a tenant is willing to pay. If a landlord can find anybody who will pay €3,000 a month, he or she can say that is what a willing tenant has paid in the particular locality and, therefore, all the properties he or she has to rent out can be advertised at €3,000 a month. The landlord can then choose not to rent out the properties and not pay the vacant homes tax. I have seen properties in the city centre advertised for a year at intentionally outrageous rents that no one will pay. Perhaps the owners have one example of somebody who paid that price. The rents being asked for certainly are not reflective of the real averages and figures. Rather than having a vague definition of "market rent", let us look to the data from the RTB to see what it is charting as being an appropriate rent for an area. If landlords claim they have advertised a property and tried to rent it out, that claim should be tested against what the RTB regards as an appropriate rent for the area. That would be a better test.
