Finance (No. 2) Bill, 1998: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Mr. Allen

It is the hope and aspiration of most young people to own a home. However, the hopes of many families, couples and individual have evaporated in recent months because of the trend in house prices arising from the combination of low interest rates and increased demand. People are buying houses at inflated prices, which is imposing major pressures on them. Every day one hears of young couples, married or unmarried, who have to work to afford the repayments.

The Bacon report was commissioned approximately six or seven months ago. When it was being compiled house prices in some areas increased by 20 per cent. The imminence of the report provided the Government with an excuse to do nothing. For example, a number of months ago my party made proposals regarding stamp duty which where ridiculed, yet the Government has now introduced similar proposals.

Much attention has been focused on the private sector. The pressure on individuals who are finding the cost of houses beyond their reach is becoming apparent in the local authority housing lists. For example, the Cork Corporation housing list for the quarter ending 31 March showed an unacceptable increase in the number of people waiting for housing. In a very short time the figure has increased from just under 2,000 to 2,800. Despite this, only 76 houses — ten new and 66 old — were allocated in three months. At the same time, only 38 tenants got a transfer from one corporation property to another.

If the position is similar in other local authorities we face a crisis. Increased house prices has resulted in young people finding it impossible to buy their own homes. They are now applying for local authority housing. The Government's response will not address the pressures on the local authority housing lists. For example, despite the waiting list of 2,800 in my city, the Government allocated £8.8 million this year of which £7.1 million will finance houses already under construction. This leaves a balance of only £1.7 million for new starts this year.

This crisis is driving young people, often with young children, into either substandard accommodation or very expensive rented accommodation subsidised by the health boards. This week and last I put questions on rent supplements and mortgage subsidies to the Minister for Social, Community and Family Affairs. In 1997 the health boards paid rent supplements of £75 million, an increase of approximately 18 per cent over 1996 when the figure was £64 million. Doubtless the figure for this year has escalated even further. In addition, they paid mortgage interest supplements of £10.08 million in 1997. This means the taxpayer is supplementing private rented accommodation by approximately £85 million per annum. The Southern Health Board paid £14.2 million in 1997 to subsidise accommodation for people who had to go into private rented accommodation. At the same time, its only funding for house starts this year amounted to £1.7 million. These figures illustrate the need for a radical new approach by the Government to the provision of public housing.

These initiatives by the Minster fall far short of what was expected. In addition, he has used them to take care of a powerful lobby group. The reduction in the capital gains tax to 20 per cent is disgraceful. We must not entertain the possibility that the goal of home ownership is put beyond the reach of young people. Everything possible must be done to deal with these issues through taxation and the provision of public housing at local authority level.

The decision by the courts regarding the return of a deposit to a couple after a lengthy period is alarming. There is an onus on the Law Society to tighten up the contracts offered to people when purchasing a house, including the standard contract approved by the society, with a view to safeguarding the rights of the purchaser. We should not be reacting to court judgments but should legislate to protect people before recourse to the courts arises.

Mr. Higgins

(Dublin West): What has gone on in recent years in the housing market throughout the country, particularly in the Dublin area, in terms of the massive increase in house prices, is nothing short of legalised racketeering. I ask Members on the Government side why the Bacon study did not go into this aspect of the house pricing scam in more detail. A large amount of money has been paid out on the study but we did not get any picture of the extent of racketeering in the housing market. It should have been laid out, at a minimum giving examples in the main urban areas and a breakdown of the cost of the average semi-detached and detached home in terms of materials and labour, both administrative and physical, highlighting the extent of profiteering and exploitation. I am at a loss to know why this was not done.

It beggars belief that Deputies have put the problem down to supply and demand as if this explains the crisis. It is not a question of supply and demand but of the decision of builders and developers to go for mass exploitation and profiteering, pricing young people out of the market. Unfortunately, we are carrying on a tradition as far as Dáil Éireann is concerned. Traditionally, builders and developers have been protected by certain political parties and the politicians belonging to those parties. That sector lavishly contributes to some of the right wing political parties in the State and, undoubtedly, individual politicians. It is nauseating to see members of Fianna Fáil in particular shuffling in their places, defending out of the side of their mouths and putting in a word for some of the speculators and profiteers. The register of interests of Members of the Dáil and Seanad shows that a large component are property owners, including rented property. This, undoubtedly, colours their view and their interest should be declared.

For almost 12 months the Government has sat on its hands — its predecessor did likewise — while prices have gone out of the reach of ordinary people. It is a crisis for first time buyers. A worker on the average industrial wage — approximately £15,000 per annum — has no hope of qualifying for a loan for the average priced new house and the vast majority of second-hand houses that will come on the market. The schemes which were designed to make homes available to the lower paid such as the shared ownership scheme are paralysed because there is no way that those who qualify can make the repayments in accordance with the standards laid down as administered by the local authorities.

Fingal County Council, of which I am a member, is in a position to purchase only one home under the shared ownership scheme. It will be reduced to bringing 20 anxious applicants into a room and organising a lottery. This is shameful. Unfortunately, the Government's proposals will do nothing to rectify the position. They do not address the stark fact that prices are way out of reach. We have a hapless Minister for Finance who is attempting to close the stable door after the horse called House Prices has bolted through the roof. He has no proposals to repair the gaping hole. Measures are required to make homes affordable for ordinary working people and to allow the schemes which were designed to help low to middle income earners to purchase their own homes to be effective once again. I ask the Government to address these points specifically. I hope we will have more time to tease them out on Committee Stage.

I wish to propose some measures which are influenced by the policies of democratic socialism and which would have the support of the vast majority of ordinary people, particularly those in need of homes. The problem begins with the outrageous speculation in land. This should be outlawed. The rezoning of land from agricultural to residential sees its price rise by perhaps 1,000 per cent overnight to the benefit of the landowner and the speculator. The idea that the huge increase in house prices is due to the shortage of zoned land is a cover for speculation. In many councils there is adequate serviced land available for years ahead. Therefore, that argument does not stand up.

All land needed for building, particularly in urban areas, should be taken in charge by a public agency at use value and released to builders as needed on the basis that the price of the end product would be strictly controlled. Speculation in building land, therefore, would not be a factor in massively putting up house prices, which should be strictly controlled. The price is made up of the cost of the land, building materials and labour, both physical and administrative. Profiteering which puts tens of thousands of pounds on the cost of these inputs should be outlawed.

There is major exploitation in the private rental sector. This is not addressed in the Bill. Rack-renting has returned. We thought we had got rid of the landlords but, unfortunately, they are back with a vengeance. In modest suburbs such as the one in which I live a modest house commands £500 or £600 per month from the unfortunate person who is obliged to rent. Extortionate rents are being demanded for the most shabby bedsits. It is scandalous that successive Governments have encouraged this position through section 23 developments. The tax on what are essentially rack rents could have been waived by various Governments. Instead of justice for tenants and controlled rents and standards there is flouting of whatever modest controls exist. I understand that the legislation relating to registration is complied with by only 25 per cent of landlords.

Local authority housing is in crisis. The situation would be assisted if an emergency programme of funding and house construction was established. This would provide within two or three years homes for every family and individual suffering on the housing list. It would be a considerable improvement. This measure is required and the Government must state whether it has any proposals in that regard. The measures in the Bill may slow the rate of increase but they will not give ordinary people the possibility of owning their homes or renting accommodation at reasonable rents with security of tenure.

Mr. Kelleher

I wish to share my time with Deputy Batt O'Keeffe.

An Leas-Cheann Comhairle

Is that agreed?

Agreed.

Mr. Kelleher

I welcome the initiative taken by the Government in commissioning and implementing the Bacon report. In recent years house prices have escalated beyond affordable rates for people on average industrial wages. This has been coupled with a shortage of development land, low interest rates and a booming economy. It has put huge pressure on people who wish to purchase their first house. This is why the Government's initiative is timely and welcome. It was necessary to commission a report to establish the best way to control escalating house prices. The Bill will enact the proposals of the Bacon report.

The Bill is part of an overall package. The Minister for the Environment and Local Government has taken an initiative regarding the funding of infrastructure. Extra allocations will be made to local authorities for sewerage and water schemes to allow more land to be serviced and rezoned for development. Unfortunately, in recent years planners, county managers and those with executive powers in local authorities have not played their part in ensuring that enough land was rezoned for reasonable density housing to keep prices down. This happened in many parts of the country.

Mr. Higgins

(Dublin West): There is plenty of land in Dublin.

Mr. Kelleher

In Cork, the corporation area is almost completely full.

Mr. Higgins

(Dublin West): It is profiteering.

An Leas-Cheann Comhairle

Deputy Higgins, please allow Deputy Kelleher to continue without interruption.

Mr. Higgins

(Dublin West): It is racketeering.

Mr. Kelleher

On the periphery of the city where there are services, land has not yet been rezoned for high density housing. This is putting huge pressure on the market in Cork. In Dublin, irrespective of Deputy Higgins's comments, if private individuals own land, they have a right, which is enshrined in the Constitution, to sell it whenever and for as much as they wish. Incentives must be introduced to encourage them to sell the land to developers and builders to ensure affordable housing is available. I am confident the proposals in the Bill, in addition to the announcements of the Minister for the Environment and Local Government, will stabilise the escalating price of houses and ensure that people on low and middle incomes have an opportunity to purchase their first houses.

County development plans are always contentious but planners and county managers have a moral obligation to ensure that young people and first time buyers can get into the housing market and purchase a decent house. This is the stumbling block at present. Regardless of the price of a house, unless one is trading up, it is impossible for people to get into the market. Another factor is the current high cost of rent. People cannot afford to save money for a deposit or take out an 80 per cent mortgage.

The banks also have a role to play. I am concerned because they appear to be dishing out money. Up to 95 per cent of the value of a house is readily available from banks if one shops around. This is also forcing up the price of housing. The banks have a duty and moral obligation to put in place a mechanism to ensure money is not so freely handed out because that adds momentum to house prices.

The Bill has been broadly welcomed and I support the provisions announced by the Government regarding the implementation of the Bacon report. If action had not been taken there would have been problems in the near future regarding the national pay agreement. Inflationary pressures could have crept into the economy which would also have created difficulties in terms of reaching a new pay agreement.

If these measures had not been introduced huge pressure would have been placed on public housing. This area must be examined because as house prices have increased, people have fallen back on public housing lists. Irrespective of how much money was allocated to local authorities, ultimately it would not have been possible to build the number of houses needed to accommodate everybody. The Bill is a proactive measure to ensure that house prices stabilise and people will have the opportunity to purchase their first homes.

Many people lobbied the Government with regard to rental income. The position has been good for those involved in letting houses for the past number of years. As other Deputies said, Government policies and various tax incentives in the past encouraged this type of development. However, they were implemented to stimulate the building trade which was at a low ebb in the early 1990s and the economy in general. It was also considered at the time that they would provide affordable housing and rented accommodation for young people. However, the speculators again moved in and purchased large areas of designated land. They are now letting properties and reaping the dividends. This is the reason for the rental income aspects of the Bill. I am confident they will have a major impact on the affordability of rent.

Last year the health boards paid out approximately £90 million in rent and mortgage subsidies. A better system must be put in place because £90 million would build many houses. This matter must be examined to ensure the problems encountered by people on low incomes are addressed. Rent and mortgage subsidies benefit people who have five or six houses and the person who is renting the property will never get out of that trap. The public housing policy must be broadened. The money currently spent on rent and mortgage subsidies must be diverted towards the building of more public housing.

In 1845 the population was eight million. It is now four million and it defies belief that people in certain parts of rural Ireland still cannot get planning permission. Planners, county managers and county councillors must assess this situation because villages and towns are being denuded of their people. I urge county managers, county councillors and planning officials to take escalating house prices into account. It is very difficult for people in rural Ireland to get sites to build on in their own areas, and this is putting pressure on schools, shops and the entire community structure.

We will be judged on the effectiveness of this measure, which is an attempt by the Government to influence the market. It is positive and proactive and I hope it works. It has been welcomed by most people although it will have to be monitored closely. If it does not have the desired effect, the situation will have to be assessed again, but the problem has been acknowledged. An attempt has been made to implement the Bacon report proposals, though this Bill is only part of an overall package. I hope that over coming years those currently debarred from the housing market will be able to enter the market——

Mr. Higgins

(Dublin West): How?

Mr. Kelleher

——and afford to purchase their first home. They can trade upwards later if they wish. Every Irish person wants to own his own home; we have the highest rate of home ownership in the EU and we have always nurtured home ownership. It has always been Fianna Fáil policy to assist first time buyers in purchasing their homes. We will continue to do so and I am confident that these measures, along with the proposals of the Minister for the Environment and Local Government, will assist people in making their first house purchase.

Mr. B. O'Keeffe

I agree with Deputy Kelleher. There was a need to take action because house prices were spiralling out of control. My daughter is getting married and is trying to buy a house. House prices in my town range from approximately £75,000 to £120,000. It struck me that young people are in a straitjacket. Accordingly I welcome this Bill and the adoption, in principle, of the recommendations of the Bacon report.

If one compares house prices today with those of five to ten years ago, the effect of our economic growth is clear. There was a time when tax incentives were introduced to generate house purchases and to ensure there were enough apartments and houses available to rent. However, time moves on and one must be concerned about inflationary pressures that are part of high house prices. The Government is addressing this.

I have spoken to people in the property business, including one man who owns 35 houses.

His attitude is that he had a great time and the gala is over, but that he is no longer interested in purchasing houses for rental purposes. This measure should stop the exceptional demand from investors, who should now get out of the market, albeit after a good innings. Large groups of investors buying blocks of apartments and houses meant there would be inflationary pressure on rents. Deputy Kelleher is right. The cost of rent supplement was £6 million in 1989; it is £96 million in 1998. How long can we pay such sums in rent supplement? Rents must be reduced.

This Bill gives the lie to the idea of overzoning. What a field day the press and the Left had in opposing rezoning. We were told there was no need for rezoning, but now everybody accepts that not enough land has been zoned. We heard about brown paper bags, but the people now seen to have had foresight were councillors who read a demand for land and answered it, often against the wishes of their managers and planners. They saw a need for extra land and rezoned extra land. Now there is not enough land and we will have to examine the situation again.

Mr. Higgins

(Dublin West): There is plenty of zoned land.

Mr. B. O'Keeffe

There is not.

Mr. Higgins

(Dublin West): That is an excuse——

An Leas-Cheann Comhairle

Deputy O'Keeffe should be allowed to continue.

Mr. B. O'Keeffe

Deputy Higgins has never come out of his socialist-Marxist cocoon, and I suppose he will never be released. He will never understand enterprise or anything that emanates from it.

Mr. Higgins

(Dublin West): Look at the mess we are in with capitalism.

Mr. B. O'Keeffe

This initiative means that every local authority will have to look at land that has not been zoned. The Government has moved on the tax concessions, which means that £1 million has been released to fund schemes to ensure that proper sewerage and water facilities will be available to unserviced sites.

It follows that if one makes the market less attractive to the large scale investor and opens up more land, there will be more houses available to the first time house purchaser. That is the kernel of what we are trying to achieve. I told the Minister for Finance that it was unfair to ask people who had land in their family for generations to sell that land for housing and to pay 40 per cent tax on a family holding. I thought that quite unfair, and many of those landowners told me that under no circumstances were they prepared to sell the land and to pay that tax. However, the 20 per cent tax rate and four year clause means that reality has struck them. That tax is not a major contribution given the increased value of their land and many will now make land available.

I welcome much of the package. However, we speak of decentralisation and rural areas being depopulated. There are villages in my constituency such as Ovens, Ballinora, Waterfall, Bally-garvan, Ballinhassing, Riverstick and Passage West that are within ten miles of Cork city. A new house has not been built in some of these areas in ten years. A rural resettlement programme was announced for the Shannon region. The Minister should carefully examine peripheral towns in regard to the provision of clusters of housing as that would be very worthwhile.

I welcome the indication by the Minister for the Environment and Local Government today that under the shared ownership scheme he will increase up to £50,000 the amount that can be lent and he will decrease the percentage of rent that must be paid. If we want to greatly reduce the numbers on the housing list, the shared ownership scheme is an option that is affordable for many families. If we accept the majority of our people want to own their homes, that mechanism would be very attractive to them. The ideal of family-owned houses is one we should pursue. There are social disadvantages to the fact that when young couples marry both partners have to work.

Anything we can do to reduce the price of houses should be done. This Bill will provide a fair measure of success and that is to be welcomed. Our young people will be gratified by what the Government is proposing to do under this Bill and I welcome it.

Mr. Hayes

I wish to share my time with Deputies Enright and Cosgrave.

An Leas-Cheann Comhairle

That is agreed.

Mr. Hayes

We are discussing today probably the most topical political issue of our time, housing needs and house prices. I have come from a meeting of the Select Committee on the Environment and Local Government at which we had an excellent presentation from Sr. Stanislaus Kennedy and the Focus Ireland group. That organisation and other people in the voluntary sector are dealing at first hand with the outcome of a failed housing policy. They are picking up on the streets of this city and throughout the country people who are homeless, in inadequate housing and people whose housing concerns and needs have never been met. I do not expect that tinkering with tax rates, be it stamp duty, capital gains tax, section 23 or whatever, will change our approach to housing.

The salient point I took from Sr. Stan's presentation this afternoon was that we need a realistic plan for housing, which will provide affordable housing for our people. Measures dealing with rates of tax or stamp duty will not provide affordable opportunities for people to enter the housing market. A much greater variety of housing options needs to be made available through the voluntary sector. The voluntary housing schemes have grown substantially in recent years, but they have grown from a very small base. We need to examine other examples in the European Union where there is a much greater preponderance of rented accommodation, where there are flexible schemes in existence which allow young people to buy into shares of housing, which allow people to move into rented accommodation for a period and then move into more permanent accommodation. We have never had that approach to housing here.

The last White Paper on housing was in 1969, the year I was born, 28 years ago. The Department of Health and Children, the Department of the Environment and Local Government and other Departments are involved with the issue of homelessness or supplementary welfare allowance. Unlike other EU countries, we do not have a co-ordinated approach to this issue. Therefore, it is understandable we are in this dilemma. The contents of the legislation before us or the series of measures announced by the Government will not have any dramatic effect on house prices in terms of making houses more affordable.

I sympathise with the Government's dilemma. I have examined this issue in depth for some time and there is no quick and easy solution. This problem is complicated. Attempting to solve it in one area will create a difficulty in another area. One of major difficulties that will arise in the next six to seven months is a rocketing of rents. People will withdraw from the investment side of the market and that will affect those who need short-term accommodation, people in receipt of social welfare rent allowance, those who have returned to this country and require accommodation for a short period and students who are on the move. The series of proposals in the legislation will not do anything positive for that group.

I would like the Minister to respond to two aspects of the legislation in his summation. Prior to this legislation a 27 year old who decided to purchase a £90,000 house in Dublin — the average house price is now £100,000 — could say to the manager of the building society or bank that he or she wished to keep two or three lodgers, friends who might require accommodation for a short period, to get over a difficult financial stage. As a consequence of this legislation that home owner would have to pay stamp duty on such a property because he or she would be keeping one or two lodgers. If that is the case, we are consigning a section of under 30 year olds to a position where they will never be able to purchase a new home.

Having studied the legislation in depth, I believe individuals who purchase a home in Dublin and then have to go to work in Cork or Galway for four or five months and rent accommodation there would not be able to rent their homes. They would have to pay their mortgage on the property they own and would also have to pay rent for such temporary accommodation. Those are two negative impacts of this legislation. I suspect there are ten or 20 other negative aspects to it. It has not been well thought out. I made most of my remarks on the general housing area during the debate on the stamp duty resolution in the House some weeks ago. The Government has not thought out those two specific aspects I outlined. It will rue the day when it faces some of the implications of this legislation.

Mr. Enright

The housing crisis in Dublin poses a serious danger socially. It has being building up for some time and is a major problem facing the Government and this nation. The sooner the Government realises we are in the middle of a major housing crisis the better. I congratulate the Government on the small steps it has taken, with some of which I agree. At least it has taken some initiatives. The housing problems are not confined to Dublin. I represent the constituency of Laoighis-Offaly and there is a problem in almost every town in Ireland. There is a housing shortage which extends to urban areas. Given that sites in urban areas sell for in the region of £35,000 to £50,000, alarm bells must be ringing in the Department of the Environment and Local Government and the Department of Finance.

In the 1970s when Fine Gael was in Government we introduced home improvement grants, or reconstruction grants as they were called. On Fianna Fáil's return to power it abolished those grants. Later in the 1980s we reintroduced home improvement grants, but again in 1988 Fianna Fáil abolished them. Under the reconstruction grants about £8,500 was available to people on low and middle incomes who were prepared to buy a property and develop it. If financial assistance in the form of reconstruction grants was available today it would be an incentive for people to do up their homes or to buy houses that could be renovated or on to which they could build granny flats and so on. The introduction of such a grant would not cost much money. It would probably have a greater impact than all the measures in this Bill. The Government should seriously consider restoring reconstruction grants.

There is a limited number of serviced sites available to local authorities to sell to suitably qualified applicants. Local authorities must urgently address the question of land purchase. If local authorities purchased lands in counties surrounding Dublin and sold sites to applicants it would help to ease the position in Dublin. Some movement should be made in that respect and I ask the Minister to take that on board.

Many local authorities have become too restrictive in granting planning permission for domestic dwellings. I come from a part of Offaly where the population has declined considerably and that is partially because planning authorities are too restrictive. It is essential that matter is considered.

There is a danger that the measures in this Bill will lead to a shortage of residential accommodation in the form of flats and rented accommodation. That issue should be considered.

Mr. Cosgrave

I welcome the opportunity to address Dr. Bacon's report. The proposed measures are designed to be of benefit to house buyers, giving them an increased opportunity to secure a home of their own. The proposals are deficient and inadequate to address the issues that are driving up house prices. Some of the proposals will cause greater hardship and will result in increased cost to ordinary people.

The provision of £30 million, targeted at water and sewerage facilities, is far short of what is needed. The suggestion that £5 million will address the infrastructural deficits is nonsense. Apparently the scope of the problem is not understood by Government. That money would not even meet the sewage treatment requirements in areas of Fingal such as north Blanchardstown or Swords.

I do not agree with the Government's handling of the stamp duty issue. While the reduction in stamp duty is welcome, the effect will be that apartments at the top end of the market will become scarce. This will have a considerable effect on the quality of living of many people in this sector of the residential community. In time it will have a negative effect in attracting to Ireland key players from industry and business on medium or short-term contracts.

The repeal of section 23 is short-sighted. This incentive is fundamental to the development policy of the Custom House Docks Development Authority as it sets about the improvement of Dublin's docklands. The scheme has played a major role in ensuring accommodation is available at affordable prices to meet the demands of those who are not prepared to commit to property purchase. People such as students, those commencing their first job and those on company assignments as well as those thinking of changing houses will suffer because of this decision. The changes will result in a decrease in the amount of rental accommodation available, while demand for such accommodation will continue to increase. Because of increased demand and limited supply of accommodation, rental charges will increase. The increased demand this will place on local authorities will not be met. Ordinary decent people will suffer unacceptable hardship because of this decision.

The reduction in capital gains tax by 50 per cent is a folly. It will not have a positive effect on the generation of housing lands in major urban areas. The majority of zoned land is already within developers' control. This measure will not benefit people who are seeking housing. It will be acceptable to short-term residents, investors and a small niche of the long-term market. In the main, Irish people like their space and do not wish to be herded into pens. There is a saying that an Englishman's home is his castle, but an Irishman's house is his home, and no Irishman wants to be stuck in a small box with no room to swing a cat.

Deputy O'Keeffe addressed the shared ownership scheme, of which I have been a supporter for a long time. That scheme operated well, but the escalating price of houses has rendered the scheme useless. Given that the limit is £60,000, that would not be sufficient to buy any property in the Dublin area. I spoke to the Fingal county manager today and he welcomes the increase in income eligibility under the scheme from £15,000 to £20,000, but he said that the price limit should be increased to £90,000. From my inquiries and from meeting people in my advice centres, I believe that it is not possible to buy a home in the Dublin area for £90,000. This scheme should be considered. The Fingal county manager has set aside land in the Swords area where the council will build houses and make them available to people who qualify under the shared ownership scheme for about £80,000 to £90,000, which would be of great benefit.

The proposed addition of two members to An Bord Pleanála will have little impact. Any advantage will be diminished by the shortage of growth in numbers of council planning staff. Councils around the country are putting off planning applications, especially for housing, by seeking additional information to give them time to catch up with the backlog. Most managers will admit they have a severe shortage of staff. They need more staff to ensure that planning applications are properly considered but not held up unduly.

There would appear to be a view that only zoned land in existing development plans should be developed. This view ignores the fact that much of the zoned land may not be developed for many years while lands which are immediately serviceable due to their proximity to existing serviced lands shall remain virgin. People make choices about how and where they live. If these are ignored due to a shortage of the product they seek, the price will be driven up further.

The Government has initiated a strategic land use guidelines study for the greater Dublin area, involving the four Dublin local authorities and those in Wicklow, Kildare and Meath. This study must not be used as a means of slowing down the review of county development plans. The study will play a major part in ensuring a cohesive and well structured approach is adopted for the region over the next 12 years. However, it is disappointing that the Department of the Environment and Local Government has reneged on its responsibility to co-fund this report. It will be left to the local authorities to do so. The Minister for Finance should raise the matter with that Department to ensure money is made available to get the study under way.

Mr. M. Ahern

One of the greatest problems of recent years has been the rapid escalation in house prices. It has had a serious effect in Dublin and in other urban areas. The effect in Cork has not been as severe as in Dublin, Galway or Waterford. It has been having a great impact on young people getting married and setting up home. They are required to take out large loans and their quality of life is affected seriously as a result. The economy may be booming but if people have to repay large mortgages they have less money available to them for education, recreation and other important pursuits.

Action must be taken to stem the relentless increase in house prices. The Bacon report was commissioned and it has put forward proposals. These are not claimed as a panacea for the problems. It makes some good recommendations and others with which I would not agree fully. The price of land is a main factor that must be addressed. Small time builders who might build 15 or 20 houses a year have faced the problem in recent years of buying land at an affordable price. They find it hard to get loans from banks because they cannot provide the security sought. The larger scale builders are able to pay the prices asked for land.

A problem facing those seeking to buy land was that people were holding on to land adjacent to urban areas. They were unwilling to sell land because the capital gains tax was too high. It was a wise decision to reduce capital gains tax from 40 per cent to 20 per cent. The effect has been immediate because land has come on the market which would not have done so otherwise. It will take time for the benefit of the change to filter down into house prices. The benefit derived in the reduction of land prices must be passed to house purchasers.

One hears of builders increasing the prices of houses at a rapid rate. However, the increase in the price of land is one of the greatest factors in the increase in house prices and one which it is most important to address. It will take three or four years for the introduction of serviced land to have its full effect. However, the action had to be taken at some point.

I have mixed feelings about the provision on the non-deductability of interest. It is of no harm in certain conditions to disallow interest, especially when people purchase houses which should be available for first time buyers or families but which are bought by people using their spare funds to generate an asset for themselves. The disallowance of interest against rental income will help put a halt to those who buy up large numbers of houses and use their financial muscle to drive prices out of the reach of ordinary people.

Mr. Dukes

They do not want to drive up the prices.

Mr. M. Ahern

They drive the prices up. If two people are seeking to buy the same house and an investor can afford to pay more it drives the price out of the reach of the ordinary buyer.

Mr. Dukes

That is not why they put money into houses. The investor's aim is not to drive up the price.

Mr. M. Ahern

It is not, but he can afford to drive it up and out of the reach of young married people, for example. I know the investor does not want to drive it up but he can afford to pay more than ordinary working people.

Mr. Dukes

That is a more accurate statement.

Mr. M. Ahern

I thank the Deputy for helping me to clarify the position. I might have lost the run of myself. In any event, a person whose background is in east Cork must be decent and honourable.

Section 1 provides that certain premises, including holiday cottages or apartments or other self-catering accommodation will not be allowed the interest deduction. There is huge demand from tourists in the town of Midleton but a shortage of accommodation. I know people who were refused planning permission for holiday cottages which are, in effect, a commercial enterprise. Where it is clear that such homes are purely for commercial purposes and will not be used as family homes, relief for interest on borrowed money should be allowed. I would ask the Minister to consider changing the regulation.

The measure relating to stamp duty is another attempt to stop prices spiralling. The measures relating to stamp duty and interest and the reduction in capital gains tax will have a beneficial effect in the medium and long term. However, they are not a complete answer because, in the real world, the market will determine the price. However, if the market goes out of control we can step in with some controls and guidelines to keep it on an even keel.

Mr. Naughten

I propose to share my time with Deputies Timmins and Reynolds.

Acting Chairman (Mrs. Barnes)

Is that agreed? Agreed.

Mr. Naughten

I wish to echo the sentiments expressed earlier by Deputy Kelleher in relation to the difficulty in obtaining planning permission in rural Ireland. It is becoming an immense problem for young couples who have sites on their own farms and are finding it virtually impossible to get planning permission. I had one individual crying on the phone this evening who is to get married in the early autumn and has no place to live as of today.

Recently we had a debate in this House on the rapidly increasing numbers of young people sleeping rough on our streets. This is a major crisis facing our capital city and many other larger towns. To date little has been done to alleviate this problem, one which will go on growing during the summer months and leave a bad taste in the mouths of people visiting this country during the tourist season.

I am delighted, however, to see that the Government is now tackling the current problem in the housing market. This has come about through the continued pressure the Fine Gael Party has put on the Government over the past number of months.

There is a sense of desperation among young people in relation to the purchase of houses. They are being forced out of the housing market by investors and into private rented accommodation provided by these same investors. In my county town of Roscommon, in a rural constituency, house prices have risen by up to 20 per cent in the past six months. It is impossible for young people to compete with this rapid rise in house prices.

A major incentive would be to abolish stamp duty on secondhand houses for all first time buyers. The Minister is proposing only a piecemeal approach to the abolition of stamp duty on this type of house. At present stamp duty is a massive disincentive to buying a previously owned home and is driving young people further and further away from urban centres and, most probably, also away from their workplace. Its removal would allow people to purchase secondhand homes in established areas with existing services such as public transport, schools, churches, shops and medical services. The removal of stamp duty on secondhand houses would stimulate the second-hand market and relieve the current enormous demand for new houses. It would also help to rejuvenate many of our rural communities that have seen rapid population decline, and thereby ensure the viability of schools and post offices.

I have one note of warning in relation to the proposal to abolish the offset of mortgage interest against income for tax purposes. This will lead to a dramatic increase in rents. As the Minister is aware, the majority of students enter the rented accommodation sector. The housing shortage for students has already reached crisis point. Not only is there a lack of quality accommodation but rents have soared over the past few years. Here in Dublin, young people are paying anything up to £50 or £60 per week for accommodation. Therefore, rent for many students amounts almost to the sum total of their maintenance, if they are lucky enough to get a maintenance grant. Students are a vulnerable group in the housing market and any increase in already exorbitant rents will be catastrophic. This, coupled with the proposed increase in student intake in many of our third level colleges around the country, will see many students without accommodation as they enter or return to college in the autumn. It is a badly thought out proposal by the Minister. He should have considered the cost of housing and rented accommodation and the lack of an increase in the maintenance grant for young people. The lack of an equitable maintenance grant is crippling young people and making it extremely difficult for the vast majority to survive in college today. The Minister must tackle inequalities in the rented accommodation sector. Otherwise we will see many of our college students waking up under a cardboard box before cycling to college. That is what will happen if inequalities are not remedied in this Bill.

Today the Minister for Finance announced amendments to this Bill which will encourage residential investment in the new rural renewal areas. This announcement must be welcomed, but it is unfair to discriminate against parts of counties, especially in the case of County Roscommon. This division of County Roscommon is blatant discrimination against the mid and southern areas of the county. The current proposal is that north Roscommon will have special incentives and the towns of Roscommon, Athlone and Ballinasloe are set to be approved for urban renewal. This will move investment out of the rural area of south Roscommon and destroy the community, the direct opposite of the objective of this scheme. Already a number of important tourism projects have been frozen in this area because of the unconsidered proposal of the Minister for Finance.

The south Roscommon area has a pressing need for new investment incentives. In common with other areas which have been included, the rural heartland of south Roscommon has experienced economic decline, depopulation, loss of services and a lack of new investment. It also has an underdeveloped tourism base, a high dependence on the declining agricultural sector, poor infrastructure, inadequate employment opportunities and an ageing population. The exclusion of south Roscommon is also inconsistent, given that the whole of County Roscommon is designated as disadvantaged under the local development programme and all of county Roscommon is included in the catchment area of the Western Development Commission which is aiming to counteract population decline in the region. The fragmentation of the county for the purposes of this scheme by the Department of Finance will create unnecessary inequality and division. In the light of this, I would urge the Minister to include an additional amendment to this Bill and include south Roscommon, thereby creating a level playing field for the whole of County Roscommon and the whole of the constituency of Longford-Roscommon.

Deputy Enright highlighted the problem of reconstruction grants. This is a very important point. If we are to encourage young people to live in rural Ireland we need to reintroduce reconstruction grants. It is vital to the rejuvenation of rural communities. Developing dilapidated buildings will also improve our local environment. There are many villages and towns throughout rural Ireland with large buildings that have become dilapidated because people cannot afford to maintain them. I have received numerous requests about the reintroduction of such a grant because people are willing to invest in such buildings and they should be given the opportunity to do so. I urge the Minister to table an additional amendment regarding reconstruction grants.

Mr. Timmins

I thank Deputy Naughten for sharing time with me. Earlier, speakers referred to the practice of gazumping and stated it was a new phenomenon which had arisen over the past 12 months. I suffered from it in 1989 when I went to buy a house and I am sure it existed before then. Deputy O'Flynn claimed this practice was based around Dublin but I assure him it affects builders and developers nationwide and is not just confined to the capital.

I refer to the capital gains tax of 60 per cent on land disposed of after 5 April 2002. I do not know how effective this will be because many investors, such as business people, farmers and PAYE workers, will have to put their money elsewhere following the removal of tax relief on non-residential property. I fear people will sell their land in panic between now and 2002 and having money they do not wish to invest in property, they might invest it in land. We will then find ourselves in a difficult situation again in four years' time when many wealthy people will have sold off potential development land which would have been available under normal circumstances. The Minister should bear that in mind.

I recall in the early 1980s when the building industry went through a rough period various schemes were introduced for the trade, such as urban renewal and grants for pre-1950 houses. Those practices resulted from builders lobbying for the industry. In ten or 15 years' time my colleague, Deputy Gerry Reynolds, might be the Minister for Finance and if the builders come to him will he recall current conditions?

There are many stories of builders calling on their solicitors who also happen to be auctioneers and an extra £5,000 being added to the price of houses. They basically manipulate the market and the fears of individuals. I will be devil's advocate as we all suffer from greed to a certain degree. If one put one's house on the market, was offered £100,000 and tentatively made an arrangement, what would one do if another individual offered £110,000 the following day?

I refer to section 1(e)(iii) which deals with the disallowance of relief on mortgage interest. The Minister stated "neither will it apply to holiday cottages or holiday apartments in other parts of the country registered or listed with Bord Fáilte where the planning permission specifically states that the premises are not to be rented or leased for periods in excess of two successive calendar months at any one time". I assume the phrase "in excess of two successive calendar months at any one time" is included because it is a condition applied to planning by some local authorities. However, the condition generally stipulated by Wicklow County Council for such a scheme is that the proposed dwellings shall be used only as holiday houses and not as permanent residences. They shall all remain available for short-term holiday letting. Will the Minister clarify if short-term holiday lettings come under that category?

Mr. G. Reynolds

If Deputy Timmins runs for leader of my party, I will vote for him if I become Minister for Finance. I am glad to have the opportunity to speak on the Bill. This legislation is being introduced because of the difficulties in the housing market and it is an extremely difficult issue to legislate for because the open market drives up the price of property.

My only complaint concerns the reduction in stamp duty. It was a good idea but will be totally ineffective. I hail from County Leitrim which is the least populated area in Ireland and has the lowest house prices. One would not buy a house for under £60,000. The Minister should consider the abolition of stamp duty on second hand houses for first time buyers if he wants to help individuals who find it next to impossible to get into the property market, particularly in large urban areas. The incentive provided will probably not be successful and will not solve the problem.

I congratulate the Minister for having the guts to introduce the rural renewal scheme. We have been calling for it for a long time and when Fine Gael was in Government it did not happen, unfortunately. It will be of benefit to certain areas and will provide incentives for various developments. However, the biggest difficulty concerns lack of population, especially where I come from. Frank Brennan, a tax consultant from Leitrim, told me there was a huge problem with Athens which became overpopulated. The Greek Government, in its wisdom, provided a tax incentive for people to move from Athens back to their native communities. For example, if one was a native of Leitrim and lived in Dublin and set up one's residence in Leitrim, one received a large tax incentive to do so. The population of Athens reduced by one million people which was of huge benefit and helped rural Greece.

An imaginative scheme such as that needs to be implemented to try to resolve the problem of depopulation. I welcome the rural renewal scheme because it will go some way towards helping the area I represent economically and socially. We must be more imaginative and should wait for a few years to examine the benefits of this scheme. My colleague, Deputy Jim Mitchell, has spoken to me on a number of occasions regarding the concept of building a new city. Milton Keynes in England is an example where educational and medical facilities were concentrated in one area. We must try to do that because everybody wants to move into an urban centre as evidenced by changes in the agricultural community. If the continuation of growth in urban centres is allowed, it will be organised chaos. We must come up with a system where consideration would be given to building new towns. There is plenty of development land in my area, but we do not have the people. If the Government implemented this policy over a number of years, it would benefit many rural areas. The Minister has witnessed the urbanisation of County Kildare by people from the west, north-west and elsewhere.

I compliment him on introducing the rural renewal scheme, but other measures would make it more worthwhile.

Mr. Dukes

I have very little to add to what my colleagues in the Fine Gael Party have said about the many shortcomings in the Bill. I merely want to bring a few points to the Minister's attention, but I do not know if that is realistic before Committee Stage because he appears to be hell bent on getting the Bill through at a fairly rapid lick.

The Minister has imposed a restriction on tax relief against rental income and a number of people, who are not to blame for the rise in residential property prices, will be victims of this measure. It will pose problems for people on his own doorstep. For example, it is fairly common practice for many of the multinational firms located here to rent accommodation for their staff. Some of their employees are involved in the Irish operation for a relatively short period of time to get a particular job done or as part of a training programme and the firm provides accommodation for them. As the number of such staff fluctuates, the purchase of property is not an option.

The firm must, therefore, look to the rental market for accommodation and go to the people characterised in this debate as the investors who are driving up the price of residential accommodation. Those investors provide accommodation on a flexible basis for firms like Intel and Hewlett Packard, which are on the Minister's doorstep. If, as a result of this Bill, firms find it difficult to find accommodation for their staff, some of their key employees will be less inclined to come here.

The Minister may believe this is not a major problem in the overall scheme of things, but it will constitute an unnecessary complication in life for those firms. While they are likely to face such a problem when they locate in a country with a high preference for owner-occupation housing, we should not deliberately set out to make life more difficult for them. As the Minister is aware, these firms are located all over the country. There are people living in this type of accommodation within a short distance of where I live. This problem stems from the haste with which the Bill was prepared. I am surprised the Minister would lend his name to this type of approach to legislation. When he was on this side of the House he pointed out — I occasionally agreed with him — that if one legislates in haste to get in front of public opinion, one usually makes a mess of it. That is what is happening with this Bill. As an economist, it is not surprising that I would not accept all Dr. Bacon's conclusions, but the Minister has a greater obligation because he introduced the legislation. It bears the marks of a hastily put together Bill to conform more to pandering to a public prejudice rather than dealing with the problem, but the results will be evident in the difficulties to which I referred.

Some people still live in accommodation provided by their employers which they must vacate when they retire or their contracts end. This includes a diverse group of people. It includes, for example, some clergy persons from the Church of Ireland who are obliged to live in the accommodation provided with the parish, but who know they will have to move out when they retire to make room for the incoming incumbent. Some of them have the foresight to purchase a house or an apartment during their working careers and rent it out to pay the mortgage. They do so legitimately using the relief currently available to finance the provision of living accommodation for their retirement. The Minister knows some people fail to make that provision for themselves and when they reach their sixties do not have enough savings to buy a house and have gone past the age at which they can get a mortgage on reasonable terms. This Bill will make it impossible for such people to provide accommodation for when they retire, except at a much higher cost. The Minister is closing off that avenue for those people. The Bill includes what the Minister called a provision for pipeline cases, but that will not solve the problem for those who are currently in that position, for those who move into that position at the end of this year or for those who are not in a position to purchase a property before the end of the year. The Minister is creating a new problem for these people.

He believes the restriction on tax relief will directly address the difficulty identified in the Bacon report that investors are to some extent replacing first time buyers in the market, a development which the Minister stated "goes totally against the thrust of housing policy objectives accepted over recent decades". Even if that is the case, it is not a good enough reason for adopting this measure. The investor-private rental sector responds to a need in the market. If this goes against the thrust of housing policy objectives accepted in recent decades, perhaps it simply means housing policy objectives have not moved with the times. The market has identified and responded to a need. If that differs from housing policy objectives over recent decades, it is at least possible that the way to deal with the problem is to examine those objectives. In Ireland, as in many European countries, there are people who do not want to buy but prefer to rent accommodation because it does not suit them to take on a mortgage at their point in life. I will not enter into sociological speculation but a substantial and increasing number of people do not want to take on the obligations associated with a mortgage and they have perfectly good reasons for doing so.

It is not a good basis for policy to accept the cant of which we hear so much, that there is something wrong with investors who make property available. Other countries take a different view. I lived for a period in Belgium where, in the normal course of events, most people do not buy accommodation until they are in their fifties — until then they save money and rent somewhere to live. If they are reasonably well off, they buy not one dwelling unit but several and become "investors"— a word after one is supposed to spit these days. They let out the property units in which they are not living, which provides them with a nice supplement to their pension when they retire. They are not doing anything evil and in Belgium neither the public, the Minister for Finance nor commentators demonise them as people who are driving up the price of property. It is accepted as normal there that the accommodation market is made up of different segments which go up and down at various times. The Minister should have thought a good deal more carefully before giving this justification for a measure which will undoubtedly cause problems.

The capital gains tax provisions of the Bill will also be disruptive. An example of this was outlined to me recently by a gentleman who is well-known to the Minister. He is in the auctioneering business and last week brokered a sale on a parcel of land. The planning authority for the area where the land is located will in all probability zone that land for development in the near future. However, no development can take place until that authority and the adjoining one build a sewage treatment plant to deal with the needs of the area, which will take some time. Even if the development of this land takes place before 5 April 2002, capital gains tax on the transfer will be at the 40 per cent rate rather than at the lower rate provided for in this Bill to encourage the rapid mobilisation of land. The only way out of this is to rescind the sales agreement, if the parties assent to do so, and for the original owner to apply for planning permission before 5 April 2002. I do not know whether that would be an onerous requirement in this case but it is not something which the parties to the transaction considered as a possibility.

Similar cases, possibly with shorter planning horizons, will arise all over the country and we will hear more about them as the days go by. Vendors who are not themselves developers and have no involvement in planning will have to apply for planning permission in order to reduce their capital gains tax liability from 40 per cent or even 60 per cent to 20 per cent. A great many will conclude they should do this because the difference between the two rates could involve a substantial amount of money, and that will put serious pressure on planning authorities. In any case, between 23 April 1998 and 5 April 2002 it is inevitable, under the provisions of this Bill, that many more people who sell land for development but are not themselves developers will be applying for planning permission. I do not know how the planning authorities will deal with this but it will cause problems and may also affect the quality of developments put forward for planning permission or the number of those which are completed.

The Minister did not explain, when introducing the Bill, why he chose to follow this path. Perhaps he could take the opportunity to clarify the following remark:

The consultants were not specific in their definition of what should constitute serviced land and, consequently, I have decided to link the 20 per cent rate to the planning process. This is a transparent way of implementing the Government decision.

Unlike me the Minister does not need glasses but if he thinks that is transparent he must have great eyesight. I do not know what he regards as transparent but that way of explaining the measure is as clear as mud. Deciding to link the 20 per cent rate to the planning process because the consultants were not specific in their definition of serviced land is a slipshod way to draft a Bill. If the Minister had a problem about defining serviced land he should have thought longer than he evidently did before concluding that he should link the 20 per cent rate to the planning process. There is no earthly way that it is obvious to link the two; the tax rate could be linked to many other considerations but the planning process would not immediately suggest itself to me, and if I am wrong about that I want to hear why. It is not desirable that, between now and 5 April 2002, many people who would not otherwise seek planning permission or design developments will have to do so in order to pay capital gains tax at 20 per cent rather than 60 per cent. In his rush to do the popular thing and appear to solve one set of problems, the Minister will leave us with a completely different set.

Mrs. Owen

If the Minister has a place where he can speak privately without other people hearing him, there must have been moments since the report was published and the Government announced its acceptance of it when he asked himself why he became involved in this. As the debate has progressed he must have realised that the Government has created more problems than it has tried to solve. We all shared the concern that the housing market was overheated and it was becoming more difficult for young people to buy affordable property. It seemed necessary to ensure an adequate supply but it was purely a question of supply and demand — if there was sufficient supply to meet demand prices would find their level. Both the Government and the Bacon report have made the mistake of assuming the housing market is a homogeneous entity. It may have been a fairly homogeneous entity 20, 25 or 30 years ago when those who had reasonably good jobs bought houses and lived in them as happily married couples, while those who were unable to buy houses or who were not married went into the rental market.

The current housing market is not made up of the traditional young couple who saved to buy a house, bought it and moved into it when they married. Those couples did not move into the house together before they married. Such traditional type buyers are now almost in the minority. Young couples now buy a house and rent it out until they get married, because that helps them with the mortgage repayments, but under this legislation they will be unable to do that.

Some young couples buy a house, move into it before they get married and sublet part of the property. Single people buy houses and share the accommodation with two or three others as a means of helping with mortgage repayments or simply making provision for the future. Those people will now be put out of the market.

The Minister seems to be trying to prevent the investor getting his hands on accommodation and putting up prices for people who want to buy houses. I agree there is a problem with the type of investor who buys ten apartments off the plans of a particular scheme for the purposes of renting them out. That practice has damaged the market, but the type of people I know who would come under the heading of "investor" are Mr. and Mrs. Murphy who live down the road. He may have received a gratuity in his job or perhaps they have come into some money from an elderly relative who has died. They have children in the 13,14 and 15 years age bracket for whom they have ambitions that they will work in Dublin or go to university. These people decide, with the little money they have and perhaps through remortgaging their own home, to invest money in a property which will be available for their children when they go to work in the city or go to university.

The Minister should talk to some of the people selling apartments, particularly in the county area. They are the investors who are buying property, apart from the few who have money to buy four or five properties at a time. The others are being bought by single unit investors who want to provide for the future of their children. Those people will now be taken out of that market.

What happens to the property they have invested in heretofore but which their children are not ready to avail of? They may decide that they will not need their four bedroomed house when the children leave home, but they do not want to leave the area in which they live. Those people buy property when it is fortuitous to do so and they let the property to somebody who may have got a job in the area. That person may not know whether the job will be permanent or perhaps they are in the middle of a training period and do not want to buy locally. They may be able to afford to buy a house but instead choose to rent. The couples who buy these houses and rent them are fulfilling a need for rented accommodation.

One of my fears about the Minister's plans is that he has been unable to estimate, nor has the Bacon report, the enormous effect these proposals will have on the rented sector. I invite the Minister to go to Parnell Square on any Friday at 2.30 p.m. and see the number of brown bread buses, as they are known, taking young men and women back to their home villages and towns. Those young people are crucial to those villages and towns because they bring with them the income they have earned. They keep these areas alive and help businesses continue to operate. Many of these villages and towns are very quiet during the week but they know all the young people return home at the weekend. These young people are not in the market for buying property, they are in the rented sector. People who have spoken to me about the Minister's proposals say that supply in that sector will be reduced, the demand will remain and prices will increase.

I want to remind the Minister that the Eastern Health Board is paying out £38.4 million per annum — 59 per cent of its expenditure — to assist the rented sector. The board is the largest company involved in the rented sector in this country. Seventeen thousand units per month get assistance from the Eastern Health Board — £33.3 million in the Dublin area and £5.1 million in the Wicklow-Kildare area. A total of 39,000 people get assistance from the health board. Approximately 10,500 of those are eligible to be on a council housing list, and may be on a list, but they will be dead before they ever get to the top of that list. If those people are not in a position to rent properties we will see an increase in homelessness and in demand for bed and breakfast and hostel accommodation.

Approximately 28,000 of the 39,000 single people getting assistance will never get on to a council housing list. People in the health board have expressed the fear that with this reduction in the number of people going into the rented sector and the number of properties that will be available, the health board bill will continue to increase. The board will have to increase its expenditure to pay the rent.

Prior to 1995, the health board paid out rents of up to £400 per month. In January of this year that was increased to £550 per month. The board is doing a mid-term review and may have to do another at the end of this year. The result of that review undoubtedly will be that by the end of this year the health board bill will increase enormously because higher rents will be charged.

Consideration has not been given to the effect of the Minister's proposals. At the very least I hope the Minister will seriously consider removing the restriction on the tax benefit where houses are divided into flats approximately one year before this proposal. If those houses come on the market and are bought as going concerns and used as rented property, people must be allowed to buy them on the same basis they would have bought them prior to 23 April.

I am aware that in the south inner city approximately six such houses in one small area are on the market which between them have 100 to 200 separate units of accommodation. If those houses cannot be sold as going concerns with their rented accommodation, and if the tax benefits cannot be availed of, they will probably go on the market to single owner buyers who have £500,000, £600,000 or £700,000 to spend and they will be turned back into single family units. That is not good in the city of Dublin. Since the Minister's acceptance of the Bacon report, which he has tried to interpret, he has made changes to the legislation. I do not see any reason he cannot take these changes on board. He will have an opportunity to take amendments tomorrow on Committee Stage and in the Seanad. While I accept he wants to rush the legislation through, for the sake of another week or two it is crucial that the changes be made.

On the issue of the removal of stamp duty for houses under £60,000, I defy the Minister to find a property for £60,000. He has not a hope of finding such a property in Dublin and even outside it, in the remotest area houses are fetching prices of more than £60,000. If they are not they are so dilapidated and in need of so much repair they are not worth buying except for the site, to knock them down and rebuild. I urge the Minister to reconsider that proposal and to accept the Fine Gael proposal that the figure should be £100,000 free of stamp duty for first time buyers.

What is happening since the Minister's announcement — I accept he cannot do anything about it — where young couples thought they had fixed a price for buying houses, is that estate agents and owners are now informing them that the house on which they had paid a deposit has increased in price by £2,000. I know of one specific case in my constituency. The house price had been fixed and a deposit had been paid. The good news was that the buyers would save £2,000 on the stamp duty but then they received a telephone call from the estate agents to inform them the seller was asking for an extra £2,000. It means that the saving for the young couple trying to buy a house and make a home for themselves and their children has been lost because of the greed of people who realise they will save £2,000. I do not know whether the Minister can do anything to prevent that kind of gazumping or ensure that when a deposit is paid and there is an agreed price, it cannot be increased on the basis of this extra benefit.

I turn to capital gains tax and what the Minister is trying to do in respect of land. In the auctioneering and estate agency world there used to be three important words in regard to buying property, "location, location, location". In regard to development land there are three important words, "services, services, services". As councillors, in the 1980s, we suffered the slings and arrows of our peers, the media and all types of criticism when we recognised that County Dublin was the only area with land and that we might have to look beyond the five year development plans but we were not allowed do so. Every time we said there was a need for forward planning we were told it could not be done in the absence of the services and that money would be put into the hands of owners, developers, farmers and so on. I am sorry to say that, like many councillors, I took those criticisms to heart and we did not plan for the future. If adequate land had been zoned and even if it had taken ten years to provide the services we would now have a decent land bank with services coming on board.

I find it hard to follow all the tables in Mr. Bacon's report. Fingal County Council conducted a survey of the available lands for housing in its area. This is the one prime area where there is a great deal of land within six to ten miles of Dublin. If one goes south from O'Connell Street one would have to travel 15 to 20 miles before reaching the country whereas if one goes north from O'Connell Street to Fairview and the Malahide Road one would reach it after about six or seven miles. It is all very well for Bacon to conduct his survey and say there is X number of hectares of serviced land but he forgets to take into account that some of that serviced land is in one area. It means that everyone looking for a house will have to go to Blanchardstown. He also fails to recognise that where there may be some serviced land, for example, in Balbriggan, the sewage treatment plant is way beyond its capacity. In the absence of building new services we cannot put more sewage into those plants given that another directive, which has to be implemented by 2000, provides that raw sewage cannot be put into the sea. That is right and proper. It may technically be called serviced land but the plants servicing those lands are not in a position to take any more capacity. It is nonsense to say we have enough serviced land for X number of units although it may appear that way on paper.

I agree with the concept of strengthening villages on the outer perimeters of Dublin rather than allowing big sprawls to develop. A nice village in some cases has the capacity for 500 or 1,000 houses. If planning permission is sought for one bungalow in Lusk it will be refused by Fingal County Council due to insufficient capacity. If one were to attempt to install one of these new systems, the rules and regulations which apply means it is not worth while. Months later that person is almost demented in an effort to get planning permission.

Dr. Bacon did not speak to me or to anybody dealing with people who are trying to get hold of some of the serviced lands on which to build, particularly in the Fingal area. The Minister is bent on reducing capital gains tax. He said that to qualify for the temporary reduction in the capital gains tax rate on a disposal of development land, planning permission must have been acquired prior to the disposal. Is the Minister talking about development land already zoned or land which is good for development purposes? If it is the latter before anyone can obtain planning permission it has to be rezoned or go through a material contravention. It is difficult to get through the material contravention procedure because three quarters of councillors must be present and vote in favour. Given people's commitment and even if they were all in favour, getting a vote for a material contravention is a lengthy process. If one is trying to dispose of development land, planning permission has to be obtained. Will the Minister clarify whether he is talking about small areas which have actually been zoned but have not yet obtained planning permission? The reason they have not got the planning permission is because of the lack of services and council planners have to obey a particular regulation. If one wanted planning permission, and there was not sufficient capacity to drain the land, it would be refused. There will be a difficulty for people who might have land contiguous to the development area which is not zoned. If they want to avail of the 20 per cent and are willing to sell they have to seek planning permission which puts an onus on councillors to rezone land which attracts criticism from journalists and so on who think rezoning is forbidden.

With no disrespect to those who wrote that section of the report, obviously they are in the Department of Finance, I do not believe they ever sat at a council meeting and listened to the difficulties in regard to turning muck into development land, turning that development land into zoned land and obtaining planning permission for it. If so they would not have written this section because it will not do anything to increase the quantity of housing to reduce the price for first time buyers.

Minister for Finance (Mr. McCreevy)

I am grateful for the contribution made by Deputies. The range and extent of comments underlines the importance and relevance of this issue. I know that Deputies have been lobbied by the house building sector to reverse an important element of the Bill on interest deductibility and this was reflected in a number of contributions.

In my opening remarks I emphasised the question of balance. The proposals in the Bill are designed to restore a balance to the housing sector — a balance between supply and demand, between investors and owner occupiers and between tax concessions and removal of reliefs. In any such situation there must be winners and losers. The important question is not the extent of the win or the loss but the overall policy goals being pursued. These are to increase the supply of serviced land, to reduce excess investor demand and to assist ordinary house purchasers, thus defusing the house price spiral and increasing the affordability of housing.

In recent days we have witnessed the unacceptable facets of house price inflation — profit margins increasing and substantial increases on previously advertised prices. Inadequate supply and excess demand are what drive this phenomenon. In this Bill the Government is not seeking to undo the property market or to harm market participants. Even with the removal of interest deductibility, there will be still be a basic and strong demand for residential accommodation. The house building sector appears to accept this in its recently circulated submission.

To suggest that demand for accommodation is entirely tax driven is not sustainable. Tax reliefs played their part in stimulating demand and reviving the property market when it was flat. However, the case for continued favourable tax reliefs at a time of a property boom is far less convincing.

It is worth quoting from the Bacon report on the reasoning behind the removal of interest deductibility and the imposition of stamp duty on new houses purchased by non-owner occupiers. It states:

.there are certain measures which, if taken, would result in a better balance between demand and supply in the short term. In essence, rebalancing of existing fiscal incentives, which currently support investment demand in a number of respects, towards the promotion of housing supply to the end of the market where affordability pressures are greatest, is considered both desirable and feasible.

The report goes on to state:

.there is evidence that changing patterns of housing demand are sufficient to support a growing and more diversified rented sector, for example, rental values appear to be well underpinned. What is in doubt is the need to encourage this demand by means of fiscal incentives, especially when the revenue foregone in this direction could be focused better towards increasing supply and choice to first time buyers who are facing affordability strain.

As pointed out in the report, the main effect of the proposed measures would be to remove fiscal supports to residential demands at a time when underlying demand is extremely strong. The benefits from moving in this direction would be, among other things, to provide a more level playing field between investors and home owners and to allow investment in residential property to be determined by underlying market forces for additional rented accommodation at a time when economic and social changes are leading to an increase in the depth and breadth of demand for such accommodation.

Clearly there are arguments and concerns on both sides. Deputy Noonan is right to voice these in respect of the rental market, but I agree with Deputies McDowell and Rabbitte that the dire prognostications for the rental sector are overstated. There is a demand for rented accommodation, not just notional demand, to borrow Deputy Noonan's analogy, but effective demand. There will not be supernormal profits. That some of those currently renting can now afford to buy as a result of this package will free up a certain amount of the existing stock of rental property. We are changing the balance in the market but are also pursuing measures to increase supply.

Deputy Noonan referred to the 1998 budget as the cause of the current excess demand. The problem with house prices started well before then but was not tackled until now. In my budget, the cut in the marginal rates of income tax reduced the value of mortgage interest relief. Further, I also applied restrictions on capital allowances for property, which helped to dampen investor demand in that area. This measure, and the restriction of interest relief in this Bill, will also remove the significant tax shelters which, as the survey I published last February pointed out, can result in some persons on high incomes reducing their tax bill to practically nil.

Deputy Noonan said that the requirement to have planning permission for residential development to qualify for the lower rate capital gains tax will delay the release of land to the market. This point was made in subsequent contributions. I will deal with this matter on Committee Stage when there will be more time to reply to some of the detailed comments made by a wide range of Deputies. However, it will be sufficient to obtain outline permission. The section refers to planning permission for residential development granted under section 26 of the Local Government (Planning and Development) Act, 1963. This covers full and outline planning permission.

The requirements for documentation to accompany an application for outline permission are not onerous. Only such particulars as are necessary for the planning authority to make a decision in relation to siting and layout are required. A full designed scheme is, therefore, not necessary. The only exception to this is that outline planning permission cannot be availed of for large projects which are subject to an environmental impact assessment. In this case full planning permission must be sought. For residential-type developments, an environmental impact assessment would only arise in relation to urban development projects which would involve an area greater than 125 acres in new or extended urban areas and greater than five acres within existing urban areas. These would be a small minority of cases.

While there will be some delay in bringing to the market land which does not already have residential planning permission, the land could not be brought into residential development without valid planning permission. Planning permission would, therefore, have to be obtained in any event.

Where land is zoned for residential development and the necessary services are available, there should be no difficulty in acquiring outline permission. The existence of outline permission should make it easier for the purchaser to obtain approval for development as the issues of principle will have been decided at outline stage. Given that planning permissions only have a life of five years, linking the relief to planning permission will help to ensure that serviced residentially zoned land is developed, which is our objective.

Considerable thought was given to the phrasing of this section. The Bacon report referred to serviced and development land. I considered the matter with my officials and it was decided, rather than become involved in the complexities of defining serviced and zoned land, to take the simplest way out and make a provision regarding the granting of planning permission. Deputy Dukes made a number of points on this. It is best to simplify matters.

Mrs. Owen

The farmer or whoever owns the land must get planning permission.

Mr. McCreevy

That is correct. I am sure considerable expertise would be made available to a farmer to help him get permission if he considered selling his land. The restriction on capital gains tax is of benefit to the farmer selling the land. Companies purchasing such land — most developers are companies — which build houses and trade in development land are subject to corporation tax, which is currently at 32 per cent. The 20 per cent rate of capital gains tax is only of benefit to the farmer who sells it on.

Mr. Noonan

Will the Minister do something to clarify the date? A developer could take an option with a farmer and engage in the planning process. Unless it is fixed on the date of the contract when the option was taken out as against the date of disposal the applicant will run into difficulty in claiming the relief.

Mrs. Owen

It could be three years.

Mr. McCreevy

He must have the land disposed of by 5 April 2002 and a planning application granted in respect of that land. There are various contracts which people will enter into but the land will have to be disposed of by 5 April 2002.

The purpose in reducing the rate of capital gains tax to 20 per cent is to release development land on to the market and to have houses built on it. That was the perspective from which Dr. Bacon approached the issue. The philosophical arguments about capital gains tax rates which Deputy McDowell and I might discuss and which Deputy Noonan and I discussed forcefully on Committee Stage of the Finance Bill did not enter his thinking.

Linking the reduced rate of capital gains tax to planning permission is transparent and easy for the landowner and tax inspector. It uses a system which is well understood and involves public participation and an independent appeals process. Over 70 per cent of planning applications are decided by planning authorities within two months. In the event of an appeal there will be a delay. The average time taken by An Bord Pleanála to decide appeals is now running at 18 weeks. My colleague, the Minister for the Environment and Local Government, is taking action to ensure that in 1999, 90 per cent of appeals will be decided within four months.

I will move an amendment on Committee Stage to allow the 20 per cent rate of capital gains tax to apply to land sold to local authorities without planning permission which can be used for housing. This should ease supply problems in particular cases and may go some way to meet Deputy Noonan's concern. The need for this amendment was brought to our attention by the local authority in Limerick.

A number of Deputies, including Deputy Rabbitte, referred to certain market practices which are unacceptable and contrary to the interests of consumers. These include the practice of the phased release of new developments which is used to ratchet up prices, the return of booking deposits and subsequent gazumping of prices and instances of excessive stage payments. The Bacon report referred to these practices and stressed that they were not widespread but that where they occurred it was to the detriment of consumers. We have become aware that this sharp practice is growing. As the Minister of State, Deputy Molloy, indicated on the Adjournment last night, the most effective way to prevent such problems is to remove the conditions that allow them to happen. Bacon considered that if the market was not in excess demand in the first instance, it would be difficult for builders to engage in such practices. The package of measures announced by the Government is designed to counter the market conditions which allow these practices to grow. Even if Deputy Shatter is not entirely satisfied with this line, it is better to tackle the causes of the problem rather than the symptoms.

The consultants recommended a code of best practice but if it is found that such a code cannot be implemented effectively on a voluntary basis by the professional representative body of home builders, we should widen the statutory powers of the Office of the Director of Consumer Affairs. As the Minister of State, Deputy Molloy, said, he will be raising these issues with the Irish Home Builders Association at the earliest opportunity with a view to pursuing the voluntary approach.

I note Deputy Rabbitte's point about certain intermediaries changing contractual or negotiating practices to facilitate price increases. I will bring his concerns to the attention of the Minister for Enterprise, Trade and Employment who is responsible for consumer and contract law.

Deputy Rabbitte welcomed the provisions in the Bill dealing with interest deductibility and said we should have acted in the budget. I will not say that it did not cross my mind but it was best to await the authoritative and comprehensive report produced by the consultants to see what recommendations it contained. The Bacon report stands on its own analysis. It is not the view of the Minister for Finance or the Department by proxy. There were consultations with the Department which would be normal. The cost of the report, give or take a few hundred pounds, was £85,000, including VAT.

Deputies Noonan and McDowell raised the issue of stamp duty relief for first time buyers of secondhand houses. I accept the motivation for their proposals in this regard. I will deal with the other points raised on Committee Stage tomorrow, including some of the philosophical arguments advanced by Deputy Dukes. Economists and accountants differ. Dr. Bacon produced his report and the Government is acting on it.

An Ceann Comhairle

As it is now 6.45 p.m., I am required to put the following question in accordance with the Order of the Dáil of this day: "That the Bill be now read a Second Time".

Question put.

The Dáil divided: Tá, 69; Níl, 57.

Tellers: Tá, Deputies S. Brennan and Power; Níl, Deputies Barrett and Sheehan.

Question declared carried.

Tá
	Kitt, Michael.
Ahern, Michael.	Kitt, Tom.
Ahern, Noel.	Lawlor, Liam.
Ardagh, Seán.	Lenihan, Brian.
Aylward, Liam.	Martin, Micheál.
Blaney, Harry.	McCreevy, Charlie.
Brady, Johnny.	McDaid, James.
Brady, Martin.	McGuinness, John.
Brennan, Matt.	Moffatt, Thomas.
Brennan, Séamus.	Molloy, Robert.
Browne, John (Wexford).	Moloney, John.
Callely, Ivor.	Moynihan, Donal.
Carey, Pat.	Moynihan, Michael.
Collins, Michael.	Ó Cuív, Éamon.
Cooper-Flynn, Beverley.	O'Dea, Willie.
Cullen, Martin.	O'Donnell, Liz.
Daly, Brendan.	O'Donoghue, John.
de Valera, Síle.	O'Flynn, Noel.
Dempsey, Noel.	O'Hanlon, Rory.
Dennehy, John.	O'Keeffe, Batt.
Doherty, Seán.	O'Keeffe, Ned.
Ellis, John.	O'Kennedy, Michael.
Flood, Chris.	O'Malley, Desmond.
Foley, Denis.	O'Rourke, Mary.
Fox, Mildred.	Power, Seán.
Hanafin, Mary.	Roche, Dick.
Harney, Mary.	Ryan, Eoin.
Haughey, Seán.	Smith, Brendan.
Healy-Rae, Jackie.	Smith, Michael.
Jacob, Joe.	Treacy, Noel.
Keaveney, Cecilia.	Wade, Eddie.
Kelleher, Billy.	Wallace, Dan.
Kenneally, Brendan.	Walsh, Joe.
Killeen, Tony.	Woods, Michael.
Kirk, Séamus.	Wright, G.V.

Níl
Allen, Bernard.	McDowell, Derek.
Barnes, Monica.	McGinley, Dinny.
Barrett, Seán.	McGrath, Paul.
Bell, Michael.	McManus, Liz.
Boylan, Andrew.	Mitchell, Olivia.
Bradford, Paul.	Moynihan-Cronin, Breeda.
Browne, John (Carlow-Kilkenny).	Naughten, Denis.
Bruton, Richard.	Neville, Dan.
Burke, Liam.	Noonan, Michael.
Burke, Ulick.	O'Keeffe, Jim.
Carey, Donal.	O'Shea, Brian.
Clune, Deirdre.	O'Sullivan, Jan.
Connaughton, Paul.	Owen, Nora.
Cosgrave, Michael.	Penrose, William.
Crawford, Seymour.	Perry, John.
Creed, Michael.	Quinn, Ruairí.
Currie, Austin.	Rabbitte, Pat.
Dukes, Alan.	Reynolds, Gerard.
Enright, Thomas.	Ryan, Seán.
Finucane, Michael.	Sargent, Trevor.
Flanagan, Charles.	Shatter, Alan.
Gormley, John.	Sheehan, Patrick.
Hayes, Brian.	Shortall, Róisín.
Higgins, Jim.	Stagg, Emmet.
Higgins, Joe.	Stanton, David.
Hogan, Philip.	Timmins, Billy.
Kenny, Enda.	Upton, Pat.
McCormack, Pádraic.	Wall, Jack.
	Yates, Ivan.

An Ceann Comhairle

When is it proposed to take Committee Stage?

Mr. McCreevy

Tomorrow, subject to the agreement of the Whips.

Committee Stage ordered for Thursday, 14 May 1998.

Dáil Éireann díospóireacht - Wednesday, 13 May 1998