There is universal agreement that Ireland’s housing crisis remains one of the biggest social and economic issues facing the country. Our housing and property market is in deep difficulty, with the Central Bank of Ireland estimating 34,000 new homes a year over the next decade must be built to keep up with demand.
The Government’s number one policy priority is to maximise new housing output and has recently introduced a new Residential Zoned Land Tax (RZLT) with the goal of activating vacant land for residential purposes as a part of the Pathway to Increasing New Housing Supply.
While the new tax aims to incentivise landowners to develop housing on zoned lands, if implemented in its current format it has the potential to have the opposite effect by further increasing development costs and in turn increasing house prices.
The RZLT is an annual tax which is calculated at 3% of the market value of land within its scope and applies to land that, on or after 1st January 2022, is zoned as being suitable for residential development and is serviced. The tax is payable each year in respect of the land unless a deferral applies or the land ceases to be liable to the tax. There are a number of exclusions from the tax, including sites which are subject to the Derelict Sites Levy and land used for certain infrastructure.
Earlier this month each local authority prepared and published maps identifying lands within the scope of the tax. Under the legislation any properties highlighted will all be subject to the 3% tax unless the landowner makes a submission outlining the reasons why the lands should be excluded. This appeal must be lodged with the Local Authority by the 1st January 2023, providing a very narrow appeal window, particularly given most parties will need a planning consultant to assist them.
The deep problems in our planning system will further limit the effectiveness of the RZLT in stimulating housing output and ultimately increase the cost of development. Nearly every planning permission is currently being objected to, substantially extending the application time period for new developments. It seems unjust that if a landowner / home builder is using their best endeavours to obtain a planning permission for a housing development that they will be penalised by having to pay the RZLT throughout the slow planning process. If a site is worth €10,000,000, the tax each year would be €300,000. Assuming it takes three years to obtain planning permission and start building, then the tax would be a very sizeable €900,000, which will essentially be an additional cost of construction and in some cases could affect viability. Landowners will have no option to pay this tax for an extended period of years, increasing the cost of building and ultimately prices for young homebuyers.
The legislation as it is currently stands will also penalise builders who are developing larger sites, as it is designed to tax those parts of the sites which do not have planning permission or yet to commence construction. On very large sites builders tend only to obtain permission for portions of the land rather than the entire development, and in many cases the lands are phased by the Local Authorities allowing limited number of units to be granted permission during different time periods. Landowners will now have to pay tax on the balance of their lands without permission, again adding to the overall cost of the development.
Furthermore, there are many home builders who have secured planning permissions at great cost, but given the passage of time that passed between site acquisition and securing planning permission the project is no longer viable, primarily due to inflation in construction costs. It seems very unfair to impose a tax on these sites simply because they cannot secure funding to deliver the residential development that was planned in good faith.
Finally, the new tax is aimed at land which is zoned residential or of mixed use that is currently idle regardless of its planning status. Property currently in use is exempt from this tax, but significantly farmland that is zoned and has access to services is not. Farmers with zoned residential land will have the option of applying to have the land de-zoned as part of this process or face the very difficult prospect of being levied a 3% per annum tax on the value of their land from 2024. I have no doubt this will be a concern for many, especially as there are punitive penalties for non-payment.
While the RZLT will replace the largely ineffective Vacant Site Levy, which has had minimal success in discouraging land hoarding, it is my firm belief that Government needs to review the workings of the tax to ensure it is both effective and equitable.
Legislation should be altered to exempt any landowner who has lodged planning permission or is subject to a LAP for a site from having to pay the tax, on the basis they start construction within a reasonable period of time following the final grant of permission. The initial date of appeal should also be extended further than the 1st January 2023, and any site undergoing phased development should be exempt.
Ultimately, the RZLT in its current form has the potential to undermine many projects and increase the cost of house building at a point in time where actual build costs are already escalating due to inflation. The delivery of housing has many challenges to deal with currently and if Government wants to deliver on its Housing for All targets the focus has to be on fixing our planning system and improving viability, ensuring young home buyers can afford their new home.
