The Government needs to impose the proposed local development charge rebate scheme on a nationwide basis in order to ease the current housing supply crisis, a leading estate agency group has advised.
Failure to recognise that supply problems are not just an issue in Dublin or Cork will do little to alleviate the current impasse which has led to a nationwide accommodation shortage, according to Real Estate Alliance.
“Although the Taoiseach has confirmed that the Government will introduce a local development charge rebate scheme for large housing projects in Dublin and Cork, they are failing to recognise the fundamental supply issues that exist in urban areas nationwide,” said REA Chairman Michael O’Connor.
“Our REA Average House Price Survey has consistently shown the extent to which a lack of supply has driven people out of the housing market and into a crowded rental space across the country.
“In concentrating on urban areas around the country, we have seen micro markets opening up, with specific towns in counties behaving completely differently, influenced by the availability of small numbers of starter homes.
“And further evidence of the nationwide shortage is shown in the recently announced 80% fall in available rental properties compared to this time last year.
“The cause of this nationwide lack of suitable housing supply, especially in three-bedroomed semi detached homes, is that builders cannot yet sell at a profit.
“The average price of a three-bed semi in our Q3 survey was €188,102 – and in simple terms, a builder needs to achieve €200,000 from the sale of a new home to cover the cost of construction.
“There is still a huge gap in the cost of building and bringing a house to the point of sale, and what it can achieve on the open market. Unless that is closed, we will continue to have a national housing crisis in the short term.
“In urban areas around the country, the market value of a house is in the order of €130 to €150 per square foot.
“However, the cost of building and bringing a house to the point of sale varies between €220 to €250 per square foot – a figure that is even higher in Dublin.
“In an environment where such a big gap exists, there is no incentive to start building, and the State must work to close this uneconomic gap.
“We feel that the State ultimately needs to abolish the 13.5% VAT rate on new homes, backed up by introducing the proposed local development charge rebate scheme on a nationwide basis, a combination of measures which will reduce the cost of a new house by €60,000 on average.
“Introducing a zero vat rate on new homes would reduce a €250,000 property to €220,000.
“The €30,000 presently charged on such a house is an inequitable burden on a young couple who are forced to borrow that sum over the life of a mortgage to pay tax.
“Coupled with the rebate on the local development charge should bring a three-bedroomed family home priced at €250,000 down to something in the order of €190,000.
“This will provide an incentive for the supply chain, but the State also needs to look at the effect that the mortgage deposit rules have had on buyer confidence.
“Just as many couples cannot afford to get on the housing ladder, second-time buyers cannot move and free up cheaper properties for new entrants.
“It is now time the Central Bank revisit the rules, raise exemption limits and include second-time buyers.
“We propose that the price ceiling for first-time buyers should be extended to €330,000 – in line with the average values in Dublin and secondly, second-time buyers should be assisted by allowing them to borrow 90% up to €220,000 as the current requirements are too prohibitive.
“Either of our two options will provide stimulus to allow the market to function, but together, they will provide a sensible solution to solving what is a nationwide housing crisis.”
Michael O’Connor of REA O’Connor Murphy, Limerick, was appointed Chairman of Real Estate Alliance at the Alliance’s recent AGM. Eamonn Spratt of REA Spratt, Dungarvan has been appointed as Vice Chairman.