“An overriding objective of Budget 2019 is to stimulate the housing market and we see the measures announced today as a clear step in the right direction.”
With residential rents exceeding Celtic Tiger highs, homelessness remaining a national priority and demand for homes continuing to significantly outstrip supply, the measures announced in Budget 2019 on addressing these challenges will be welcome. The Minister reiterated his commitment to providing secure and affordable homes and it is clear that an overriding objective of Budget 2019 is to stimulate the housing market. This is key to relieving the pressures in the residential rental and housing sectors, with the measures announced today being very much supply-focused.
The full restoration of a 100% tax deduction for interest expenses incurred on loans used to purchase, improve or repair residential property for rental purposes is a positive development for the sector and should help to unlock much needed supply. Enabling a 100% interest deduction, at a time when interest rates are low, gives the sector a needed boost without a huge immediate hit for the exchequer. The removal of the restriction will be effective from 1 January 2019.
However, the introduction of a tax deduction for Local Property Tax paid on residential rental properties failed to materialise. Such a measure would have further helped to unlock supply.
While supply is beginning to pick up, the pace is simply not fast enough to meet current demands in the residential sector.
It is disappointing (but not surprising) that the Minister did not announce any specific tax incentives for developers, such as a reduction in the VAT rate applicable to the sale of residential property. This is recognised by a number of industry bodies as being one of the key components driving up the cost of construction and a reduction in the VAT rate would greatly assist in restoring residential construction activity to a sustainable level.
It is clear from Budget 2019 that the Government realises reliance cannot be placed solely on private developers to increase the supply of housing in the State. While private developers have a role to play in addressing the current social and affordable housing deficit, the State has significantly increased its involvement in this sector. The commitment of €1.25 billion to deliver 10,000 new social homes in 2019 through a combination of construction, acquisition and leasing is a positive step.
The Minister also announced the commitment of €100 million to the Serviced Sites Fund to assist local authorities to deliver affordable housing. This is set to increase to €310 million over the next three years. This will facilitate the delivery of an estimated 6,000 affordable homes over the lifetime of the Fund.
Given the significant need for additional capital investment in this sector, we welcome the fact that no increase in the current 1% and 2% rates of stamp duty for residential property have been announced.
However, there is an increase of €162 million in the forecasted revenue to be generated from stamp duty in 2019, compared with the 2018 figures. While this increase is most likely based on a predicted increase in activity, the possibility remains that a change could be introduced in the Finance Bill, due to be published on 18 October. At a time when further investment of capital is greatly needed to ensure incremental supply we would caution against any such change.
Although future changes to the current Local Property Tax regime have been heralded, significant changes to the regime were not announced in the Budget speech. While acknowledging that increased property values have caused concern about future Local Property Tax liabilities, the Minister committed to future changes being moderate and affordable.
No further changes have been announced in relation to the Irish Real Estate Fund (IREF) rules. This is important in terms of maintaining the competitiveness of the Irish Financial Services sector.
The clear thrust of Budget 2019’s measures are about increasing housing supply. While definitely a step in the right direction, only time will tell if the measures will increase housing supply in Ireland.