Tax break for new house buyers mooted by Michael Noonan

New house buyers could be in line for a tax break in Budget 2017, Minister for Finance Michael Noonan has signalled.

Speaking at the Oireachtas committee on housing and homelessness, Mr Noonan poured cold water on suggestions that VAT on the construction sector would be reduced from 13.5 per cent to 9 per cent.

He said he would rather introduce a tax break that would “put money in the pockets of purchasers rather than in the pockets of builders”.

“The model I am looking at is the very successful tax breaks for home extensions.”

This scheme allows homeowners to claim the VAT rate on their renovations over the subsequent two tax years, so 13.5 per cent of what is spent on the property is returned as a tax credit.

A similar scheme for buyers was “under active consideration by my department”, he told the committee.

The proposed construction sector VAT reduction was still “worth looking at” but, he said, may not be the most cost effective way of increasing housing supply. The reduction to 9 per cent would cost €210 million.

“If we were to use that same €210 million for extra capital spending on social housing we would be getting a bigger bang for our buck” as that spending would generate €800 million in activity, he said.

Social mix

In 2004, the then Fianna Fáil administration moved away from local authority construction to buying housing in estates. Mr Noonan said he had been a “strong supporter” of this at the time because of the social mix it delivered, but he said that policy only worked because there was strong supply. “I think it’s time now the local authorities became more directly involved.”

However, he said there seemed to be difficultly getting clearance from the Department of the Environment for social housing construction projects and that was causing delays in the delivery of housing. “It would be national policy to reduce that . . . to take the unnecessary red tape out.” The local authorities had been given power to go ahead with housing projects which had a value of under €2 million. Mr Noonan said he would like to give them more discretion to act autonomously by raising that ceiling to €5 million.

However, he said there seemed also to be a problem with the “capacity” of the local authorities to use the funds they had been given.

‘Short of money’

He said he would like to support devolving powers to local authorities but noted how, when he gave discretion to cut Local Property Tax, there was a widespread application of the full 15 per cent cut, despite councils claiming to be “short of money”, he said.

“In one Dublin local authority it was off the housing budget they took it.” This action was “less than admirable”, he said. “There’s no point in cutting your own budget and coming back crying to central government.”

There had been a big decline in the number of people in mortgage arrears, he said, but there was a “hard core” of people who were finding it very difficult to cope. “There is a cohort of people not being reached by existing measures.” Mr Noonan said there would be an announcement of measures to deal with this issue by the weekend.

Socialist Party TD Ruth Coppinger raised concerns about the increasing prevalence of "vulture funds" in the housing market. Mr Noonan said such entities had to abide by the same rules as other lenders, and they had their advantages. "Vultures carry out a very good service to the ecology by clearing up the dead animals."