Nama convinced Noonan to adopt vacant site levy

The Government's confirmation of its plan to levy investors who are sitting on vacant development sites from January 2019 could be a parting shot of sorts for outgoing Minister for Finance, Michael Noonan.

The idea is simple, the Government wants to levy anyone sitting on vacant land that could be used for housing. It aims to incentivise such owners to sell the property for development rather than hoarding it to earn a bigger profit down the road as prices increase on the back of the housing shortage.

Various politicians and interest groups have called for precisely such a levy. However, the organisation that appears to have convinced the Government to do this is Nama. Its chief executive, Brendan McDonagh, argues that there is evidence to show that some landowners are happy to sit on assets.

Nama and its debtors sold land capable of holding 50,000 new houses over the last six years, but the purchasers built, or began building, just 3,220, a mere 6 per cent of what could be produced. McDonagh regards this as a poor return, even allowing for the fact that the new owners could not have started all 50,000 houses as soon as they acquired the sites.

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He says that vacant sites’ values increase more rapidly than house prices. If a house’s worth rises to €450,000 from €300,000, the Nama chief executive points out that a site can grow to €180,000 from €50,000. This creates a fair incentive for someone to do nothing other than sit and watch their investment swell.

Developers, including Michael O’Flynn and Cairn Homes’ Michael Stanley, say the Nama viewpoint is simplistic and that homebuilders have no interest in hoarding land. The problem, they say, is access to finance to develop such sites.

As ever with levies, the issue is the rate at which it is applied. Too low a rate could be soaked up by landowners; too high and the Government’s lawyers have warned that it could risk compromising landowners’ constitutional property rights.

“So there is a balance to be struck,” Noonan says. Both side know the rate applied will be 3 per cent. The problem for Government is that in the midst of a housing crisis, landowners will not feel the squeeze for at least another 18 months.