It is it is critical that Ireland continues to attract private capital alongside record public investment if the supply of new homes is to be sustainably increased, Department of Finance officials have told Minister Jack Chambers.
Briefing material prepared for the Minister on his appointment last month says that Government targets for new housing are likely to be revised in the autumn to take account of a growing population under a new planning framework.
The Department of Finance estimates that development funding of about €13.6 billion per year is needed to meet the target of 33,000 homes set out in the Government’s Housing for All strategy. “In a scenario analysis of 50,000 units annually the department estimates that it would require investment capital of closer to €20 billion each year.
“Housing for All is currently backed by the largest ever housing budget in the history of the State. This year over €5 billion will be invested in housing, through the Exchequer, the Land Development Agency and via Housing Finance Agency lending. Investment from a diverse range of sources including the State, banks, and the non-banking sector, will be central to increasing the supply of new homes.
The briefing documents say that the focus of institutional real estate firms is “primarily on building apartments of the rental sector”.
“The forward funding model used by many developers means that without this investment – this supply of new homes would simply not be built.”
The Department of Finance says that indicators of future housing output “continue to be positive”.
“Housing commencements figures show that commencement notices were received to build over 30,000 units between January and April 2024.”
However, officials warned the Minister that “these figures are heavily skewed by the anticipated end of the waiver on development levies and the water charge rebate, which were due to expire in late April but have since been extended”.
The department also expresses scepticism about the merit of reducing VAT in a bid to lower house prices. “There is little expectation or indeed a requirement that a VAT reduction would be passed on to consumers. Moreover, it is important to note that any subsequent return to a 13.5 per cent VAT rate could lead to price increases being passed to consumers as firms sought to preserve their gains from the temporary reduction.”
The Department of Finance also warned the Minister that the impact on revenue for the Exchequer as a result of planned global corporation tax changes could be greater than previously anticipated.
“A first estimate of the net cost of implementation of the overall OECD agreement, ie taking into account the loss of tax revenue from Pillar One and expected increase from Pillar Two, was published by the Department of Finance in 2020. Annual corporation tax receipts were assumed to decline by €2 billion which was approximately 20 per cent of corporation tax revenue at that time.
“Since then corporation tax receipts have increased substantially and accordingly the cost of implementation of the agreement is also likely to have increased significantly. ”
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