The Government is determined to face down intensive pressure from builders and auctioneers to abandon measures to deflate home prices.
Since details of an integrated package of reforms were announced by the Minister for the Environment, Mr Dempsey, last Thursday, pressure has grown on the Government to abandon those elements aimed at speculative investors. In particular, the Irish Home Builders Association and the Institute of Professional Auctioneers and Valuers have sought retention of an ability to offset interest on borrowings against rental income.
Government action to stabilise house prices, on foot of the Bacon Report, took effect from April 23rd. And the Minister for Finance, Mr McCreevy, will include the provisions in a special Finance Bill to go before the Dail tomorrow.
Speculative investors are believed to have bought 80 per cent of some flats developments in Dublin in the past year, along with 30 per cent of new houses, thereby competing with first-time home-buyers and driving up property prices. Dublin prices increased by an estimated 20 per cent in the first three months of this year.
The overheating property market and the huge profits made by builders and developers caused the Irish Congress of Trade Unions to warn that the situation could undermine the social consensus underpinning Partnership 2000.
In his report, Mr Bacon argued that the special tax breaks available to investors under Section 23, and their ability to offset borrowings against rental income, distorted the market and promoted excessive property investment with a view to capital appreciation.
Building and auctioneering interests argue the package is unbalanced and will severely affect the rented accommodation sector, where rents will increase rapidly.
Spokesmen have spoken of "catastrophic consequences" if the Minister does not reconsider his decisions. Building projects had already been cancelled, they said, and more would follow, with a knock-on effect on employment and future rental levels.
A spokesman for the Department of the Environment said there was no question of the Government backing off last week's announcement. "The decisions have been made; the package of reforms has been announced and it will go ahead," he said.