The residential zoned land tax was included in the 2021 Finance Act as a measure to increase housing supply by encouraging developers to build on suitable land rather than hoard it. More than 2½ years later the implementation date of next February looks set to be pushed back. It is another sign of the unsatisfactorily slow progress in addressing the structural problems in the housing market.
The central issue which the tax is designed to address is land hoarding – developers holding land in the hope that they can sell it on at a higher cost, rather than building on it. At issue here is land which has the appropriate planning permission and is serviced with infrastructure.
A tax of 3 per cent of the market value of such land was due to be levied from next February, in an effort to get developers to either move ahead or sell on the holding to somebody who would. Local authorities have undertaken significant mapping work in preparation. But now the signs are that there will – for the second time – be a delay.
The reason being given for this is to try to find a way to exempt farming land which lies within an area zoned for housing. This is a reasonable goal, but it is an issue which was clear since the proposal was first aired and should have been dealt with already. So should some other issues in the legislation which were criticised by the Housing Commission and others as likely to cause difficulties. But now we are told that the tax will not commence next February.
The Government, it appears, is afraid of the backlash from farmers ahead of the general election. It may also be seeking to simplify the Finance Bill as much as possible as this will be necessary to ensure a quick run to the electorate after the budget on October 1st. Taoiseach Simon Harris said yesterday that it was now up to the Department of Finance to amend the plan.
Land hoarding and unused planning permissions for new homes – estimated recently at up to 80,000 – are a key blockage in the housing market, as recognised by a string of expert body. A number have recommended a wider tax on land to try to address this. The idea of the residential zoned land tax was a more modest concept, but – implemented properly – it could help to address the problem.
The ongoing failure to do so illustrates the glacial pace of fundamental reform. The Government is spending billions on housing but it is unclear whether its planning Bill will be enacted before the general election and it is now very unlikely that the residential zoned land tax will be. Without these kind of reforms, the vast sums being spent on housing will not get the best return.
The inability to coordinate this kind of policy reform and the unwillingness to upset vested interests remain key problems in addressing the housing crisis.