Commercial Property

Development land: New tax is the single biggest impediment to housing delivery

Proposed Zoning Value Sharing will decrease supply of new homes – at a time when they’re badly needed

Projected home completions for 2023 and 2024 stand at around 33,000 and 34,000, respectively – just 55 per cent of the annual demand
Projected home completions for 2023 and 2024 stand at around 33,000 and 34,000, respectively – just 55 per cent of the annual demand
Evan Lonergan
Wed Dec 04 2024 - 07:00

Activity in the Irish development land market has shown improvement year-on-year, although this comes off the back of a disappointing 2023.

In the first half of 2024 about €240 million worth of land was traded, a significant increase from the €120 million recorded during the same period last year. Notably, 2024 has experienced a higher volume of transactions, with residential land remaining in greatest demand. Despite this uptick, the market is exhibiting considerable caution, particularly regarding larger, more complex deals.

A few larger transactions did materialise, with trades in the €30 to €50 million range including Cairn Homes’ acquisition of residential land in Donabate and Mountpark’s industrial land purchase in Lucan. Nevertheless, the bulk of the activity concentrated on transactions below €15 million. Given the ongoing housing crisis, these smaller-scale transactions are unlikely to sufficiently increase supply to meet the escalating demand.

The same challenges persist, with planning permission and new government land taxes leading as primary obstacles to more robust land trading. As we review the current state of housing demand and supply, it becomes clear that the outlook is concerning.

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Projected home completions for 2023 and 2024 stand at around 33,000 and 34,000, respectively – just 55 per cent of the annual demand. This shortfall suggests that supply may dwindle further in the coming years, influenced by the reduced volume of land sold in recent times.

The financial viability of housing developments remains precarious, factoring in funding and construction costs, which heightens the risks for developers. The Government’s levy rebate scheme has proven beneficial, enabling the viability of several projects, particularly outside Dublin. With the scheme set to expire soon, it is crucial that the new government continues and expands such initiatives.

However, if the levy rebate was a success, the proposed Zoning Value Sharing (ZVS) is likely to have exactly the opposite effect. ZVS is a revision of the proposed land value sharing scheme that was published in 2021, and proposes a 25 per cent tax on land that doesn’t meet the timelines of 2026 and 2028 whereby landowners must have secured a planning permission. However, ZVS is significantly more complex than the proposed trigger dates suggest, when matters such as expiring local area plans etc are considered.

Evan Lonergan, Knight Frank: 'The same challenges persist, with planning permission and new land taxes primary obstacles to more robust land trading'
Evan Lonergan, Knight Frank: 'The same challenges persist, with planning permission and new land taxes primary obstacles to more robust land trading'

In my opinion, if adopted, the tax will represent the single biggest impediment to housing delivery, and commercial in due course, in the 25 years that I have been trading land. At the very least, the tax is going to add greater confusion to the land market over the next 12 months and when there is confusion, parties don’t tend to deploy cash, which as outlined above is going to decrease the supply of end product over the coming years. This tax needs to be reversed immediately as it totally defies logic; if we were experiencing a significant oversupply of housing and zoned land it might be easier to understand some of the thought process behind it, but not at the moment.

Looking ahead to the next 12 months, sites with implementable planning permissions will likely be highly sought after. We believe there are a number of purchasers waiting to deploy money into the land market as soon as they feel comfortable in doing so. In addition to this there needs to be increased activity across the “longer term land” sectors to bolster housing supply, particularly as population forecasts predict double-digit growth over the next decade.

With a new government stepping in for 2024, there is hope that they will grasp the intricacies of land acquisition and housing delivery, offering a clearer and less daunting path for landowners and developers to help alleviate the housing crisis.

Evan Lonergan is a director in Knight Frank

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