Michael O’Flynn: ‘Land value sharing’ proposals will increase house prices

The proposal from the Government, reported in The Irish Times, that the State would receive up to 50 per cent of the value uplift on a site when it is zoned for new homes will not deliver any extra land for housing and will only make new houses more expensive. It is yet another example of decision makers seeking to make headlines rather than build houses.

This proposal will simply not do what, presumably, it is designed to do – deliver more land for affordable housing. Not one acre, not one home.

Consider for a moment the central thrust of the Government’s argument- in order to make more land available for housing, we are going to disincentivise its sale and in order to make housing more affordable, we are proposing to heavily tax the sale and development of that land necessary to build that housing.

The existing system and the recovery of the costs to local authorities of providing infrastructure like water, wastewater and communications to new sites needs to be reformed

It is time this Government started to seriously address the housing crisis instead of looking for catchy headlines that are misleading at best.

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At a time of a prolonged and acute housing crisis, when we are failing in our basic moral duty to put roofs over people’s heads, the Government is proposing to do exactly what it should not do – disrupt the market, dissuading landowners from entering that market while driving up costs for end purchasers, who are already facing a severe lack of affordability.

Commentators often claim that successive governments have failed to introduce any of the recommendations of the 1973 Kenny Report and that those recommendations are still valid today. Both these assertions are false.

Significant changes have been introduced since Judge Kenny made his recommendations nearly 50 years ago. Firstly, capital gains tax on the sale of land achieved the purpose of the “betterment” tax recommended in the Kenny report – since 2008, the rate of CGT has increased from 20 per cent to 33 per cent.

Secondly, the “right” to planning permission on zoned land and to compensation in lieu have been abolished.

If I am wrong, let the Government explain itself

Thirdly, let us not forget that development levies – designed for the exact purpose of funding the supporting infrastructure for new communities – were recommended by Kenny and have been in place for more than 20 years.

The existing system and the recovery of the costs to local authorities of providing infrastructure like water, wastewater and communications to new sites needs to be reformed. A simple way to do this would be the establishment of a “deliverability test”, which would see money only being spent on infrastructure delivery to land that will be built on in good time.

At the moment, scandalously, no proper test is in place, resulting in services infrastructure being invested in sites where no housing will be delivered any time soon and no infrastructure being provided where houses could otherwise be delivered immediately.

Further, the delivery of much infrastructure associated with new developments, such as new train stations, road upgrades and water and sewerage improvements, primarily benefit existing homeowners, who will not pay a cent for these amenities. This is yet another example of unfair policies resulting in young people trying to get on the property ladder being forced to subsidise their older, more comfortable neighbours.

Existing homeowners, of course, pay local property taxes that are designed to pay for the services that the Government now claims it needs this extra income to pay for. If there is a funding issue, surely the levying of the requisite level of local property taxes, paid by both new and established homeowners, would be a fair way to deal with this.

An ugly populism has developed in the national debate on housing, which sees any measure seen to “punish the developer classes” as a good move, even when there is a blindingly obvious case against its implementation. This latest proposal is borne out of an anti-developer bias that is now distorting policy to the detriment of those trying to buy a home for themselves and their families.

It also beggars belief that the Government is proposing a measure that, even if success were measured only by how much money it delivers to the coffers of county councils, would take years to deliver. The housing crisis is being felt now and measures to curb it – more zoned land, faster housing delivery and measures to curb costs – need to be delivered immediately.

It is a simple law of economics that increasing the cost of delivery – which this proposal does – results in a higher end price. Denying that reality might get you headlines, but it will not build homes. An inconvenient truth, but a truth, nonetheless.

The measures do nothing to stop the price of land from increasing but those who have been waiting for years to try to buy homes will now have to pay prices that ensure that the ever-increasing cost of construction is covered as well as covering a gain for the State.

If this idea is adopted, we face the appalling vista of a land supply crunch as owners decline to sell or consult their legal teams, while the planning authorities and the Office of the Planning Regulator are left to implement policies that are fundamentally flawed.

If I am wrong, let the Government explain itself. We are told that the Housing for All strategy will be published soon. That document should only contain policies that will increase supply and affordability – if the idea does not fit the brief, it should not be included. If this idea will mean the delivery of more homes, let them spell out the number of new houses that will be built as a result of its implementation and when.

If that information is not forthcoming on the day of publication, it will be clear just how much faith the Government has in its own policies.

Michael O’ Flynn is a property developer and chairman and chief executive of the O’ Flynn Group