Taxing empty homes a political sideshow that will not fix housing crisis

The notion that a clique of rich people are sitting on thousands of empty properties, rubbing their hands with glee as they appreciate in value, while the rest of the State boils in a bath of soaring rents and prices is galling. At least it would be if it were true.

Census 2016, or at least our interpretation of it, seemed to lend credence to the idea that there was a significant stock of vacant homes just waiting to be redeployed, at very least taxed.

It recorded more than 245,000 empty dwellings, 12.3 per cent of the State’s housing stock, one of the highest vacancy rates in the world. The finding, coming as it did in the middle of a debilitating housing shortage (that has got worse in the interim), caused an outcry.

That census figure, however, completely overestimated the actual level of vacancy. Of the headline number, about 62,000 were identified as holiday homes, leaving 183,000 non-holiday home vacant dwellings. But this figure also exaggerated the true level of vacancy.

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Census enumerators captured a large chunk of homes that were temporarily vacant because the occupiers were on holiday or temporarily absent for medical reasons; or because the property was being refurbished, in the process of being let or tied up in probate.

Geodirectory — which adopts a narrower definition of vacancy and uses eircodes to identify empty homes — estimates there were 92,158 vacant units in the fourth quarter of 2021, fewer than one in 20 homes in the State, corresponding to a vacancy rate of 4.4 per cent. But it doesn’t stop there.

As part of its annual perusal of possible tax options, the Government’s high-level tax strategy group, in a paper published last week, estimated that the State’s vacancy rate was even lower, at just 3.2 per cent, which is low by international standards. The estimate was based on more granular data from the Revenue.

In Dublin, the city with the most acute housing issues, it found there were just 5,800 vacant properties, corresponding to a vacancy rate of 2.6 per cent. “Similarly low rates” were detected in other areas of high demand such as Cork city (2.6 per cent), Galway city (2.4 per cent) and Limerick city and county (2.5 per cent).

The highest rates of vacancy were in counties popular for vacationing, with holiday homes frequently cited as the reason for vacancy in Donegal (40.6 per cent of the time, with an overall vacancy of 6.7 per cent) and Kerry (holiday vacancy coming in at 39.9 per cent, and an overall rate of 6.4 per cent).

Overall, the paper concluded that the level of vacancy here is low and “in line with a functioning housing market”. Okay, so you might quibble with the use of the word “functioning” in the Irish context but it puts to bed the notion that there is substantial low-hanging fruit on the housing supply chain that can be magicked back on to the grid with a new tax.

And that’s before you get into actually designing a vacant property tax. The tax group’s report looked at similar taxes in other jurisdictions, noting there were similarities in the exemptions provided from these taxes.

“Almost universal are exemptions for when the property is subject to an ongoing legal process (ie in probate/divorce/separation/bankruptcy/court proceedings) or when it is in the process of being sold or let on the market,” it found.

“Also common are exemptions when the vacancy is due to the owner receiving medical or long-term residential care or where there is significant renovation or work being undertaken on the property,” it said.

In any case, these types of sideways interventions in the property market don’t tend to deliver what advocates expect and often the intended target eludes capture.

Take the Government’s rent pressure zones (RPZ) legislation, adopted in 2017. A recent study by the Economic and Social Research Institute (ESRI) indicated that more than a third of landlords in the relevant zones applied rent hikes over the allowable limit of 4 per cent,

While the study could not ascertain if these rises were legitimate — landlords are allowed to apply above-cap rises in certain cases if they had invested in the properties — the speculation is that many were not. Regardless, despite the big billing politically, rent controls have entirely failed to keep a lid on the rental market and have coexisted with significant worsening of the situation for renters.

The figures suggest that a vacant property tax won’t deliver a significant new seam of housing and the Government may find it difficult to design and administer one given the legitimate exemption.

That’s not to say it’s entirely pointless, just that it’s not a solution to our property woes. Authorities in Vancouver in Canada, one of the first cities to implement such a levy, insist it has elicited some additional rental supply and some funding for affordable housing, though they don’t provide the cost of administration.

There’s always a feeling with these types of measures that the motivation is more political than economic.

Vancouver’s mayor, Kennedy Stewart, announced in April that he was hiking the city vacancy tax from 3 to 5 per cent while doubling the number of annual compliance audits to 20,000, describing the move as a “big blow to housing speculators”.

With the municipal elections there just six months away, being seen to be tough on housing speculators will play well with voters.