The removal for a period of development contributions will be a central part of today’s Government housing plan. But what are these levies and what will this mean?
What are development contributions?
Also known as development levies, these are paid to local authorities by developers when they build residential or commercial buildings. They help fund local infrastructure in areas like transport, water, community facilities and parks. Infrastructure paid for by the general levies is not necessarily related to the development in question – additional special levies can be raised if specific infrastructure related to a development is needed. While development changes have been charged in some form since the 1960s, the current regime was put in place by the 2000 Planning Act.
What are they based on?
They are based on the size of the property and levied per square metre. For example the current charge in Fingal in Dublin is €121.34 per square metre. The charges vary widely across the country – for example in Cork City they are €50 per square metre and in rural areas they would typically be lower again. The local authority has to outline where it intends to spend the money under broad headings, and agreeing this is a function of local councillors.
What do they add to the price of a house?
This would vary significantly across the country, depending on what contribution rate councils have set. The average - for homes and apartments - is €12,650, according to the Government. In Dublin, where the highest development contributions tend to be charged, the cost of the contributions for an average new house would be around €25,000 to €30,000 – the apartment figures would be lower. In many regional locations it would be significantly lower, often coming in at €10,000 or lower on a new house. In Waterford, for example, development contributions on an average new house might be in the €7,000 - €8,000 region.
Will this be passed on to homebuyers?
That will at big question. The Government will pressure builders to do so but can’t make them, bar threatening to bring levies back in. They will argue that builders will want to sell their properties and so will cut the prices on offer. However, in the case of apartments, in particular, builders argue that costs currently make it uneconomic to construct them – and so they may seek to take some of the gain back. Either way the Government will argue that it will get more houses and apartments built and that this is the key goal, rather than cutting costs to homebuyers.
What will it cost?
We should get an estimate from the Government today. Development contributions raised €200 million in 2020, though this included levies on commercial buildings. The 2020 figures would also have been affected by the Covid building shutdown and were a bit higher in earlier years. The Government has said it will compensate the local authorities from central funding – they would typically account for 7 to 10 per cent of a council’s capital (investment) budget). This basically transfers a cost from the buyer of a new home to the exchequer and thus all taxpayers.