A new property tax of 2 to 2.5 per cent a year on second homes, including holiday houses, in order to discourage speculation is proposed in the new Bacon report on housing which will be published today. However, the proposal applies only to properties bought from now on, and not to existing second homes.
The report by Dr Peter Bacon also recommends raising from £60,000 to £150,000 the exemption limit from stamp duty on second-hand houses and apartments bought by first-time buyers. And it specifies major sites in Dublin, Cork and Galway which it says should be subject to a special fast-track planning process for housing development.
The Government will announce its reaction to the Bacon recommendations at a press conference at noon today, following which it will rush a number of taxation measures through the Dail. While it is certain to bring in tax changes to try to damp down house-price rises, it may not accept the proposals in full.
The financial resolutions to be put before the Dail this afternoon will herald a new Finance Bill to underpin the changes. This is expected to be passed this month. It will be the second special Finance Bill in two years designed to cool the property market.
The report, the third on the housing shortage produced by Dr Bacon, says that while house prices are continuing to rise, the rate of increase has halved since early 1998. Prices for first-time buyers have tended to rise more quickly, and economic growth, falling interest rates throughout 1999 and the large numbers of people coming to Ireland to work have continued to push up prices.
The proposed property tax on homes which are not principal primary residences is designed to discourage investors. It is intended primarily to penalise those buying houses and apartments in urban areas with the intention of selling them on at a large profit after a short period.
However, the recommendation would also affect purchasers of holiday homes. It would therefore represent a dramatic policy U-turn, in that under current regulations purchasers of holiday homes in designated schemes receive tax benefits.
The proposal, if implemented, would thus lead to an anomalous situation.
Houses in schemes which have already been granted special tax designation might be exempted from the tax, which would apply only to houses bought in the future and would not apply retrospectively. The measure, according to Dr Bacon, should distinguish between long-term landlords, who would be exempt, and short-term speculators, who would pay the new charge.
Speculation in recent weeks that the report would recommend the abolition of stamp duty for first-time buyers has proved unfounded.
The report recommends that first-time buyers of second-hand houses worth up to £150,000 be exempt from stamp duty, a substantial increase from the current £60,000 threshold. The rates of stamp duty on second-hand houses worth over £150,000, but under £300,000, would also be reduced for first-time buyers. Stamp duty is not payable on newly-built houses.
The exemption threshold for other owner-occupiers should be raised more modestly, from £60,000 to £100,000, according to the report. Investors and holiday-home purchasers would pay a 6 per cent minimum rate, rising to 9 per cent on houses worth over £500,000, on all properties which are not their principal primary residence.
While 46,500 private houses were completed last year, the report says that an average of 54,500 such completions is needed each year to 2005. The proposal that certain zones be given special planning designation is intended to speed up the building of new houses and end long delays caused by objections and planning appeals.