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Minister for Finance and Public Expenditure & Reform, Paschal Donohoe TD, this evening (Tuesday) laid a report on the Taxation of Vacant Residential Property before Dáil Éireann. Section 86 of the Finance Act 2017 requires the Minister for Finance to lay a report before Dáil Éireann on the issues relating to making provision in law for a tax on vacant residential property*, the administration and implementation of such a tax, the availability of reliable baseline data and the estimated annual revenue from such a tax. The Act stipulates that this must be done within nine months of the passing of the Act (i.e., no later than 25th September 2018).

Indecon consultants were accordingly engaged by the Department of Finance to conduct an examination of the potential rationale for this form of taxation; levels and trends in vacancy data; reasons for vacancy and issues re the implementation of a vacancy tax; and alternative options which may exist to reduce the levels of vacant properties The approach adopted by the consultants involved the following research elements: Analysis of the existing data sources on residential vacancy rates in Ireland; Examination of unpublished empirical information provided on vacancy rates in rent controlled zones; Analysis of data provided by the Revenue Commissioners based on Local Property Tax Returns; Review of submissions from open invitation for stakeholders to input to the review; Survey of auctioneers to gain their insights into prevailing vacancy rates; Examination of local authority initiatives to identify and reduce vacancy levels; New econometric modelling of the determinants of residential vacancy rates; Review of vacant property taxation regimes in other jurisdictions. Indecon’s report has been duly laid before the Dáil in fulfilment of the statutory requirement. Recommendations Six recommendations are made in the report.

1. 2. In the event that a vacant property tax is introduced at some stage in the future, careful consideration is required to design the appropriate criteria for the implementation of such a tax. 3. Properties vacated by owners due to illness who rent vacant properties should be exempt from the current Local Property Tax. 4. Enhanced evidence should be collected to monitor movements in the level of vacancies of residential properties. 5. A major programme of compulsory purchase orders should be urgently activated on suitable residential vacant properties. 6. Consideration should be given to introducing a time limited differential rate of capital gains tax for long term vacant residential properties.

Minister Donohoe said:

This report arises from an amendment I tabled to Finance Bill 2017, which required me to lay a report on this topic before the Dáil no later than 25th September. Before proceeding to introduce a tax of this nature, it was vital that we have a sound understanding of the extent, locations and characteristics of long-term vacant dwellings, and the reasons why they are currently vacant. In their report, Indecon is not recommending the introduction of a residential vacant property tax at this time as they do not believe it would be an effective response to deal with the housing shortage. They do however recommend that this is kept under review. It is also Indecon’s view is that the very low vacancy rates in the areas of greatest demand for housing, indicate that the potential for a vacant property tax to increase housing supply is very limited and could represent a distraction from the need to significantly accelerate the building of new social housing, affordable housing and the facilitation of other housing supply, which the Government has underway. I will now examine the report and its recommendations, in conjunction with relevant Departments and will make my views known then.

Notes to Editors

*The primary objective of a vacant residential property tax would be to increase the supply of homes for rent or purchase to meet demand rather than increasing tax revenues. In that context the Minister considered it was important that we have a sound understanding of the quantity, locations and characteristics of long term vacant dwellings, and the reasons why they are currently vacant. The Minister also considered that we need to ensure that any vacant dwelling taxation measure is capable of effective implementation and that it avoids unintended consequences, such as perhaps properties being deliberately left to become derelict so as to avoid a vacant home tax.  The two main sources of information on vacancy rates are the CSO data based on the Census and GeoDirectory data. These two sources appear to suggest very different estimates of vacancy levels. The reasons for the differences are in part due to differences in methodologies and definitions of vacancies.  The issue of housing supply and demand imbalance is particularly relevant in the Rent Pressure Zones. There are 21 Local Electoral Areas which have been designated as Rent Pressure Zones (RPZ). Vacancy rates in the RPZs in 2016 were 61% lower than for non-RPZ areas. The evidence shows that vacancy rates have been falling faster in RPZs than the national average. A key policy focus of any potential vacant property tax would be to target properties which are vacant on a medium to longer term basis rather than the units which are vacant on a short-term basis. The prevalence of medium/ longer term vacant dwellings is therefore critical in assessing the merits and potential impact of a vacant property tax. New analysis completed for this study provides evidence on residential dwellings which suggests very low levels of long term vacancy.