-
Tax, welfare and and cost of living packages will boost incomes and spending power next year
-
Extension of Help To Buy and greater funding for housing are positives
-
Activation of residential zoned land tax should boost land availability for residential development
-
Increase in stamp duty on bulk home purchases is an own goal
Dublin, 01 October 2024 – It is clear to see that today’s Budget will significantly support activity in the domestic economy next year. The package of personal taxation, welfare changes and cost of living supports announced (including the USC rate cut from 4% to 3%, increases in a variety of income tax credits, the increase in the standard rate tax cutoff point to €44,000, a new energy credit of €250) will all boost spending and ease lingering cost of living pressures, helped by lower inflation which the government forecasts to come in at 1.9% for next year. Furthermore, the reduction in personal tax burdens is also important in keeping our tax system competitive in a global context, a critical consideration given the importance of the multinational sector to our economy.
From a residential real estate perspective, the extension of the Help to Buy scheme to the end of 2029 and the increase in renters’ tax credit to €1,000 for 2024 and 2025 will again help affordability for those renting and looking to purchase homes. In the student accommodation segment, the reduction in student contribution fees also helps underpin third level education demand.
However, when it comes to most sectors of Irish real estate, demand isn’t the problem – supply is. In that context one of the best real estate results coming from today’s budget was the decision to proceed with the residential zoned land tax in early 2025 which in will enable badly needed land to be released into the market for residential development. The €1.25 Billion allocated to the Land Development Agency earmarked for housing in another positive step as is the €2 Billion social housing spend next year. But the decision not to extend the waiver on development contributions beyond the end of 2024 is something of a missed opportunity to further improve viability over the medium term, particularly in light of the long-term extension to the Help to Buy scheme. Hopefully this will be reviewed again before year end.
The €1.25 Billion allocated to the Land Development Agency earmarked for housing in another positive step as is the €2 Billion social housing spend next year. But the decision not to extend the waiver on development contributions beyond the end of 2024 is something of a missed opportunity to further improve viability over the medium term, particularly in light of the long-term extension to the Help to Buy scheme. Hopefully this will be reviewed again before year end.
The Ministers’ comments around the use of the Apple funds make sense – the focus on housing and the use of these funds for longer term infrastructural projects (water, transport and energy) should benefit Irish society and pay longer term economic dividends, providing the impetus for the Irish economy to continue to outperform in the medium term.
On the negative side, the decision to increase stamp duty on bulk buying of homes from 10% to 15% is a real government own goal for a number of reasons. Firstly, it sends out a negative signal to international investors at a time when a significant amount of capital is badly needed if Ireland is to deliver the housing we need. Secondly, the measure takes a very one-sided view of the role of international investors which on a net basis (including sales into the market as well as purchases from it) have added to the housing stock in every year over the past ten years. Finally, the measure again conveniently ignores that fact that the public sector is by far a more prolific purchaser of new homes than international investors – for example, of all the new dwellings purchased by non-households in 2023, over 60% of those purchases were made by the public sector.
The decision to leave VAT rates at 13.5% on the hospitality sector is a difficult decision to take for food and beverage-focused businesses in particular. We note that today’s Budget has tried to support such businesses through increases to VAT thresholds. However, such measures feel insufficient in the face of current financial pressures, another rise in the minimum wage and the pension auto enrolment scheme which is due to come into effect in September.
More could also be done to facilitate a significant increase in the size of our construction labour force, particularly in the context of the government’s broader plans for the National Training Fund. Our construction labour force is still almost 30% smaller compared with 2007 levels while over 40% of this labour force is older than 45 years of age. While our public finances show that funding is not a barrier to ramping up housing output, it is becoming clearer that our inadequate labour force is.
Aidan Gavin, Managing Director Cushman & Wakefield Ireland: “There’s a lot to like about Budget 2025 from both an economic and real estate perspective. The overall budget package of €10.5 Billion will underwrite Ireland’s positive outlook next year, even if it risks adding to short term inflationary pressures given the already strong momentum in the domestic economy.
From a commercial real estate viewpoint, the activation of the residential zoned land tax is a big win, one which augurs well for an improved pipeline of land for residential development which is sorely needed to meet Irish housing demand. It is also heartening to hear that the Apple proceeds are likely to be diverted towards badly needed longer term infrastructural projects. However, more needs to be done to ensure our construction labour force is of the right size to build what Ireland needs over the next couple of decades.
The decision to increase stamp duty on the bulk buying of homes is in our view also a backward move in our efforts to attract the private sector funding needed to meet 50,000 homes per annum which the Department of Finance itself estimates at approximately €17 Billion per annum.”
