One of the most substantive proposals in Budget 2022 is the Zoned Land Tax. After a lead-in time of two or three years, depending on when the land was zoned, it aims to charge tax at a rate of 3% on its market value. The tax will apply to land that is zoned suitable for residential development and is serviced. No minimum size exclusion will apply with the result that the tax will apply to relatively small sites in urban areas.
But is the Minister shooting at the right goal? Is the hoarding of zoned land really the fundamental constraint to the supply of housing? Suppose that the constraint lies elsewhere say, in the area of financing for development. Ever since the demise of the Celtic Tiger many developers are short of capital. Added to this, the Regulator’s grip on the banks remains tight with the result that debt finance for development, especially development at scale, is limited. It’s difficult to see how a Zoned Land Tax will alleviate a funding drought.
Funding however is not the only limiting factor at play in the construction industry. Skilled labour is scarce with the result that labour costs are rising. Regulatory costs have become a burden too. Added to this, materials have been the subject of a significant level of cost-push inflation. All in all, profitability has become a significant concern.
The construction and development industries’ difficulties are multi-faceted and it will take a lot more than a Zoned Land Tax to solve them. If a developer cannot get the finance to develop a zoned site, a tax that is based on the market value of his land will only increase his liquidity difficulties. The Minister probably isn’t old enough to remember the last time a tax was charged on the value of assets irrespective of ability to pay. It had to be withdrawn in disorder. The ghosts of the old Wealth Tax Act might not be too far away.
On a lighter note, the increase in the income tax deduction to 30% of the cost of heat, electricity and broadband for remote workers is a granny’s delight. Just think of all those bedrooms that she can re-purpose as serviced offices for her adult children. The loneliness of the empty-nesters may be a thing of the past!