Monday, March 13, 2006

Irish House Buyers Screwed, Again

Headline news today, people buying houses in Ireland are being screwed. No surprise there. This time it's by the local authorities and developers. Irish house buyers have to pay the levy that local authorities imposed on builders to help fund infrastructure. The local authorities said the levy should be paid by the developer and not passed on to the house buyers. However no one actually enforces the rules in this country and so the developers are allowed to do what they want.

The levies were introduced in 2003, by our old friend Martin Cullen. Of course Minister Cullen has never been one to let public opinion, obvious flaws or a massive overspend stand in the way of one of his little projects. Sure what are the taxpayers for if not to pay tax and fund spending?

Now I'm not a Fine Gael supporter, I am (maybe I should change that to "was") actually a Fianna Fail voter. In years gone by I was an active Fianna Fail supporter but in recent years I have grown more and more disillusioned with Fianna Fail and the incompetence of some ministers. In this case I find myself 100% in agreement with Enda Kenny when in 2003 he was quoted in the Irish Examiner
Fine Gael leader Enda Kenny told the Dail that new homebuyers could end up footing a 600m stealth tax bill that will make it impossible for many young people to get on the property ladder.

"If the average charge for a new house was 10,000 for a small three-bed semi-detached home, then new homebuyers will pay a stealth tax worth 600m next year if there are 60,000 new homes built," Mr Kenny said.

Martin Cullens response to the obvious flaw was typical of the current government. He stuck his head in the sand and said there was no problem while his department effectively gave the green light to developers to pass on the charges by saying there was no law to stop them.
However, while Environment Minister Martin Cullen insisted yesterday that new homeowners would not be faced with a bill from local authorities, his department confirmed there is no law to stop developers passing the levies onto homebuyers.

Now the levies are headline news in today’s newspapers. The Irish Independent is leading the charge and has a particularly good article outlining the exact figures and explaining how much house buyers are paying. Unfortunately the website requires registration, but it is free. Alternatively just go buy a copy of the paper itself :-).
The levies, meant to be paid by developers, are being passed on directly to homebuyers, adding up to 6pc to the price of the average new home.

A typical €350,000 home would include a €20,000 levy, according to the Irish Home Builders' Association (IHBA), representing the majority of builders.

Of course everyone is pretending to be surprised and shocked at the behavior of the developers but lets be honest here it is the current government who, with a nod and a wink to the developers, passed this bill and they are not likely to climb down now.

You should not fail to notice it is the Builders Association that is highlighting the issue. I dont believe they are doing this out of the goodness of their hearts. Should the government scrap the levies the developers could just pocket the 6% increase themselves rather than reduce house prices. Either way people looking to get onto the property ladder in this country are being milked by every vested interest and have been abandoned by the very government which should be trying to protect them.


Keith said...

Does the developer even have an option?
If they 'absorb' the cost, they will either go out of business (if the profit margins are low enough) or at the very least, have less money to invest back into the market. Less investment in the market means less houses being built, which means higher prices. So the buyer either pays the levy 'directly' now (when buying the house) or 'indirectly' in higher house prices.
Not that developers are angels but the market's the market. So why the hell do we need stamp duty AND county council levys? At least we can see/question if the levy money is being spent efficiently. Where does stamp duty money go?

Declan said...

Low profit margins? In property development? Jesus Keith, we have to get you out of those city banks while some of your left wing soul is still alive.

(Assuming you are the Keith I'm thinking of :-) )

Keith said...

Yea, same Keith.
If the profit margins are that high, then it means more developers will come into the market (assuming the barriers to entry are not too high), building more houses and thus lowering the price.
I think that property developers are usually made the scape goat for this kind of thing when more often than not, it is [local/national] government policies that are forcing up the prices and reducing the availability of housing.

Declan said...

But new developers cant come into the market because the existing developers have already bought up land banks which allows them to corner the market.

I actually have to agree, a change of government would be good for everyone, including Fianna Fail

Keith said...

You could well be right about who gets the land etc. Of course, it is presumably available for anyone to buy; if it isn't, there must be corruption and it all goes back to the government again.
Btw, I'm trying to be suitably understated about your 'change the government' line - things must be bad if you think they should go!
ps. a great book (that I have just found online) that I think clears a lot of this kind of discussion up is "Economics in One Lesson".

-Ann said...

I find the stamp duty in this country to be absolutely obscene, especially after that report a couple of months ago that showed something like that amount taken in for stamp duty was the same amount that was going out to property investors as tax incentives/breaks.

It is sad to say that even with the robust economy, we did not move back here for a better standard of living. In fact, our standard of living has decreased, particularly in the housing department. Plus, salaries are lower here and the cost of living (excluding housing) is MUCh higher as is the tax rate.

I am glad we didn't think about this stuff too much before we took the plunge or we'd never have done it. Moving back was the right emotional decision for us, but it's been deserately difficult financially.