Call for reduction in VAT rate on new homes

An estate agents’ group has called on the Government to intervene to make homes affordable, saying first-time buyers in particular are finding it “impossible” to get on the property ladder.

Amber Young, Head of Operations at RE/MAX Ireland has called for a temporary reduction in the VAT rate on new housing from 13% to 5%, for owner-occupiers.

Ms Young said that the concession should at least be implemented for first-time buyers.

“Apart from the pandemic, Ireland’s housing crisis has dominated debate and consultation for five years and more.

“And yet none of the half-hearted interventions or proposal documents has altered the situation for any cohort of the market”, she claimed.

Ms Young said renovating an old home or buying properties in rural areas used to be affordable options for those starting out.

But she said even these avenues are being closed-off.

“Build and renovation costs have soared, due to shortage of materials, and tradesmen and builders are in equally short supply.

“So too, houses in rural areas are no longer the bargain they once were, as remote working and a desire for country life has boosted demand,” she added.

The estate agent’s proposal is to get first-time buyers, like professional couples and young families, into their own homes – freeing-up rental accommodation for cohorts “better suited to it”.

“If we make new-builds cheaper, by reducing the tax-take, that has the knock-on effect of less pressured demand in the rental market, which would see a rent adjustment too,” Ms Young said.

In a recent report for RE/MAX, economist Jim Power calculated that a reduction in the VAT rate on new housing to 5% for owner-occupiers would reduce the cost of delivery of a house by €27,808 on an average three-bed semi-detached home in Dublin.

Ms Young said this would help bridge the gap between what buyers can afford, and the developer’s cost of delivery.

The Society of Chartered Surveyors of Ireland has claimed that more than half the cost of delivering new houses is made up of so-called soft costs such as VAT, levies and professional fees, with just 48% of the costs associated with the actual physical build.

VAT is currently charged at 13% on newly built homes in the Republic, but the same home in Northern Ireland or in Britain is exempt.

Under EU rules, VAT on new homes cannot be totally scrapped, but there is the option to reduce the rate temporarily.

There is no VAT on second-hand homes.

Ms Young of RE/MAX believes that the rate on new homes should be cut to 5% for five years for owner-occupiers, with measures taken to ensure the cost reduction is passed on to buyers, rather than absorbed by developers or land owners.

“A substantial VAT reduction would reduce the cost of build delivery, and enable the reduction to be passed on to purchasers, putting homes within reach of normal working people”, she said.

“In this day and age, it is a sad reflection that young people cannot look forward to owning a home in Ireland,” she added.

RE/MAX Ireland is a group of independently-owned and operated local estate agents, who are also part of a global network of real estate professionals.