SOME HAVE COMPLAINED that the residential property tax to be based on the market value of the property will be unfair to Dubliners because property values are higher there than elsewhere in Ireland.
For example, the value of the 298 properties sold in Dundrum, County Dublin, were compared with the value of the 25 properties sold in Dundrum, County Tipperary, over the 2010-2012 period, using the Residential Property Price Register (RPPR): the median value (and associated full-year property tax in brackets) for Dundrum, County Tipperary are €100,000-150,000 (€225), while the equivalent for Dundrum, County Dublin are €350,001-400,000 (€675).
Benefits reflected in price
The median property owners in County Dublin will pay €450 more in annual property than their counterparts in County Tipperary. But the former have manifold advantages over the latter, including easy access to tax-payer subsidised infrastructure and services in transport, culture, sports, education, health – and the widest range of life style possibilities, job options and entrepreneurial potential on the island.
These benefits are reflected in property prices and therefore in property taxes. This is fair and appropriate. The timeliness and transparency of the property price evidence available on the RPPR is impressive, as is the quality and clarity of the background information and responses to ‘Frequently Asked Questions’ provided by the Revenue Commissioners.
One weakness is that the price is not converted into price per metre squared (M2). This gap should be corrected as a matter of urgency. The data, combined with the Revenue Commissioners’ ability to nudge us towards compliance with a variety of soft and hard measures, make it likely that most of us will comply.
A little background
In Ireland, property taxes on domestic dwellings were abolished by central government in 1977 and this was followed by elimination of property taxes on agricultural land. In order to help make good the shortfall in revenues, local authorities imposed levies on new developments to cover the costs of infrastructure and services provision, and central government increased the tax on property at the time of acquisition (stamp duty). What is notable about both of these revenue streams is that their magnitude depended on the volume and value of new development and property transactions. With the collapse of the property market, in terms of both volume and value, these two revenue streams fell sharply.
It is clear that confining the tax base to transactions and new development made revenues very dependent on the level of economic activity in the property market. This contributed to the sharp fall in government income and the rise in the deficit. This in turn played its part in Ireland’s exclusion from international money markets and the request to the European Union (EU) and International Monetary Fund (IMF) on November 21, 2010 for financial support. Agreement was reached in December 2010, the terms of which are included in the EU/IMF Programme.
Not surprisingly, this agreement includes a requirement to re-introduce a property tax .
The announcement of a property tax in December 2012, engendered a reaction that this is unfair to property owners in Dublin where property values are much higher than elsewhere in the country. Also, it is argued that because of economies of scale and scope, the cost of providing some public services – parks, water, roads, waste collection etc – per household are lower in Dublin than elsewhere and so the revenue required per household will be lower.
The two Dundrums – a comparison
Using the property price register, which covers all residential transactions since January 2010, we can get a sense of the discrepancy between Dublin and the rest by comparing the records for two Dundrums – one in south county Dublin, the other in Tipperary.
Over the 2010-2012 period, there were 25 units sold in Dundrum County Tipperary, and 298 in Dundrum County Dublin. If we assume that the property tax rates agreed by government will be applied to these prices, the taxes payable will be as shown below:
Property Tax in Dundrum County Tipperary, based on sale prices 2010-2012
Property Value Range Number of Properties Annual Property Tax Per Property €
| Property Value Range | Number of Properties | Annual Property Tax Per Property |
| €200,001-€250,000 | 3 | €405 |
| €150,001-€200,000 | 3 | €315 |
| €100,001-€150,000 | 11 | €225 |
| 0-€100,000 | 8 | €90 |
| Total | 25 |
(Property prices via Property Price Register and The Revenue for annual tax rates)
The median property value is 100,001 to 150,000, with a tax liability of €225.
Property Tax in Dundrum County Dublin, based on sale prices 2010-2012
| Property Value Range € | Number of Properties | Annual Property Tax Per Property € |
| 1,805,000 | 1 | 3812 |
| 1,300,000 | 1 | 2550 |
| 1,050,000 | 1 | 1915 |
| 950,0001-1,000,000 | 2 | 1755 |
| 850,001-900,000 | 1 | 1575 |
| 800,001-850,000 | 1 | 1485 |
| 750,001-800,000 | 1 | 1395 |
| 700,001-750,000 | 3 | 1305 |
| 600,001-650,000 | 4 | 1125 |
| 550,001-600,000 | 10 | 1035 |
| 500,001-550,000 | 7 | 945 |
| 450,001-500,000 | 20 | 855 |
| 400,001-450,000 | 34 | 765 |
| 350,001-400,000 | 56 | 675 |
| 300,001-350,000 | 40 | 585 |
| 250,001-300,000 | 37 | 495 |
| 200,001-250,000 | 35 | 405 |
| 150,001-200,000 | 32 | 315 |
| 100,001-150,000 | 6 | 225 |
| 0-100,000 | 6 | 90 |
| Total | 298 |
(Property Prices via Property Price Register and annual tax rates from The Revenue.ie)
Why Dublin households should pay more
The median property price in Dundrum (Dublin) is €350,000-400,000, with a median tax liability of €675. This compares with a median tax liability of €225 in Dundrum (Tipperary).
So, median households in Dundrum (Dublin) are likely to pay €450 more than their counterparts in Dundrum (Tipperary). The gap widens at the upper end, where the annual tax payment on the most expensive property sold in Dundrum (Dublin), valued at €1,805,000, would be €3812, compared with a tax payment of €405 payable on the most expensive property sold over the same period in County Tipperary, valued at €247,000.
Houses in Dublin are worth more because there are many benefits to living and working in the Dublin region – and these advantages get capitalised into property values. Key Dublin advantages relate to transport, education, health, access to places of worship, religion and lifestyle, culture and sports, enterprise and jobs. Many of these benefits can be characterised as what economists call ‘option value’ – the value that most of us attribute to the choice of being able to avail of a good or service, even if we never take up the opportunity.
Urban dwellers have causes for complaint – but not about property prices
All of the above options and amenities are available to the residents of Dundrum, County Dublin; most can only be accessed by residents of Dundrum County Tipperary if they come to Dublin. Of course the motorway and rail spokes go both ways, so that physical access is easier than before; and where it exists, high quality internet access can reduce the value of Dublin’s advantage. But geography still imposes iron constraints, and gives those in the capital manifold advantages that are reflected in the value of property. Urban dwellers have many legitimate causes for complaint, but the higher value of property in Dublin, and the associated higher property taxes property owners will pay, is not one of them.
The reason Dublin house prices are higher than Tipperary house prices is in part because of the greater benefits created there by society. It is not surprising then that Dubliners should be asked to contribute more via property taxes. The case made by rural lobbyists against the inspection of septic tanks was inappropriate and misconceived. The case against the property tax in Dublin is similarly misguided.
The timeliness and transparency of the property price evidence available on the RPPR is impressive, as is the quality and clarity of the background information and responses to ‘Frequently Asked Questions’ provided by the Revenue Commissioners. This, combined with the latter’s ability to nudge us towards compliance with a variety of soft and hard measures, makes it likely that most of us will comply.
Frank Convery is Chairman of Publicpolicy.ie and is a Senior Fellow at UCD Earth Institute. This blog post was originally posted to Publicpolicy.ie.
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