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Column: Property tax risks worsening problems Ireland already has

A conventional property tax has many disadvantages against a site value tax, writes Judy Osbourne.

Image: Shutterstock/Andrey Armyagov

Has the Government made the right decision on property tax? Writing earlier this year in The Fair Tax, Judy Osbourne had this to say:

“TAX IS THE price we pay for a civilised society” said Roosevelt.

However, some taxes offer opportunities far beyond that of simply raising funds for the state.  Looking to the future we see increasing risk and uncertainty from climate change, resource depletion and financial instability. There was never a more urgent need for an Irish local planning system that could respond to these challenges. But despite the significant progress with the new Planning Acts and increasingly sophisticated Development Plans, it is very likely that the system will fall short.

Unless further measures are introduced to back up the system, the scale of the challenges, coupled with pressure for development, will overwhelm Irish regulatory systems as they did before. This is the case for a site value tax; it delivers in a way that a conventional property tax cannot.

Building sector

New construction is now almost at a standstill, due in part to a lack of credit to finance the upfront payments of development levies and special contributions – even in areas where there is healthy housing demand. An exception is the continuing ill-advised building of one-off houses in the countryside, which are, illogically, subject to lower development levies than for urban sites. A site value tax could replace development levies and spread the cost of physical and social infrastructure over the lifetime of the development and across all those who benefit, both existing householders and new buyers. This tax will therefore enable a more proactive role for local authorities, working with their local communities, to plan integrated settlements, open up village and town back lands across multiple landholdings, lay out new roads and install best-practice water sewage and energy systems and provide generous sites for self-built homes within agreed design guidelines.

A site value tax will improve the quality of the built environment. As the tax is on the land, not the building, owners of derelict sites and underused or neglected buildings will pay the same as owners of well maintained neighbouring buildings. This measure can replace the cumbersome Derelict Sites Act provisions, which are rarely used by local authorities. If the derelict-site owner does not pay, the tax would be added as a lien on the property until the local authority could claim the property in lieu, clearing the title in the process. Gradually,
unsightly and economically depressing empty and neglected buildings can be eliminated on our high streets and neighbourhoods, to the delight of any responsible community.

During the 2000s the housing stock of Ireland was virtually doubled but many of the properties are not well suited to the 21st century, with poor use of energy- or water-saving construction techniques. A conventional property tax would now penalise people who sought to improve their home by extending or upgrading to the new higher Building Regulation standards, particularly to the new energy and carbon standards needed to meet our climate change targets. The more the property value was increased by the owner’s effort and investment, the more s/he would have to pay.

Highly irresponsible

In contrast, site value tax does not tax ‘improvements’ but only the unearned component of the site value. A conventional property tax that will kill the only bit of life left in the construction sector and prevent adoption of energy efficiency measures would be highly irresponsible. Site value tax will have further, more subtle effects in terms of improving the architectural and urban design quality of buildings in the future. In the boom, developers made most of their profits from the upswing in land values from the change from agricultural use to land zoned for development, and from zoned land to sites with full planning permission.

It therefore made sense to invest more in cultivating politicians, local-authority staff and local landowners who were crucial in the early stages of planning and procurement rather than in design professionals and construction methods and techniques that added proportionally less value at the end of the process. The evidence to back this can be found by perusal of local-authority planning files; it is clear how few developments were submitted by qualified architects as opposed to local ‘planning consultants’ or unregistered technicians and draftsmen.

Site value tax changes every dynamic in the construction sector as the unearned land profit is removed from the development equation. Land speculation will be all but eliminated and land banks made redundant. Less housing will be built speculatively because access to suitable serviced sites will be much enhanced. That means more urban as well as rural families will be able to contract or build their own house in well-serviced, sustainable settlements. Builders will  be left with only the design and construction parameters to attract buyers and build reputation.

Site value tax will establish different and indisputably better incentives. There is now a unique opportunity to introduce this new, transformative tax on a scarce resource – well-located land. It would be unforgivable to let the chance go by just because it was lazily dismissed as ‘too difficult to implement’.

Judy Osborne has an interest in local governance that culminated in working with local communities in County Wicklow on the preparation of Local Development Plans. Further work with An Taisce, an MSc in Spatial Planning from DIT and membership of numerous local government committees deepened her experience of development through Ireland’s ‘boom’ era. Judy is currently working in Wicklow as an independent Environmental Planning Consultant and campaigning nationally for responsible development and for Site Value Tax.

The Fair Tax Book is published by Shepheard-Walwyn Publishers Ltd in association with Feasta and Smart Taxes. It is available in all good book shops.

About the author:

Judy Osbourne

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