A MEASURE GETTING talked up by senior ministers in recent days ahead of next month’s government budget has been whether Ireland should scrap the 1% stamp duty on homes for first-time buyers.

There is disagreement on the proposal among the government parties. Taoiseach Micheál Martin has said he has a “favourable disposition” towards the move, although Finance Minister Simon Harris has publicly pushed back against the idea.

The Fine Gael leader said on Friday that it risked being “a further tax break for a developer” and could mean “pushing up house prices” if enacted.

When The Journal contacted economists and industry figures for their views, views were mixed, albeit mainly negative towards the move.

One dubbed it “sugar rush politics”, while a property group called it a way to help first-time buyers stretch to the final goal and afford a home.

What is stamp duty?

Stamp duty applies to buyers when they purchase a home at a rate of 1% on the first €1 million of the home’s purchase price.

This rises to a 2% levy if a home is valued at €1 million to €1.5 million, and 6% on any amount thereafter.

With the median price for a home purchased in Ireland at €396,000, it means that stamp duty is currently worth €3,960 when a sale is complete.

Who wants to change it?

Genevieve McGuirk, chief executive of the Institute of Professional Auctioneers and Valuers (IPAV), which represents over 1,500 firms and people in the sector, is pushing for stamp duty to be scrapped for first-time buyers.

McGuirk told The Journal that its pre-budget submission was because IPAV is “rooting for first-time buyers” to be able to afford a house.

The group believes that by focusing it on first-time buyers, that should ease fears around inflated house prices.

“We’re only talking about a very small number and we’re looking at a very specific area of the market,” McGuirk said.

The IPAV pre-budget submission also proposed extending the 0% to second-hand purchases.

“I don’t think we give enough credit to the next generation willing to roll up their sleeves and do up a property, or maybe live in it while it’s a bit tired and do it up as it goes along,” McGuirk said.

What about those who are against it?

What’s important to note is that nobody is fully certain of the impact on the market of removing stamp duty from first-time buyers.

While it was previously binned in 2007, the Irish housing market had already peaked amid the oncoming financial crash, so it’s hard to track what impact the move had back then. Stamp duty was reinstated in 2010.

However, economists do have some guiding principles, as economist Emma Howard explained.

“What they’re proposing is another demand-side measure when supply is what’s needed,” Howard said, pointing to a recent Economic and Social Research Institute (ESRI) report showing that homes are 17% overvalued on average now.

“This is primarily because home prices are increasing faster than incomes,” Howard said. “So when you have these demand-side measures you are likely just feeding the demand and giving more money to push up the price of homes even further.”

John McCartney, lecturer at Technological University Dublin in property economics and real estate, argued similarly, as he firmly believes that the measure would result would-be buyers using the money to engage in “more aggressive bidding” on the market.

McCartney added:

If everyone is going at it hammer and tongs and they’re maxed out on savings, but you suddenly give them more money in their hip pocket, the likelihood is they will use that money to bid higher on prices.

Lessons from the Help to Buy scheme

Howard pointed to how assessments of the government’s Help to Buy scheme – which can provide up to €30,000 for a first-time buyer – warn that it is pushing up house prices, including a 2023 ESRI analysis.

While the economist accepted that scrapping stamp duty “won’t have as much of an inflationary impact” as Help To Buy, she said that it would still mean the government “pumping money into an already very strong economy” at a time of a restrained housing supply.

Howard added that if scrapping stamp duty is to be a universal measure, affecting all first-time buyers buying a home valued less than a million euro, then it means it’s inefficient and is “yet another erosion” of the country’s tax base.

But as the tax is already low, at just 1%, Howard queried whether it was making a material difference to people being able to afford a home or not.

The argument works the other way, too, as since the tax is set at 1%, it brings in €83.6 million annually – a relatively small fraction of a €125 billion budget.

McGuirk, from IPAV, agreed that Help To Buy has caused a “certain inflation in new developments”, but she believed that the sums at play from abolishing duty are so much lower that they don’t carry the same risk of inflation.

Do we know what first-time buyers think?

There is no polling indicating the preferences of this wide bloc of people, but Ciarán Mulqueen of Crazy House Prices social media page and podcast did canvass the thoughts of his 125,000 Instagram followers.

According to Mulqueen, the “vast majority of the comments echoed my own thoughts that it will likely add 1-2% to house prices overnight” if stamp duty were abolished.

“People generally aren’t struggling to pay the 1% stamp duty, they know it exists and budget for it,” Mulqueen told The Journal.

“What people are struggling with is massive house price increases year after year due to a shortage of supply of homes that people can actually buy.”

Broadly, those opposing the measure claimed it may pursue for “populist” ends, with McCartney saying such a move may still be positive with some as the sums involved are “quite tangible” for anyone totting up the amount needed to buy a home.

“Will it make any significant difference to a couple’s ability to buy a home? Probably not. But will it make them feel a bit better?” said Howard.

“It is a bit of a sugar rush.”