The Cabinet is likely to approve a radical package of measures by tomorrow designed to calm the property market, including the abolition of tax breaks for investors in private housing.
The proposals, to be discussed at a two-day Cabinet meeting today and tomorrow, will also include a scheme to get private investors to fund the provision of sewerage and water supply to land already zoned for housing, thus opening it up for house-building.
The plans will be put to colleagues by the Minister for the Environment, Mr Dempsey, and the Minister of State, Mr Robert Molloy. They are based on the recommendations of a report commissioned by the Government from Peter Bacon and Associates on the factors underlying the sharp increase in house prices.
That report was submitted to the Government early this month and discussed at the last Cabinet meeting two weeks ago. Mr Dempsey and Mr Molloy were told then to come back to the next meeting with proposals for change.
The speed with which the Government is acting reflects its concern about the issue. Ministers fear that escalating house-price inflation may ultimately feed into overall inflation figures, and are also aware of the high priority the issue has among urban middle-class floating voters.
"The Taoiseach is exercised about this," according to one Government source. "He is determined to do something about it."
The key proposal on taxation will involve the abolition of Section 23 tax relief for people buying residential property for investment purposes. This scheme was introduced in 1981 to stimulate the construction industry, and currently applies only to property in designated areas, typically inner-city apartment developments.
The scheme allows purchasers to write off the cost of purchasing a property against any rental income they receive from that or other properties. For landlords letting a number of houses or apartments this represents a very substantial benefit.
The result has been that in the case of some new inner-city apartment complexes 80 per cent or more of the units have been bought by investors, who have bid prices beyond the reach of potential owner-occupiers. The abolition of the tax incentive will only apply to future investments, and will not affect investors who already own properties.
The other key proposal expected to be approved is the introduction of a system whereby private investors will pay to provide sewerage and water services on land currently zoned for housing but undeveloped.
Some 70 per cent of land zoned for housing does not have such services, and is therefore not being developed. The Bacon report suggests that servicing this land would open the way for more housing to be built.
It is understood that the scheme would involve the private sector building sewerage and water supply schemes and then leasing them to local authorities for a fee to recoup their cost. This arrangement would continue for a period of years to allow the investor to make a profit, before ownership of the servicing systems would be ceded to the relevant local authority. Such a scheme already operates in parts of the UK.
Another proposal understood to have been considered is the extension of commercial rates to apartments and homes held as investments. However, it is not clear whether this will be included in the package to be considered by the Government.