Study today may call for easing of stamp duty on houses

Speculation has been intense in recent weeks about the findings of a consultancy study commissioned last autumn to look into …

Speculation has been intense in recent weeks about the findings of a consultancy study commissioned last autumn to look into the causes of spiralling house prices, particularly in the Dublin area, and to recommend measures to cool an over-heated market.

The report, from economic consultants Peter Bacon and Associates and a team of other experts, was submitted to the Minister for the Environment, Mr Dempsey, almost two weeks ago and is believed to have been considered by the Cabinet last Monday.

All of the consultants were asked to maintain secrecy about its contents - a pledge they have apparently kept - so any indications have emanated from political sources, notably the Minister for Finance, Mr McCreevy, who let the cat out of the bag on stamp duty reform last Tuesday.

According to him, the Finance Bill now before the Dail is to be amended to reduce stamp duty on the purchase of second-hand houses by first-time buyers. This, in itself, would mitigate one of the main factors which have distorted the housing market.

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With stamp duty levied on a sliding scale of between 6 per cent and 9 per cent on the price of second-hand houses, it has become a major deterrent to first-time buyers. On a house priced at £150,000 the additional burden of duty amounts to £10,500.

First-time buyers who opt for a second-hand house also lose their eligibility for the £3,000 grant, because it is tied to the purchase of new houses - an arrangement the Construction Industry Federation has carefully guarded over the years.

As a result, many first-time buyers are forced to set up home in newly built houses on the urban periphery, condemning themselves to years of commuting when they might have found a second-hand house in a mature area closer to the city if it wasn't for this double penalty.

The Irish Home Builders' Association made no reference to the stamp duty problem in its highly publicised submission to the Bacon study. It concentrated on calling for substantial Dublin area land rezoning as well as measures to service land already zoned for housing.

According to media speculation, the Bacon report does not favour indiscriminate land rezoning as part of its strategy. To do so at this stage would have preempted a land use study of the greater Dublin area by Brady Shipman Martin, which has just started.

But it is expected Bacon will recommend an accelerated programme to provide water and sewerage services to the substantial tracts of zoned residential land, using the mechanism of public-private partnerships, with finance provided by the private sector.

Another widely flagged measure would involve abolishing the highly lucrative "Section 23" tax incentive, under which investors can write off the capital cost of a house or apartment against rental income. This, too, was introduced as a further boost to the construction industry.

Even though the incentive is now restricted to designated urban renewal areas, its retention can barely be justified in a situation where the industry is more active and profitable than ever - driven by the "Celtic Tiger".

But abolishing "Section 23" will not have any effect on the recent phenomenon of investors buying newly built houses on suburban estates - far removed from urban renewal areas - confidently expecting already-inflated property prices will continue to soar.

According to Mr McCreevy, the package of measures being unveiled today by the Minister for the Environment will be "significant" and will contain some "quite dramatic" elements which "should help to take the steam out of the housing market".

Indeed, by commissioning the Bacon study and showing it is prepared to act on its recommendations, the Government has accepted radical measures are needed now to ensure first-time house-buyers are no longer priced out of the market.