Should residential property be taxed?

Victor

Should residential property be taxed? Similar to commercial rates or based on household size / income?

At the moment house owners get mortgage interest relief (MIR) and don't pay CGT when selling their home, which is quite a regressive tax regime and completely unfair as it directly benefits the rich. Perhaps CGT relief should should be restricted like CAT relief to something like the first €250,000 in a lifetime. Perhaps MIR should be inversely related to interest rates (it would be high when rates are low and vice-versa).

Can I suggest either a rate based on the floor area and/or area of land occupied by the property, with tax free "allowances" based on the number of residents, to encourage sustainable development? This would directly target people in underused building / sites. Some factor could be added where city / town centre sites would pay a little bit more (after all they tend to have better public services).

Example:
(a) 2 people in a 1 bed (60m2) apartment = 60m2 x €20/m2 - 2 x €500 = €200 (€100 each)
(b) 2 people in a 4 bed (125m2) house = 125m2 x €20/m2 - 2 x €500 = €1,500 (€750 each)
(c) 4 people in a 4 bed (125m2) house = 125m2 x €20/m2 - 4 x €500 = €500(€125 each)
(d) 5 people in a 4 bed (125m2) house = 125m2 x €20/m2 - 5 x €500 = Nil (nil each)

Alternatively a percentage of value could be charged. This would hit low earners with large amounts of property capital (allowances could be made, but should these people really be sititng on large amounts of capital).

Example:
(e) 1 bed apartment (€175,000) = €175,000 x 1% = €1,750
(f) 3 bed (100m2) house (€225,000) = €225,000 x 1% = €2,250
(g) 4 bed (125m2) house (€300,000) = €300,000 x 1% = €3,000

Alternative:
(h) 2 people in a 1 bed apartment (€175,000) = €175,000 x 1% - 2 x €500 = €750 (€375 each)
(i) 2 people in a 3 bed house (€225,000) = €225,000 x 1% - 2 x €500 = €1,250 (€625 each)
(j) 5 people in a 3 bed house (€225,000) = €225,000 x 1% - 5 x €500 = nil

The taxes could be made revenue-neutral by altering other taxes (making work more attractive) or used to directly fund local authorities or pre-fund state pensions.

dmeehan

property tax has been tried and failed before

and it doesnt neccessarily benefit only the rich
due to the way house prices have risen, especially in Dublin.

eg. I watched Househunters on RTE last week. A guy sold his council house in Sandyford for €475,000

GillyS

I wouldn't worry too much about property tax , the government will never reintroduce it , that would be political suicide.

I also saw that househunter program - wonder how much that guy originally 'paid' for that house or was it free from the council?

475K for a council house - who said theres no property bubble in Dublin :rolleyes:

Gilly

Victor

Originally posted by dmeehan
eg. I watched Househunters on RTE last week. A guy sold his council house in Sandyford for €475,000

You feel sympathy for this person?

Victor

By the way, such a tax would moderate the growth in house prices.

sceptre

I'd certainly be in favour of taxing a second or subsequent home - mostly for the reason Victor mentioned in his last post.

GillyS

I'd agree with this as well , it might level off the prices, the only reason (apart from interest rates) that house prices went up last year and this year is that Charlie reintroduced tax relief which ment a flood of investors back into the market. Prices actually dropped in 2001 when the investors weren't around....

Personally I'd remove the tax relief for investors and also the mortgage interest relief for owner occupiers and that would create a reasonably level playing field , right now the cards are stacked in favour of the investor.

BTW I say these things as both an owner occupier and an investor.

Gilly

RainyDay

Hi Gilly - It's nice to see I'm not the only person in the country who thinks that mortgage interest relief for property investors should be scrapped. This unfair subsidy to investors makes it easy for them to outbid first-time-buyers and has fuelled a huge increase in property prices since it was re-introduced by FF (the builders' friend) in 2001.

I can't see any good reason for taxing one's home, particularly as the inherent value in the home is of no value until it is sold. I wouldn't have a problem with taxing those who use the equity in their home to support other investments (usually property). I'd also agree with limitations on the number of times one can use the 'PPR' exclusion to CGT in a lifetime, to stop the guys who build a house every 18 months and never pay tax on the income.

Victor

Originally posted by RainyDay
Hi Gilly - It's nice to see I'm not the only person in the country who thinks that mortgage interest relief for property investors should be scrapped. This unfair subsidy to investors makes it easy for them to outbid first-time-buyers and has fuelled a huge increase in property prices since it was re-introduced by FF (the builders' friend) in 2001.

But if the investor was investing in a business or through a company, he would be able to write off the interest. Admittedly he would likely pay corporation tax at 25% (investment) rather than 10% (trading), but we all know how to get around corporation tax.

RainyDay

I think there is a good arguement to make a special case for residential property. I'm happy to let the free market rules apply to commercial property and other kinds of businesses, but I believe it is fundamentally wrong for the state to be subsidising investors in this way, allowing them to snap homes out of the reach of those who simply want a place to live.

And look at how the interest relief has been abused through interest-only loans. Investors are taking out interest-only loans specifically to maximise their tax relief - even if they have the cash-flow available to pay down some of the principal of their mortgage, they are better off putting this cash on deposit, maximising the interest to minimise their tax. This simple device is taking money out of state funds into the pockets of property investors.

Proof of this can be seen in the accellerated house price rises that were seen following the re-introduction of this relief in Dec 2001. It's very unfortunate that our Govt didn't have the strength of character to follow Bacon's recommendations and drop this relief. The increased rent (as occured prior to the re-introduction of the relief) could be addressed by subsidising renters via tax relief if necessary.

dmeehan

well the only problem with having no investors in the market is that rent goes sky-high

RainyDay

well the only problem with having no investors in the market is that rent goes sky-high

Well, yes & no. Obviously there is a relationship here.

But don't forget that every first-time-buyer that manages to purchase a home means one less person (or two less, if a couple buys) looking to rent. And if they are going to take in lodgers under the rent-a-room scheme, that may mean 1-2 extra rooms available for rent anyway. So the reduced demand for renting will act to moderate prices.

But, if as a society, we believe it's necessary to subsidise the rental market, we should really put these subsidise into the 'demand' side of the economy (i.e. the renters), not the supply side (i.e. the landlords). That's why I suggested "The increased rent (as occured prior to the re-introduction of the relief) could be addressed by subsidising renters via tax relief if necessary" in my original post.

DaithiSurfer

Check out the Bacon reports.
These were tried and failed.
Property prices rising are not as bad for the general public as rent rising. More people rent than own property.
People who have bought and paid for a home should own that home period. They should not have to go on paying for this home for the rest of their lives as property tax.
Also, who cares if someone poor owns an expensive house.
They bought or inherited the house. ITs theirs its not their fault the property market exploded, why should they pay for this.
If CGT was payable for people selling their house to move up the ladder then this would cause a slump in property availability to the starter buyer. People would not trade up so there would be less houses avilable to starters and the starter home price would increase.
There are many arguments for and aginst all this property tax issues, but one thing is fact.
Messing with markets causes consequences. Usually bad for one or other buyers in the markets.
Leave the market to develop naturally and it will fix itself.
Interfere and, as history shows, you will cause problems somewhere.

GillyS

I'm with RainyDay on this - residential property should be treated differently to commercial from a tax perspective.

Get rid of all relief for owner occupiers and investors and lets see what happens... it can't be any worse that it is now. I think that all the govt meddling has only muddied the waters - why not let the market find its own level.

IMHO the housing market right now is only going to end in tears - I heard the chief economist of BOI saying that new home prices are flat this year - what a load of rubbish - where I live in Dublin I don't know of a single new housing estate that the prices have not gone up this year , in one estate in particular they are now looking for €60K more than 3 months ago! The madness goes on!

Personally, I've put my investment house up for sale as I can only only see a down side right now...

Gilly

DaithiSurfer

I don't know either where they are getting this Flat property price thing from.
In my own area houe prices have gone up about 10% so far this year.
Are the banks etc just scare mongering to cause a slow cool down and so draw there prophets out over a few years instead of just one with a crash at the end of it.
I've been hearing this crash crap for a good few years now and nothing has happened.
One sure way to crash the market though is to remove the investors at this time.

RainyDay

Check out the Bacon reports. These were tried and failed.

But they weren't really tried properly. They were introduced for a fairly brief 18-month period, and had a substantial impact in levelling out property prices. However, our Govt caved in again to pressure from their paymasters in the building trade & did a u-turn. They also did not try my suggestion of moving the subsidy to the demand side by giving improved tax relief to renters.

More people rent than own property.

Are you sure? Got any reputable stat's to back this up? But regardless, don't forget that these two markets are intrinsically related. Many of those renting are not renters by choice - They would far prefer to buy their own homes & settle down, but are unable to do so as a result of the spiralling prices in recent years.

Leave the market to develop naturally and it will fix itself.

On pure commercial issues, I'd agree with this. But housing is a basic human right, just like healthcare, education, law-enforcement etc. This is affecting the real lives of real people, e.g. those who leave their Mullingar/Dundalk/Arklow commuter-belt houses at 5.30 am to commute to their jobs in Dublin. Positive action from our political leaders is required to solve this issue.

Rising property prices helps only two groups of people - builders and landlords. To the average home-owner, the valuation of their property is purely academic. The huge growth in value doesn't even help those who need to trade-up, as their prospective new properties have spurted in value too. Those who are lucky enough to be able to 'downsize' to a smaller property or a more rural location may do well out of it, but I guess that's a very small minority.

DaithiSurfer

I'm sure there are figures somewhere.Look around you, how many of your collegues rent or own houses?

You're right housing is a human right - how can someone justify taxing a basic human right?

RainyDay

Look around you, how many of your collegues rent or own houses?

About 75% own their houses.

GillyS

Look around you, how many of your collegues rent or own houses?

90% property owners - that said I'm talking people in the 27-32 age group , I'd imagine if you asked a bunch of 25 year olds you'd get a different answer.

Gilly

DaithiSurfer

about 50- 50 here.
It seems to depend on age and where they are from though.
Also the married ones about 75% own there own houses.
Single about 10%, which brings me to another thing.
Interesting little survey.
Its getting out of hand that single people find it very hard to get a mortgage now.
People have to double up to buy a house now.
what happens if one can't work, or they have children.
That means only 1 income and thats gonna hurt.
what happens next - will there have to be 3 people all working to buy a starter home, or will prices level out because i think we are close to the mark of what the average double income couple can afford.

GillyS

Its getting out of hand that single people find it very hard to get a mortgage now.

Absolutely correct - 2 bed apartments around my neck of the woods are now costing from €325K upwards , that would mean if they base it on 4 times earnings you would need a salary of €75K + 10% deposit to buy one - I know *very* few people on that kind of salary (or that kind of savings)- in fact I think most of my friends who are property owners couldn't afford to buy their own house! Where is all the money coming from - parents, credit unions , credit cards???

Also I see that more and more people are now getting loans over 30 years - when I bought my first house the max you could get it over was 20 years... I'm not sure if people have thought about the fact that they will still be paying for their houses in their late fifties and sixties - most of our parents probably had (or will have) their mortgages well paid off before retirement age...

Gilly

RainyDay

about 50- 50 here.

Really, but didn't you tell us that "More people rent than own property"

DaithiSurfer

YEs i did, and i still stand by that.
I have no figures for it but in my experience i know more people who rent than own property .
Just because in my workplace its about 50-50 doesn't mean its like that everywhere else.
If its not the case, and you seem like a guy who likes to prove things, then get some figures and we will have a definite answer.
For now, think of it as my opinion.

RainyDay

According to the .CSO , owner-occupied dwellings represent about 70% of the housing stock.

DaithiSurfer

Rainyday,
I'll take your word for it then.
if housing stock = buildings.
Remember, there could be 10 different flats or apts in a building.Each one holding 2 maybe 3 rent paying people.
Children don't pay rent and are not taxed so we can't incluse them in a taxed discussion.
I still reckon i know a hell of a lot more renters than owners.

RainyDay

I'll take your word for it then.

Nah - my word doesn't matter, but the CSO's word has considerable weight.

I still reckon i know a hell of a lot more renters than owners.

Yeah - but that's very dependent on age/lifestyle. If you hang around mostly with 20-somethings, then I'm sure that's true. If it's 30-somethings, then it's got to be closer to 50-50. If it's 40+-somethings, then they are going to be mostly homeowners.

Victor

Originally posted by DaithiSurfer
Rainyday, I'll take your word for it then. if housing stock = buildings.

You don't seem to be very well informed. The CSO piece specificly says dwellings i.e. individual houses / apartments / etc.

Victor

Originally posted by GillyS
where I live in Dublin I don't know of a single new housing estate that the prices have not gone up this year , in one estate in particular they are now looking for €60K more than 3 months ago! The madness goes on!

This is usual, the early buyers get a better price - it provides the developer with cashflow, indications of demand. As there are less risks (contractor going bust, half finished estate, disreputable area etc.) for buyers as the development "fills up", early buyers need to be given some price advantage over late buyers.

GillyS

This is usual, the early buyers get a better price - it provides the developer with cashflow, indications of demand. As there are less risks (contractor going bust, half finished estate, disreputable area etc.) for buyers as the development "fills up", early buyers need to be given some price advantage over late buyers.

Victor,

I know all that - the point was that the guy from BOI was trying to convince people that new house prices have not increased in price this year , I haven't seen one estate where the price has not been increased this year , have you?

That said maybe prices are dropping for new houses outside Dublin but I doubt it....

Gilly

Victor

Originally posted by GillyS
That said maybe prices are dropping for new houses outside Dublin but I doubt it....

I think people are quiet about prices at the moment - neither high nor low prices are being hyped, which would indicate at least some caution in the market. That said I saw ad.s for new houses in Drogheda (new bypass! :rolleyes:) for under €200k the other day

RainyDay

See today's Irish Indo for some comments on related topics from the Chairman of the Irish Home Builders Association.

I'm pretty horrified that he's recommending 40 year mortgages for first time buyers. Obviously once his members get their money up front, he's quite happy for the buyers to have that millstone round their necks for their entire working career. And of course, the banks would make a nice extra pile in interest over the period too.