The new Residential Zoned Land Tax, imposing a tax of 3pc of the value of undeveloped residentially zoned land, which is deemed serviced, is another misguided effort that will probably slow new supply.
he tax becomes payable next year and not surprisingly, the draft maps showing which lands will be taxed have produced a cascade of legal submissions from landowners, which will bury local authority staff in paperwork.
The tax is based on a misapprehension that developers are engaging in land speculation and delaying construction, in the expectation that values will keep increasing, thereby producing higher profits at some stage in the future.
Firstly, buying land is a gamble. It will surprise many but there is in fact no market for buying and selling land between developers. Developers just don’t sell to each other. It’s hard enough to acquire a decent site and it doesn’t make sense to then sell it to a competitor.
The sites that do come onto the market are invariably one-off sales by private vendors and State bodies.
Commentators also usually ignore the glaring fundamental fact about buying land – there is no income! For many years. Buying land probably doesn’t even meet most definitions of an “investment”.
Commentators also usually ignore the glaring fundamental fact about buying land – there is no income!
Developers buy land in the hope that they can build buildings which they can rent or sell, at a profit. If they are not building, it is because market conditions make development unviable. Developing land is a long-term proposition.
Even the most experienced developers, in the enthusiasm around buying a landbank, will underestimate by at least half the time it will take to finish the scheme.
Most small domestic building jobs and the vast majority of public buildings and infrastructure projects end up over time and budget through planning delays and cost overruns. Now multiply that dynamic by a thousand, to get a feel for developing out a landbank.
Even the most experienced developers will underestimate by at least half the time it will take to finish the scheme
The longest delays are in securing planning permissions and services. Planning policy now promotes assembling and master-planning much larger sites, which is very time consuming.
The developer must choose his optimum design based on markets at the time and then run the gauntlet of years in planning, construction cost inflation, threatened de-zoning, pandemics, wars and changing economies and planning policy.
For example, the Government was encouraging co-living schemes and there were ministerial orders overlaying existing development plans, promoting taller buildings and changing apartment specifications, all leading to judicial reviews and delays. Planning authorities are now suing each other over interpretations of planning legislation.
Through all this, markets change and the eventual planning permissions become unviable. Adding more taxes into the mix makes matters worse.
Mr Michael O’Flynn, Chairman and CEO of the O’Flynn Group, told me that while the intention behind the legislation is positive, the detail of the tax needs to be revisited because of a number of anomalies and unintended consequences.
“The tax does not have regard to the current timeline from preparing a planning application to issuing a final grant of permission and site activation.
“Any land which is in the planning application process, including pre-planning engagement, should be exempt, or the tax should be suspended until the planning application is determined or refused.
“In the case of larger sites which necessarily have to be developed in phases, no tax should apply to the land in the latter phases once the developer is on site and working on the early phases,” Mr O’Flynn concluded.