During the mid-2000s it was widely reported that designation of Section 23 tax incentive areas had been a strong driver in urban and rural renewal and was a significant boost in delivering much needed rental properties.
Section 23 tax incentives were introduced in Ireland in 1988 and has since been extended and amended on a number of occasions. Its aim was to inject some energy into inner city areas (and some rural locations) by making it financially efficient to construct housing there and, consequently, encourage more people to set up home in previously-forgotten locations.
This was during a time when such properties were scarce. Former Taoiseach and then Finance Minister, Brian Cowen extended the scheme for the last time in 2005. The scheme was ultimately phased out and no longer exists. The reason being there was a boom in construction at that time and the incentive was seen as surplus to requirement.
Fast forward to 2024 where successive government ministers attempted to resolve a shortage in affordable housing and indeed a rental market that is facilitating substandard living accommodation to those desperate for rental accommodation. Is it now time to reintroduce the Section 23 (S.23) tax incentive scheme?
We currently have what are called Rent Pressure Zones, particularly in the Dublin and greater Dublin areas. This is much to the disappointment of people who wish to let their properties as Airbnb style accommodation. Planning policy has been utilised to curb the use of properties as short lettings, the idea being that if a property is up for rental, people in need of rental properties should be prioritised. That’s a fair enough policy objective to address the current housing shortage. However, not all property owners will want to commit their properties to a medium to long term rental. Therefore, certain criteria must be fulfilled for Airbnb style accommodation within the rent pressure zones and a change of use may need planning. I won’t get into the criteria here but suffice to say, if this sort of thing interests you, consult with the planning section of the local council to avoid getting into an unauthorised development situation.
That said, if we have rent pressure zones, some of which are within the entire jurisdiction of local authority areas, why not bring back the Section 23 incentive to deliver on rental properties? It was a policy that worked in terms of delivering on rental property that was either a new build, conversion or refurbishment of a property during the qualifying period. Reports were positive during the lifetime of the S.23 with the only drawback being that the price of the properties within the scheme started to become expensive as the scheme wore on, primarily in the Dublin area. No surprise there. Then if we consider the National Planning Framework (NPF), more commonly referred to as the Ireland 2040 policy, which replaced the National Spatial Strategy. This is the national policy regarding development of the country to accommodate an additional 1 million people up to 2040. It should be noted that that population increase was underestimated and now we are looking at a review of the NPF.
What the NPF seeks to do is promote a more balanced approach to development so that not all development occurs in Dublin, which will overheat things and lead to an over concentration of development around the Capital City, to the loss of balanced development in other cities like Cork, Galway and Limerick. The problem with that is that people tend to vote with their feet, so to speak. You can lead a horse to water, etcetera. If people want to settle in Dublin or foreign direct investment businesses want to establish in Dublin, they will do so. What might encourage people to relocate to alternative cities would be the availability of decent housing, even accommodation for a transient workforce that may only work in the country for 3 to 5 years. It is reasonable to believe that workforce is not going to get into buying houses, unless for investment purposes. Therefore, rental is the main option.
The Residential Tenancy Board released figures in February of this year that stated the average rent in County Dublin was €2,113.00 per month. That is an astonishing level of rent in and around the city and county of Dublin. A 3-bedroom house in the Dublin area during Q3 of 2023 was an eyewatering €2,362.00 per month. Out of reach of many families who might be wishing to rent as an alternative to purchasing. That is a factor in teachers moving back to their home counties because it has become too expensive to live in Dublin. The cost of rental or purchase being a significant influence on the decision to relocate.
In 2019, just prior to the pandemic, I visited the site of the London 2012 Olympics where the athletes’ village had been repurposed for rental accommodation. I spoke with the company managing the development and they explained that it was running very successfully for them and a lot of the rentals were taken up by the financial sector but mainly it was a variety of tenants. They explained that if you were living in a one- or two-bedroom unit, you could apply to move to a 3-bedroom unit if your circumstances were changing. Imagine that housing policies that work to suit the changing needs of tenants. I often wonder why in our country with a population similar to the population of Greater Manchester, why we cannot implement some of the decent policies we have adopted, or even replicate policies that work as they do for our closest neighbours in England.
Ireland is lucky in that we have some of the best housebuilders in the World plying their trade in this country. There are numerous ways in which we can incentivise home building, but it seems no incentive comes close to the S.23 tax incentive, which showed promise not just in Dublin but far beyond the Pale. The moratorium on payment of the development levies will come to an end in the next couple of months but that was to trigger commencements. There is evidence to show that incentive is working. However, we need to incentivise the release of development land and bring it on to the planning and development stages. The Residential Zoning Tax (RZT) is attempting to do that, but it is not a perfect solution. What would be a good incentive would be if we reintroduced the S.23 tax incentive to encourage the development of sites. It would be a case of less stick (RZT) and more carrot (S.23) to get housing delivered. S.23 was tried and tested and was successful in the past. What is the problem with reintroducing it to trigger much needed housing into the market. It would be worth a shot. Goodness knows we have probably tried everything else.
This topic is gaining in momentum with recent coverage in the Irish Times and further encouraging comments from the Institute of Professional Auctioneers and Valuers.
We would have nothing to lose, so why not?
