Calls for VAT on new homes to be slashed to zero to help fuel construction


The VAT rate on new homes should be slashed to zero to help fuel the construction such properties, according to the executive chairman of stock market-listed home builder Abbey.

Charles Gallagher also said that more powers should be used by NAMA to accelerate home building, with intervention to push developers to build faster.

Speaking after the company’s annual general meeting in Dublin this morning, Mr Gallagher said that the lack of available mortgage funding also remains a major issue, and that there's a danger that new homes will be built but no-one will be able to buy them.

He described the 13.5pc VAT rate levied on new homes as a “heavy tax”. In the UK, the rate is zero.

 “The price of building a house has gone up substantially in the last 10 years,” he said. “VAT on housing – 13.5pc – is a massive tax on housing. If you go to regional areas 60 or 70 miles outside Dublin, it makes it uneconomic to build new houses for speculative sale.”

 “Labour shortages, labour constraints all drive up costs… and reduce output.”

He added: “If you want to increase output and if you want to increase public housing, you still need to reduce the costs. You need to have policies to reduce the costs and there are trade-offs in that. Somebody has to be willing to make them.”

 “Somebody has to say: do we really think a shortage of housing is a national emergency, or do we think planning control is the priority? Do we think that raising revenue from VAT [is a priority]? What are our priorities?”

Mr Gallagher said that if VAT was reduced on houses, it will “in time, lead to higher output”.

 “It would also lead, initially at least, to higher profits for speculative builders,” he added. “Now, there’s a trade-off there. If people find that hard to swallow, then they won’t do it.”

He said the VAT rate on new homes should be zero.

 “VAT on housing should be zero-rated,” said Mr Gallagher. “I don’t think it’s the appropriate tax to levy on housing. There may be other taxes they want to levy… but I don’t think that levying VAT on housing is appropriate.”

He conceded that cutting the rate to zero “overnight” would be “distorting”.

 “But I think they should probably aim to bring that down to zero,” he added.

The chairman, whose company completed 75 home sales in Ireland last year and 524 in the UK, has a land bank in Ireland that could potentially deliver as many as 700 units.

He said that at the moment, because of mortgage lending rules, house prices in the Dublin market especially are “being capped”.

 “We’re going to have a situation arising where there’s a national housing crisis, but developers may struggle to see the houses that they’ve built,” said the chairman.

 “There’s not enough mortgage money, not enough loan money, available to finance a substantial increase in new housing output.”

With a market capitalisation of €315m, Abbey is one of three stock market-listed home builders in the Irish market.

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