Mr. Pat Farrell:

I thank the Chair, committee members and staff for enabling us contribute to this important discussion.

Irish Institutional Property, IIP, members welcome the concept of capturing some of the value uplift in taking land from a lower use value to higher value, and using the revenue captured to fund the required infrastructure necessary to facilitate that higher use value. However, there are a number of significant potential unintended consequences, which may arise were the proposal to be implemented as currently proposed. A key issue is the risk to the viability of housing development and of apartment development in particular. The explanatory memorandum notes, “it is evident that the benefit conferred by the zoning of land for residential development results in significant uplifts in land values". This is true in some cases, as laid out in stark economic terms in the Project Emerald report issued by the Department of Finance in April 2023. There is a link to this report in our submission. It is clear in many situations that zoning land to high density apartment development would create a negative land residual value. Imposing another tax on that already unviable situation would make it worse and create a lot of negative unintended consequences in the urban land market, and further limit new housing supply. It would materially undermine the ability to deliver the targets set out in Housing for All. It is critical that the LVS tax is structured to ensure that all the tax collected is ring-fenced to pay for and build all the infrastructure required for a particular project or area. Only when that land can be developed without a funding gap should any surplus funds be allocated to a wider county budget. The proposal, as drafted, will not reduce housing costs in any way. It will ultimately only increase the tax wedge in housing costs, which is already one of the highest tax takes in Europe. By introducing the measure as a blunt cliff-edge scenario, it potentially leads to a hiatus in the land market. There are many examples today of high-density sites that are already unviable. They have no land residual value, and are now at risk of an additional tax being imposed. The impact of this is already manifesting itself across the land market. It would be preferable to phase in the new tax over a five to six year period, at a growing percentage of 5%, 10% or 15% per annum, to avoid significant turmoil in the land market.

It will also have detrimental implications for funding structures and investments made in recent years. Many higher density sites in particular have already been delayed by judicial reviews and significant delays at An Bord Pleanála. As things stand, there is no sign this will change any time soon. It is imperative that the LVS tax reverts to the original proposal, and the tax should apply only to newly zoned land for a longer period. The so called transition arrangements will not be enough to avoid many investment write-downs. I recall that 65% of all apartment developments are currently being subjected to judicial review with an 88% success rate. That is detailed in the technical note submitted with our opening statement. This risk must be viewed in the context where around 80% of all funding for housing, including social and affordable, has to come from abroad. Is this the right signal we want to send to this funding? Initial soundings from IIP members suggests that the statement of intent to impose an additional tax on land purchased in good faith in recent years will only increase funding costs and make more projects less viable. The IIP is surprised that the initial proposal to have the LVS replace levies was scrapped. The market initially understood the LVS would replace the section 48 and section 49 levies, and the investment case and viability would be unchanged. As proposed, it is a retrospective tax on currently zoned land, which will have significant unintended consequences.

I will now speak to urban development zones. The IIP welcomes the idea of properly planned areas, in particular with the full calculation of costed infrastructure up front, and the requirement for development of a funding scheme. It is essential the LVS is used for this. We are concerned many of the lessons learned from the slow roll-out of strategic development zones, SDZs, where IIP members are the main actors, have not been addressed. The explanatory memorandum noted:

evidence from designated SDZs is that there has been a significant delay between the making of the Government Order and the preparation of the planning scheme, after which point there may be further delays associated with infrastructure planning and delivery. By this stage, it is often the case that changes to the adopted scheme are required and this results in further delay.

IIP members have been the main private sector and financial actors, alongside the public authorities, in bringing major SDZs to fruition. While a full blown urban development zone, UDZ, might be a good idea for a new town, it is critical that a less restrictive format similar to the strategic development regeneration areas in the Dublin City Council plan may be more appropriate in most cases, as long as the cost and infrastructure funding plan is also addressed.

Even then an UDZ will need more flexibility in implementation to expedite delivery, one of the key obstacles that has hampered the roll-out of strategic development zones to date.

In summary, the UDZ has the potential to be a positive enhancement of the SDZ system. The explanatory memorandum has identified one of the key reasons SDZs were slow to get started and in many cases are still stalled, that is, the need for a funding plan. However, there are many other issues that do not work in SDZs, in particular, the need for additional flexibility - without the need to change the whole plan – to allow developers to respond to constantly changing market and funding realities.

A facilitated engagement in a workshop between the Department and the main stakeholders in the major SDZs on lessons learnt to date would be a good way to do this. IIP members, who are the main players in this space, would be happy to participate.

Other than very large developments – new towns – it may be that a less onerous UDZ similar to the strategic development regeneration area, SDRA, process used by Dublin City Council is a more appropriate way to create coherent urban plans. Obviously, the proposal that a full plan for associated infrastructure would need to be added to the planning side is a good idea from this draft Bill.

We have very significant concerns on the negative, we believe, unintended consequences of the LVS proposals as drafted. It is clear that the authors of this proposal were not familiar with the April 2023 study, Project Emerald, for the Department of Finance, authored by KPMG. Reading the LVS proposals in conjunction with the Emerald report is very sobering. It is very clear that the LVS proposal will lead to many situations where a tax could be added to situations that already are not viable, putting projects even further in the red. The current proposal has the potential to disrupt and distort the land market and, in many instances, cause very significant financial distress to developers and investors in development land who have been subject to inordinate delays due to a systemic breakdown in the planning system, in particular, for the higher density urban housing that this country needs for social and environmental reasons.

The current LVS proposal, which in its basic form should in theory be a fair and reasonable idea, is very problematic. In particular, it departs from the previous proposal to have it replace development levies. It also seems totally disconnected from other Government initiatives to deal with viability challenges such as the levy waiver and Croí Cónaithe and its application totally ignores the viability insights in the recent Project Emerald report. Interestingly, the explanatory memorandum states "It is important to note that the analysis undertaken by Indecon is based on assumptions and an incomplete data set given the lack of recorded data on land values." It is essential that a major review of the LVS proposal is undertaken and that the Indecon report is released so that it can be analysed by the wider industry to identify any further potential unintended negative consequences in addition to those that are already very obvious to developers and funders of housing.