Mick Wallace (Wexford, Independent) | Oireachtas source

God no, I would not be into that at all. I will take the 20 minutes.

Following the crash, Ireland has become a tax haven for property investment funds which like multinationals pay very little tax but unlike multinationals they supply very few jobs. There is not a lot of logic to the generous tax exemptions afforded to these funds. To put it in perspective, our taxation rules for investment funds are almost identical to those of the Cayman Islands, Luxembourg and the Channel Islands, which is not a great list to be on.

In the Finance Bill published last week, it was announced that a withholding tax of 20% will apply from next year on certain property distributions from Irish funds to non-resident investors. Investment funds with at least 25% of their assets made up of Irish commercial property will be subject to this tax, but the levy will not apply to pension funds, life assurance companies and other collective investment vehicles such as undertakings for collective investment in transferable securities. I would be interested to hear the Minister explain why these were kept away from the tax and left exempt.

The 20% withholding tax is not a panacea to the billions of tax revenue the Exchequer is losing out on, and it looks doubtful the rate of 20% can even be applied to the majority of these non-resident investors. The Department of Finance has confirmed to me that non-resident investors may seek relief from the newly enacted 20% withholding tax if they are resident in a country with which Ireland has a double tax agreement. At present, Ireland has double tax agreements with 72 countries, including the US. This will certainly limit our capacity to raise funding in this area.

I have yet to hear the Minister address the favourable tax treatment afforded to real estate investment trusts, REITs, at the expense of the traditional landlord. REITs are subject to an entirely different tax regime to individual landlords. They are not subject to any tax on their rental incomes nor are they subject to tax on their gains. To achieve these exemptions, REITs must distribute 85% of all property income profits annually to shareholders. The Finance Bill's newly established 20% withholding tax for funds already applies to REITs, but again foreign investors from treaty resident countries are able to reclaim part of this tax if the relevant tax treaty allows for it.

I have written to the EU Commission regarding these exemptions for non-resident investors in Irish REITs and whether they breach EU state aid rules. I note the Taoiseach said last week that, "No other state aid cases have been opened against Ireland arising from the information submitted to the Commission, nor have we any indication that there are any other cases under consideration." To the best of my knowledge this is not true because following my complaint to the EU Commission, it confirmed to me last Friday the Irish tax regime for REITs is under assessment by the services of the Directorate-General for Competition. Will it take another EU ruling before we address the issue or might the Government take another look at it?

We now know that two years of lobbying took place between WK Nowlan and the Department of Finance on the establishment of REITs, and the Department of Finance eventually ceded to this lobbying in 2013 by establishing the REITs model. To give a little background, WK Nowlan is run by Kevin and Bill Nowlan. Kevin Nowlan was a senior portfolio manager with NAMA. Before he moved to NAMA he transferred his 30% shareholding in WK Nowlan to a trust offshore. Kevin Nowlan, having left NAMA, is now the CEO of Hibernia REIT. He is on the record as saying some extraordinary things about the property market in Ireland. With regard to funds and how REITs operate, he said Ireland became an extraordinary place for a moment because virtually everything was for sale. He also said a lot of property for sale, by receiver or whatever, ends up in The Irish Timesand Irish Independent, but they know enough people in Dublin to be able to go buy properties in Dublin without having to go to auction or onto the market. He stated they had done 18 deals, 16 of which were done off-market. These are the type of guys who now control much of the property market in Dublin, and it raises serious concerns about how we do big business in Ireland. It is neoliberalism gone mad, from my point of view, while the majority of the population has been fed a diet of austerity.

One of the main reasons apartments in areas such as Dominic Street which cost €900 a month three and a half years ago now cost more than €1,500 per month is down to the decision by NAMA and others to sell properties in large bundles, excluding smaller Irish buyers, to tax exempt investment funds and REITs, and it has distorted the market dramatically. I had 27 apartments in Dominic Street which were sold to an investment fund for €100,000 each. The day they were sold I could not have put them back there for less than €220,000 if I got the land for nothing and the money for nothing. I did my sums on it at the time. They were sold for €100,000 each and nobody seemed to give a damn.

Units bought by REITs and other investment funds at fire sale prices with powerful tax incentives are one of the main reasons we have a homelessness crisis and a housing emergency crisis in Ireland. Investment funds and REITs now control a very important chunk of the rental market. Figures released by the CSO at the end of September showed just how much property these investment funds have bought over the past three years. Investment funds and REITs were responsible for almost one fifth of new house purchases in Dublin over the past two years. Non-household buyers, which generally include foreign investment companies and REITs, managed to acquire 4,500 units in 2014 and 4,800 units in 2015. They have reaped the rewards of NAMA doing exactly the opposite of what it was set up to do and what we were originally told that it would do and what we were told it would not do which was fire sale properties, which is what it went ahead and did. Investment funds played no role in the property market in 2010 and 2011, with the CSO figures then showing they purchased just 144 units in 2010 and 182 units in 2011. The impetus to enter the market was a direct result of NAMA beginning to sell properties for next to nothing from 2012 onwards.

The Minister and I had a discussion on REITs here in January 2014. At the time, I warned him the establishment of REITs would distort the rental market in Dublin. He told me only two REITs had been established and both were capitalised at approximately €400 million. I was told that two REITs with a total investment of approximately €400 million would not distort any market or give anybody control. The Minister said the REITs system would raise standards and if something went wrong he would move to correct it but that so far it was moving in the right direction as intended. This is what the Minister said in January 2014. The figure has moved to approximately €2.2 billion and it will continue to rise. Rents will also continue to rise so long as this goes on, and the number of people homeless on our streets is likely to continue to rise. In 2014, the Minister stated if something went wrong he would move to correct it, but something has gone wrong. Investment funds and REITs have established a cartel in the rental market. The Finance Bill offered the Minister an opportunity to help correct the problem but he did not do anything about it. I wonder how he can rationalise not doing anything about it given the impact it has on our housing crisis and rental crisis.

The other day I spoke to someone who is moving out of a good two-bed apartment in the city centre for which he was paying €1,700 a month. His lease is up and he must move out. He told me he is looking around for something similar in the city centre, but the cheapest he has found so far is for €2,400 per month. My God, where are we going with the rental situation in Dublin?

Will the Government get a handle on it because the measures brought in so far have only been sticking plasters and they have not worked? I am sorry if I am interrupting the Minister's conversation, but I am astounded that the Government has failed to address the underlying problems in the housing industry and how construction projects are undertaken. There are glaring problems and, for the life of me, I do not understand why the Government does not want to address them. I do not know why Ministers are not talking to the people at the coalface in the industry who understand what is wrong. We will be in the same place in a couple of years and it is frustrating because everything could be different.

I received an e-mail from a guy called Mel Reynolds who runs a blog called the BRegsForum earlier. He made a few points:

In May 2016 the Housing Agency submitted an informative report to the Oireachtas Housing and Homelessness Committee, an overview of vacant housing in Ireland and possible actions. The report said:

“There are 230,056 unoccupied residential properties (excluding holiday homes) across the state (Census 2011); almost three-quarters (73%) are houses and the remainder are flats-apartments (27%). There are 7,995 vacant houses and 16,321 vacant apartments in Dublin city centre [alone]"...

Dublin with an acute housing need, has a vacancy rate of 8.2% at present: studies in the UK suggest a 2.5% vacancy rate would be a ‘natural level’ of vacancy. A number of policy interventions were suggested.

One area not highlighted in the housing agency document is the significant regulatory barriers that exist to SME projects and smaller residential change of use/ vacant building projects at present. This is not a planning delay issue and recently announced changes will do nothing to address this problem.

Complying with antiquated official rules and applying for multiple paper-based permits cost citizens and enterprises a lot of time and money. To reduce the regulatory burden, the government should look to abolishing or simplify rules and improving its electronic services. Lk Shields "Red Tape Survey 2015" noted that 1 in 3 Irish businesses say the administrative burden of red tape is an obstacle to recruitment, growth and innovation.

Sluggish residential output has been compounded by complex and ineffective building regulation procedures. BCAR SI.9 was introduced in 2014 and aimed at the speculative residential sector but now applies to all building types.

"...a private householder might have to bring a 500 sq. foot house extension through 27 statutory steps before occupying it."...

It is estimated that SI 9 adds north of €20,000 to the cost of a unit. If the Government had reintroduced the clerk of works system through local authorities to inspect all buildings, not 15% of them or less, it would cost less than €1,000 per unit. The inspections would be independent. The system worked before it was done away with by Fianna Fáil years ago to placate builders who did not want to have their work inspected. It was proven long ago that it was a negative position for the then Government to take and I cannot believe that no Government has corrected it.

Earlier, on Leaders' Questions, Deputy Donnelly said that it costs the same to build in Ireland as anywhere else and he wondered why buildings cost so much. That is not true. It costs more to build here than in many other places. It costs way too much to build here but this issue has not been examined. The Minister proposes to introduce a 5% subsidy for people buying houses but the dogs on the street know that this will be a subsidy for the developer rather than the builder. People are confused. There is a difference between builders and developers. The notion that a builder wants to make a €35,000 profit before building a unit in the State is nonsense. The developer might do so but if a builder made €5,000 profit on a house, he would be delighted. The developer plays in a bigger pool and he plays a different game because he has bigger things to do with this money than invest in housing here if the profit margin is not big enough. A local authority can supply a unit for approximately €200,000 but the Minister has told us it is a good idea to allow NAMA to supply 20,000 units at €330,000 each, which is absolute nonsense. Who will build them? NAMA is doing deals with builders it protected through the crisis and who did well out of the agency and they are doing business with investment funds. I do not understand why the State will not invest in local authorities again. If the Minister says they are not fit or equipped to build these houses or to even organise the building of them, he should make them fit for purpose because it makes financial sense. The private sector cannot be forced to deliver for the Minister. Private developers will deliver if it suits them and at the price that suits them.

Small builders cannot access money because the banks are still closed to them. The developer has access to money because more often than not, he is accessing it from an investment fund and he is not even getting it in this country. That is great but we should not be dependent on him. If he wants to build, let him at it but we should not depend on him. The market should be stimulated through our local authorities, which could provide much cheaper housing.

With regard to the rule on investment in infrastructure and the fact that it goes on the State's balance sheet and interferes with the 3% deficit target if the Government overspends, has anybody put it to the Europeans that given we have a housing emergency all over the country, especially in the larger cities, we need a little help and we should be able to invest in infrastructure by borrowing money at an interest rate of less than 1% without it going on the balance sheet? Investing in infrastructure is one of the best business practices any state can engage in. People boast that we can borrow money at less than 1%, which is brilliant. How sad it is that the Government is not able to avail of the opportunity to borrow this money and invest it in housing through local authorities. It is not rocket science. The local authority has the capacity to cut out costs that emerge when the private sector becomes involved. More people will be at work as a result because there will be more activity. Local authorities hire contractors to build the houses at reasonable rates. Builders are not looking to win the jackpot on every housing development they construct; they are looking to run their business and make a small profit. It would be great if they made a larger profit but it is competitive in the marketplace. I know many small builders who would love to be working but they cannot get funding to do the work. The State can organise that.

The Government should take another look at this. It is not rocket science and it would make so much sense. It would have a much quicker impact on the supply of housing. Everybody says the issue is supply. Supply is a huge factor and it should be addressed by building houses through local authorities and not being dependent on the private sector. The Government has proposed the supply of social housing through the private sector.

The State can build affordable homes and sell them through the private system, not just social housing to be rented out to people and retained in State ownership. If we build affordable homes we will be able to sell them for approximately €200,000. People will not go broke trying to save for a house because they will be able to get a mortgage for a €200,000 house. Many people in need of housing will not be able to get mortgages for the type of house NAMA wants to provide at over €300,000 each.

See this speech in context