Looking back on the Irish real estate sector over the last 12 months, the main focus, without doubt, was housing. The introduction of new legislation and some key changes in the budget are aimed at addressing Ireland’s housing crisis. The impact of these steps has yet to be fully ascertained but it is clear that this challenge will continue into 2018. We take a look back over some of the key real estate events of 2017.
Planning and Development (Housing) and Residential Tenancies Act 2016
The Planning and Development (Housing) and Residential Tenancies Act 2016 (Act) was introduced to deal with the housing supply shortage and to tackle issues in the rental sector. While the Act was signed at the end of 2016, 2017 was the year in which its impact was fully realised.
In a bid to increase housing supply, the Act introduced a fast-track planning process for large-scale housing developments of 100 houses or more and student accommodation developments of 200 or more bed spaces. It also introduced provisions allowing for a further extension of already extended planning permissions for developments consisting of 20 or more houses.
With a view to tackling the rental sector and rising rents, the Act also introduced rent increase restrictions in Rent Pressure Zones (RPZs). Dublin and Cork City were the first areas to be designated as RPZs. 2017 then saw many new areas being designated as RPZs including parts of Galway, Meath, Wicklow, Louth and Kildare.
In order to give tenants better security, the Act also introduced provisions extending so-called Part 4 tenancies from four to six years. It also repealed a landlord’s absolute right to terminate a ‘further’ Part 4 tenancy within the first six months. The Act also introduced what has become known as the “Tyrrelstown” amendment, which restricts a landlord’s right to terminate tenancies of 10 or more units within a development within a certain six month period on the grounds of the landlord intending to sell the property.
Also affecting the rental sector, new minimum standards for rented residential accommodation were introduced in 2017 by the Housing (Standards for Rented Houses) Regulations 2017.
Some of the key real estate implications of Budget 2018 include:
- Social Housing: The Minister increased the Housing Assistant Payment Scheme to include 17,000 more households. It promised 4,000 social homes through increased funding of the Social Housing Current Expenditure Programme. The Minister allocated €500 million for the Direct Building Programme to achieve 3,000 new build houses by 2021. The focus on social housing in this Budget was a welcomed one.
- State funding: The Minister increased funding for developing local infrastructure to enable development take place. He is establishing Home Building Finance Ireland (HBFI) with up to €750 million for it to lend as housing finance.
- Capital Gains Tax: Property bought between December 2011 and 31 December 2014 and held for at least seven years is exempt from CGT. In a bid to stimulate housing supply, the period for which property must be held to avail of the relief was reduced from seven years to four years, with the relief continuing to apply for the first seven years of ownership. This new time frame is a welcome measure, showing flexibility in responding to changed market conditions.
- Stamp duty: Stamp duty on non-residential property increased from 2% to 6%, with a stamp duty refund scheme introduced for stamp duty paid on land used for residential development.
- Vacant site levy: To encourage owners of vacant sites to develop their properties, the 3% annual vacant site levy will increase to 7% in the second and every subsequent year that a property is on the vacant sites register, starting in 2019. Legislation is awaited to bring this increase into effect.
What's on the horizon in 2018
Ireland’s housing and homelessness crisis dominated the headlines throughout 2017, with homelessness rates continuing to rise. Many of the Government initiatives were focused on addressing this. There has been much debate on how best to solve this crisis. Below are some ways to address this:
- The State must be more active in house building
- Construction of new housing units must be more economically viable
- Regulations need to be at a level which produce high-quality accommodation without being overly burdensome on those who invest in and finance the developments
- Owners of vacant properties need to be encouraged to become landlords
- Derelict sites should be acquired and developed
Time will tell whether the new legislation and Government actions will positively impact the housing supply shortage and rental crisis. Progress will require a collaborative approach between the Government and all stakeholders in order to gain momentum and provide the level of supply this country urgently needs. The real estate sector is set to have an interesting year ahead.