Fantasy house prices and exorbitant rents are a direct result of government policies that have favoured bankers, developers and the rich. Here is how it happened.
Before the Celtic Tiger crash of 2008, Ireland was building twice as many housing units per head of population as any other country in Europe. There could have been a massive fall in houses prices and rents. But that would have damaged the Irish rich who prefer to invest in property.
Fianna Fail and Fine Gael were never going to tolerate that. After all, one-third of their TDs in the last Dail were landlords. They set out a strategy of ‘reflating the housing market’. They knew that there was a global ‘wall of cash’ seeking out property opportunities in cities like London, Shanghai and Paris. They wanted to bring that investment to Ireland to push up house prices and rents.
But how? Dublin is a charming city but in the eyes of New York or Middle Eastern investors, it does not have the same cachet as London. The solution was to attract them with massive tax breaks.
Here is how it worked
* Set up a Special Purpose Vehicle and borrow money at high interest rates from a parent company – in other words, yourself. Claim an allowance on the interest paid to cut your taxable profits. The Sunday Business Post found that 24 Irish subsidiaries of international investment funds paid less than €20,000 in tax over two years despite controlling €20 billion worth of assets.
* Set up a Real Estate Investment Fund and cut your tax bill to near zero. Here is how Deloitte explains the trick:
the vast majority of Irish regulated funds continue to be exempt from Irish tax on their income and gains with no Irish tax on payments to non-Irish resident and exempt Irish resident investors, subject to certain conditions being satisfied.
Deloitte
*Enjoy the amnesty from Capital Gains Tax. Workers never get an amnesty from PAYE tax – but in tax-haven Ireland, investors are given special privileges. Seven-year amnesties have been granted to speculators who sell off property.
*Set up a Qualified Investor Fund – it takes only 24 hours to do it – to ensure you cut the withholding taxes made to foreign investors. In 2016, Kennedy Wilson earned €26 million in rent from its Irish assets but paid nothing in tax thanks to its use of two QIF structures.
And it worked. The wall of cash came flooding into Ireland and pushed up the price of property. Rory Hearne has compared the prices of property and rent in 2013 to today and found that in Dublin the average house price has risen by €178,000 while average rent has increased by €535 a month.
There were no ‘mistakes’ no ‘policy failures’. Tax haven Ireland looked after wealthy people. The rest of us just had to suffer.
What Needs To Change?
We have to get Fianna Fail and Fine Gael out of government – and the parties that proper them up, Labour and the Greens. We need a genuine left government back up by people power which will
- Hold a referendum to put a right to housing into the Irish constitution.
- Remove all the tax breaks for bankers and speculators. Make them pay an extra solidarity tax to fund the Covid pandemic.
- Use NAMA and other public land to build cheap housing. According to the Society of Chartered Surveyors, the hard costs of building a three bedroomed house in 2020 came in at €179,000.
- Cut out the profiteers. Set up a state construction company to build homes on a massive scale.
- Bring in strict rent controls. Allow tenants to go to arbitration if they can prove their rents consumes more than 20% on their income. Cut them if they win their case.
