Posted tagged ‘property tax’

Taxing property

November 12, 2010

In a recent post I considered our tendency in this part of the world to encourage home ownership both as a form of housing policy and as a form of personal investment. The latter aspect looks less of a good bet these days, but we have had problems in the property market before that were soon forgotten as people went prospecting for real estate gold again remarkably quickly.

Escalating property prices look great for those who see the value of their investment rising, but are terrible for everyone else. Getting on the property ladder becomes harder and harder, property values inflate the cost of living, speculation becomes the norm, and at some point the bubble bursts with terrible consequences.

One way in which property values can be contained at least a little is through property taxation. We had that in the form of domestic rates for some time before these were abolished. In the UK they were eventually replaced with the Council Tax, while in Ireland we have no property tax; this not only creates market distortions, but also deprives local authorities of the means to fund their services properly and competitively.

Now the Economic and Social Research Institute (ESRI) has produced a report recommending the introduction of a property tax amounting to 0.4 per cent of the value of the property. As a measure to reinvigorate local government, produce appropriate funding streams and contain the tendency of the property market to over-heat it makes a whole lot of sense, and the recommendation should be implemented.

The property people

October 15, 2010

Over here we may think that the collapse of the property market has dealt us some particularly cruel blows, but actually we are not as badly affected as we might be, and not as badly as people in the United States. According to the latest estimates, 1.2 million homes will be repossessed by banks in the United States this year because of mortgage or loan defaults. To put that in perspective, in Ireland last year some 400 homes were repossessed; if we were having the same repossession rate as in the US that would have been over 10,000 in Ireland.

Nevertheless, many people over here are living with negative equity, and many are struggling with mortgage repayments. On top of that, homeowners with notionally large asset values but average incomes may be about to be hit with a property tax (which, in fairness, we ought to have). Maybe it is time for us to consider whether our home ownership tradition actually makes much sense any more, or possibly even whether it ever really did. It is doubtful whether property values will ever be such a safe bet again, and our habit of occupying heavily leveraged property is at best rather curious. These islands are pretty well unique in Europe for having such a large home owning proportion of the population. Maybe its time to re-think all that.

Taxing land? Scottish Greens suggest Land Value Tax

October 4, 2010

It has long been a matter of debate as to how to fund local government and local facilities and developments. The traditional method in these islands was the system known as ‘rates’, which were a local tax based on historic property values. In Ireland domestic property taxes were abolished in the later 1970s, while in Britain they now consist of the so-called Council Tax, which applies to residential property.

Now in Scotland the Green Party has suggested the introduction of a Land Value Tax, which they propose should be based on the value of land without taking into account any development that might be on it, and levied at 3.16 per cent of that value. As a matter of interest, the research commissioned by the Scottish Greens suggests that Scotland (in terms of its land) has a total value of £12.3 billion. They believe this will create fair local taxation while at the same time providing a disincentive to property speculation.

Whether this is a workable proposal is something that might need to be considered further. But it seems to me to be clear that property taxation is one of those issues that will need to be addressed properly at this period of public exchequer shortfalls, and at least this is a basis for such a discussion.