Ireland Unveils Tax Incentives to Tackle Housing Crisis

The Irish government has introduced targeted tax incentives aimed at boosting apartment construction and enhancing infrastructure to address the ongoing housing crisis. During his speech in the Dáil on October 10, 2023, Minister for Finance Paschal Donohoe emphasized that the housing crisis was a primary consideration while formulating the budget for 2026.

In a significant move, the government allocated €11.3 billion to the Department of Housing, with Jack Chambers, the Minister for Public Expenditure, stating that building more homes remains “this government’s absolute priority.” Effective immediately, the VAT rate on new apartment sales will decrease from 13.5 percent to 9 percent, a measure that will remain in place until the end of 2030. Donohoe noted that this reduction aims to help close the viability gap in apartment construction, facilitating a social policy that promotes the development of more high-density apartments.

In addition to the VAT reduction, the government plans to introduce a corporation tax deduction for costs associated with constructing new apartments and converting non-residential buildings into apartments. Rental profits from homes within the Cost Rental Scheme will be exempt from corporation tax, further incentivizing the development of affordable housing options.

Another significant change involves the introduction of a new derelict property tax to replace the existing derelict site levy. This new tax will not be less than the current levy of 7 percent and is expected to be implemented in 2027. In support of these initiatives, a new housing activation infrastructure fund will receive €205 million to assist the newly established Housing Activation Office (HAO). The HAO will focus on coordinating and accelerating home building by addressing infrastructure delays, supported by senior officials and infrastructure providers such as ESB and Uisce Éireann.

While the budget prioritizes the construction of new homes, it has drawn criticism for offering less in terms of one-off relief measures for renters, first-time buyers, and current homeowners compared to previous budgets. The Rent Tax Credit has been extended for three years, maintaining the current level of €1,000 for individuals and €2,000 for couples. Although there was a commitment in the Programme for Government to progressively increase this tax credit, no such adjustments were made.

The Help to Buy scheme, which allows first-time buyers of newly built homes valued under €500,000 to claim tax relief of up to €30,000, has also been extended. This initiative is part of the broader Starter Homes programme, which has a budget of €1.2 billion and aims to deliver 15,000 new homes in 2026.

For existing homeowners, the mortgage interest tax relief will be extended for an additional two years, albeit with a reduction in the final year. Homeowners will continue to receive the existing relief of €1,250 for 2025, decreasing to €625 in 2026.

The budget’s housing measures have sparked backlash from opposition parties and advocacy groups. Rory Hearne, housing spokesman for the Social Democrats, criticized the budget, stating that “those in need of affordable homes – renters, generations stuck in their childhood bedrooms, and working families – will see little change from a budget completely lacking in vision.”

Furthermore, Focus Ireland expressed concern over the lack of attention to homelessness for the second consecutive year. The charity’s director of advocacy, Mike Allen, pointed out that this absence raises serious questions about the government’s commitment to tackling one of the nation’s most pressing challenges.

As Ireland continues to grapple with its housing crisis, the government’s new measures aim to stimulate construction and provide support for affordable housing initiatives. However, the effectiveness of these policies in addressing the immediate needs of those affected remains to be seen.