The Greens' site value tax agreed with Fine Fail in last week's negotiations is designed as a substitute to property tax or rates in order to prevent discouragement to development. Commercial rates are very high in some council areas,so developers must delay development,often for many years,until they can be assured of a return on investment. Since the site value tax applies to the sites instead of the developed structures on the sites,they will want to develop the sites ASAP to generate income and capital gains. The risk of developing will be reduced since there will be no additional rates or site value tax.
Existing land bank owners will be royally screwed by this unanticipatred site value tax which will reduce the value of their sites by up to 20% probably,if not more, in an illiquid market with few transactions.In addition to paying interest on loans to finance the land purchases where they have borrowed,they will also have to pay the site value taxes with no income coming in from the site. The envious will cheer but there are disadvantages for property development.
In many cases,developers have carefully accumulated land banks with a view to developing major projects. This accumulation has to proceed slowly over years to prevent holdouts on adjacent sites from demanding exorbitant prices to complete the development jigsaw. As I understand it,there is no provision in Irish law to allow a developer to get a compulsory purchase order on stubborn holdouts in order to complete land acquisitions for commercial developments. Without such a provision,who will have the deep pockets to fund taxed land sites? This could prove a massive barrier to property development and will concentrate the big projects among a few giants,possibly all British owned.
As for the land site tax on home owners,this will tend to encourage development of well designed houses whereas rates on houses can be a disincentive to good design because the more attractive the house,the higher the rates tend to be. In Rome in the 1980s,I was struck by the drabness of the exteriors of houses. It seems the interiors were often elaborate but the exteriors were kept drab to avoid the attention of the taxman.
The site value tax could help Dublin homeowners because valuations will tend to underestimate the value of the sites,which are often worth many times the value of the house structure in top locations.
There will also be a lot of disputes about valuations which will be good business for auctioneers. In basing tax on valuations derived from housing sales prices,calculations on the rateable value of structures must be subtracted from the selling prices of houses. Where the structures vary a lot in a given area,it will be difficult and expensive to provide reliable estimates of rateable values.