# Should the selling price of residential land be capped?



## purple (4 Sep 2004)

There have been a lot of posts about the cost of housing on AAM over the years (not that I've been posting for years mind...) but is there any compelling practical reason why the selling price for a housing development not be set, or at least capped with an allowance for inflation, as a condition of planning permission approval? I know that there are many issues that this would affect but could they not be addressed as well?


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## rainyday (4 Sep 2004)

*Re: State regulation*

Check out the [broken link removed]


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## purple (6 Sep 2004)

*Ah Jasus*

Any chance of a synopsis, I don't have that sort of time on my hands!!


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## Guest (6 Sep 2004)

*Ah Jasus*

Have you tried reading the introductory and conclusion sections of the Labour report above? If you ask the question then it seems to me that the least you can do is to attempt to read the sources provided by others in reply.


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## Brendan Burgess (6 Sep 2004)

*Re: Ah Jasus*

I tried to read that report but it was too long. Page 10 didn't seem to deal with the core issue raised by Purple.

As I see, it Purple wants to know why do we not put a cap on the price of building land? 

At first sight, it seems like a good idea. Limit the price of land to,say €50k per moderate site. Take €200k to build a house and so most houses should sell for only €250k. 

Unfortunately, this messing with the free market doesn't work. In practice, the price of a house is set by the what the punters will pay. A new house builder can sell three bedroomed houses for say €400k. If the site costs him only €50k instead of €150k, he will still be able to sell the house for €400k - he will just make an extra €100k profit. 

But let's say that it did work. He is somehow restricted to selling the house for €250k to reflect the cheaper site cost. Who will decide who gets to buy these cheap houses? The developer will probably sell them to a friend who will sell them on at the true market value. 

And, let's say you could control for this abuse as well. Landowners would simply not sell their land for the reduced price and less building land would come on the market. 

The free market appears very tough on the weaker sections of our community. But tinkering with it will usually make things worse for the  very people the tinkering is trying to help.

Brendan


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## purple (7 Sep 2004)

*Thanks*

Thanks Brendan, that's that then. It's hard to argue with your post and no 19 pages to read through. I didn't think it would work; all attempts to stand between supply and demand seem doomed to fail, I just thought I'd throw it out there.


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## Brendan Burgess (7 Sep 2004)

*Re: Thanks*

Hi Purple

I don't really think "that's that then". Wait until Rainyday sees my contribution and we will see "what's what".

Brendan


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## purple (7 Sep 2004)

*That's that?*

True enough Brendan, he usually puts up a robust argument and this topic seems close to his heart...and when the discussion moves from opinion to fact he usually beats me!


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## Cooper (7 Sep 2004)

*Free market*

I am in full agreement with you Brendan. We’ll see more and more of this sort of extremist guff from Labour, now that their base is being eroded by the Shinners and Joe Higgins’ lot. 

Crude tinkering with the free market just doesn’t work. Look no further than Bacon for evidence of this. 

Perhaps a better way to reduce this would be to impose a tax premium of say an additional 20% on any gains made as a result of rezoning. Also, the mortgage interest tax relief paid to homeowners should be scrapped, as this result in the Revenue also artificially propping up house prices, to the benefit of the builder.


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## Brendan Burgess (7 Sep 2004)

*Re: Free market*

Hi Cooper

We have had extra Capital Gains Tax on profits from the sale of development land for some time. If I remember rightly, McCreevy introduced a higher rate in 2002 but gave plenty of notice to encourage land owners to release their land before the higher rate came into effect.

I agree that Mortgage Interest Relief should  be scrapped.

Brendan

Rates of CGT on Development Land:

23/4/98 - 5/4/02 
 20% if land has planning for residential development or disposed of to a Housing Authority, otherwise 40% 

6/4/02 - 
 60% if land is for use solely or primarily for residential purposes, otherwise 40%


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## MOB (8 Sep 2004)

*capping the price of land*

The problem with interfering with the market is that it rarely produces the desired result without some unintended side effect.  However, there is a serious problem with the huge increase in land value which accopmanies a re-zoning decision.  The value of a re-zoning is created largely by the state.  It doesn't seem right that a small number of landowners should win the lottery.  It seems even worse when you see that re-znoing decisions seem to favour areas where well connected developers have already bought up land.

A partial solution to this, even if it is politically difficult - is to increase planning levies.   A builder has a fair idea what a house will sell for and what it will cost to build.  He therefore has a pretty good idea how much  to pay for building land, and his profits are almost entirely determined by what he pays for a site.  If you increase the build costs (by increasing planning levies) you reduce the amount that a builder will pay to a landowner, thus reducing land values and effectively diverting part of the value of the land back to the state which created that value.   This is a good thing, and we are already seeing movement in this direction.  Unfortunately, misguided politicians see it as their duty to in some way relieve the hard pressed homeowner by keeping the levies on houses down as much as they can, while they have much less compunction about clobbering the commercial sector.    This is misguided.  Making landowners immensely wealthy is not a sensible use of state resources.


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## WizardDr (9 Sep 2004)

*Re: capping the price of land*

The cost of land is not the main issue if you can get access to the full costs of development. 

My understanding is that the planning process itself is now so long and protracted that it is only experienced developers know their way around, have the money, time and pateince to go with the most protracted, off the wall, bureaucratic crock I have ever seen.

The profits on a development after every snout in the trough has had an extraction would be 40%.

But I am merely sharing what I know. Believe it or believe it not.

Let me repeat that the main continuing problem on house prices is, was, and will continue to be PLANNING.

As my pal Tom Cruise says ..show me the money .. and when you see the figures .. Tom Baileys accounts would help - you may then agree !!


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## rainyday (11 Sep 2004)

*Re: capping the price of land*

Didn't Charlie McC roll-back on the extra CGT levy on development land just as the time limit was about to kick in? He must have got a sound thrashing from the developers in the FF tent at the Galway Races.

Is there any reason why the State shouldn't take the benefit from the rezoning process itself? So for any rezoning, the state buys the land first at existing use sites, then rezones, then sells the site to a developer - so the increase in value comes to the state, not the developer.


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## purple (12 Sep 2004)

*Re: capping the price of land*



> Is there any reason why the State shouldn't take the benefit from the rezoning process itself? So for any rezoning, the state buys the land first at existing use sites, then rezones, then sells the site to a developer - so the increase in value comes to the state, not the developer.


  That sounds like a good idea.....does that make me a pinko?!?


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## jem (13 Sep 2004)

*Re: capping the price of land*



> A partial solution to this, even if it is politically difficult - is to increase planning levies. A builder has a fair idea what a house will sell for and what it will cost to build. He therefore has a pretty good idea how much to pay for building land, and his profits are almost entirely determined by what he pays for a site.


I disagree. The plain facts IMHO is fi you increase the costs you increase the sale price.
I think the only answer is to free up land, make planning easier, more rezoneing where relevent, take an taisce out of the loop totaly. 
By bringing more land into the market you will have more houses built and a far better chance of reduceing house prices.


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## rainyday (13 Sep 2004)

*Re: capping the price of land*

Have AnToshka got involved in any housing estate planning applications? I thought they were mostly concerned with once-off housing (which is not going to have any huge impact on house prices).


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## daltonr (8 Oct 2004)

*Re: capping the price of land*

Rainyday

I've been asking why the state doesn't benefit from the rezoning for a long time.   I agree with you, there's no reason it couldn't work, and given the profits involved it could reduce or remove the need for stamp duty and local authority charges being levied on home buyers.  They have already paid the Rezoning premium in the cost of their house.

In fact, this is such an obvious way of working that I can only assume that the reason we don't have it is that it would remove very large profits from the land owners, and so the current system has been kept in place out of fear of political fall out.

If the state feels that a piece of land should be developed, it should buy it, zone it and sell it.  End of story.

-Rd


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