Back to the Future - FTB incentives to be reintroduced by Gov

Sarenco said:
Why do you think the VAT cut increased economic activity?
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Because that's what happened!

Ultimately of course it's impossible to prove causation (I can't see how you can be so sure it didn't), as the control experiment of not decreasing the rate cannot be done at the same time. The purpose of the rate reduction was to stimulate economic activity in labour intensive industries to increase the number of jobs. That was the actual outcome. Would have happened anyway? Maybe, maybe not. There's an interesting comparator, though, at [broken link removed] comparing retail with accommodation and food services.

Would lowering the cost of construction - by removing development levies and/or reducing VAT on input costs - stimulate the industry and lead to more houses being built? My guess - based on the evidence of reducing the VAT rate in another sector - would be that it would. I'd be interested to hear why you are so convinced the opposite is the case.
 
Well, I'm confident that the dramatic reduction we saw in room rates, etc., that gave rise to the uplift in tourism numbers, was due to a (short term) over supply situation and not a VAT reduction.

I simply don't believe the VAT reduction had anything to do with it - hoteliers would have charged whatever the market would bear regardless of the applicable VAT rate.

Lowering the VAT rate on new houses won't have any impact on construction costs. If you lower the VAT rate on input costs, that will certainly benefit builders and suppliers. But it won't prompt builders to lower the asking price of new houses - why would it?
 
Sarenco said:
I simply don't believe the VAT reduction had anything to do with it
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Interesting counter argument....

Doesn't really answer the question though! I remain baffled as to why you believe that reducing costs and/or increasing profitability would have no impact on economic activity.

By the way, the objective of the VAT rate reduction to 9% was as I said to increase employment due to increased economic activity, not to reduce prices which may or may not happen. Reduced house prices isn't the objective: more houses being constructed is I believe the generally accepted goal: as you say, prices will find their own level.
 
I didn't say that reducing government costs would have no impact on economic activity. I think you are conflating two issues.

What I suggested was that the temporary over supply of hotel rooms caused room prices to fall to the point where they became attractive to tourists. Hoteliers would have charged whatever they could for the rooms (regardless of the applicable VAT rate) but were limited by the fact that their competitors also had an over supply of rooms so could under-cut them. Pretty basic economics.

Why would increasing the profitability of individual hoteliers (or even the entire hotel industry) have any impact on overall economic activity? If an individual hotelier can't compete they will go bust and somebody else can buy the business at an appropriate cost.
 
Sarenco said:
I didn't say that reducing government costs would have no impact on economic activity.
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What you asked was "Why do you think the VAT cut increased economic activity?" which I took to mean you thought the opposite. If you don't then we agree: cutting the VAT rate should increase economic activity.

The result of that increase in this case is that more houses would be built, which I believe to be the objective.
 
VAT is paid by the end-user - in this case the house purchaser. Reducing VAT on new houses doesn't reduce the cost of building houses and can't be expected to reduce the cost of the end product. Again, builders will simply sell houses for whatever the market will bear regardless of the VAT rate.

Similarly, cutting VAT on hotel rooms didn't cut the cost of providing hotel accommodation. If it doesn't reduce the cost of a service why would it increase economic activity? Unless the hotelier spends their increased profits on other goods and services in the wider economy it has zero impact.

Cutting input costs (development levies, etc) for a house builder certainly could be expected to have an impact but apparently that's not what's proposed.
 
Unfortunately these temporary little measures become next to impossible to remove.
So the cut to the vat rate to stimulate tourism activity is now non negotiable for the tourism industry even though the industry is booming again.
 
I fully agree that a FTB Grant is unlikely to increase construction activity. However I would fully support a reduction in VAT/Construction levies as per BB's response. Sarenco has made the point that such an incentive will not lead to any reduction in property prices and will merely add to the profit of the developer. I don't dispute this point. However the main inhibitor of the new construction market at present is the low levels of profit available to developers.
From a banking perspective it makes little sense to finance construction projects in the current market because the potential return to the investor does not match the associated risks of the project in a large number of cases. The 1/2% margins that were universally available in the Celtic Tiger years are long gone. All banks will now apply a realistic risk margin to any development project that manages to get past the proposal stage. This cost is a further hit to the bottom line profit for the developer. It's some time now since I have come across a new residential development proposal so I have no real grasp of the potential cost per unit. However the few developers that I have spoken with recently have stated that when the site cost is taken into account they would be left with minimal profitability per unit from any new development. Most of those that are building either already owned the sites or managed to purchase them cheaply in a fire sale scenario.
A c5K per unit reduction in VAT could turn a B/E development into a profitable one and generate the much needed activity in the sector.
 

I'm still not sure what it is you're saying: "cutting VAT ....doesn't reduce the cost of a service why would it increase economic activity" and "I didn't say that reducing government costs would have no impact on economic activity". Which is it?

For sure VAT isn't a direct cost and is collected differently, but reducing the rate has exactly the same net effect as reducing a development levy. Consider a house, subject to VAT at 10% and a development levy of €10k that has a market rate of €200k (i.e. the price it will be sold at). The amount available to the developer is about €172k, to cover all other costs and profit. Cutting either the VAT rate or the development levy will have the effect of increasing this amount. The developer can either drop the selling price in an effort to sell more, or they can pocket the increase. In either scenario the likelihood the house will be built goes up, so it's kind of irrelevant which path is taken. More houses will be built, and prices will find their own level.

I'd would agree that tacking development levies first should be a higher priority, if only because they are both regressive and seemingly arbitrary.
 
Well it looks like the incentive is going to be a tax rebate to FTBs and will be back dated to today.

According to the Minister for Housing, Simon Coveney:

“I think it will be done through the tax system in the form of a rebate and there will obviously be parameters with it in terms of the value of the house a first-time buyer gets support to buy."

"What you don’t want to do is increase the capacity of first time buyers to spend more without actually having a correspondence in an increase in supply, so this needs to be a supply boost as well as a help-to-buy plan."

Make of that what you will.

http://www.thejournal.ie/first-time-buyers-budget-2885456-Jul2016/
 
I can understand it being back dated to today. Last thing they want is for all FTB's after hearing the news to halt in their tracks looking for & potentially purchasing new properties while they wait until October for the budget.

It will need to be a clever & fair system, with the potential impact of such a system the highest priority.
 
Sarenco said:
Well it looks like the incentive is going to be a tax rebate to FTBs and will be back dated to today.
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This is terrible. What about the people who are on the dole through no fault of their own cos' they have to mind the childer and can't afford a deposit. They get no benefit ! Blatant case of looking after the rich again
 

I love the thread title on this thread. As they're no posts about landlords I'll add in my twopenceworth on that aspect. Ha ha ha. We're going to have 'strategies' and 'reports'.

As for the waste of money with FTB's, old mistakes indeed. McCarthy is dead right. (I see they are bringing back bedsits maybe, I've a load of posts somewhere on how stupid that police of abolishing them was somewhere on here)
 
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