Paul Murphy criticises budget VAT cut as €390m developer windfall

Thank you very much, Chair. I just want to focus on one thing. What I want to focus on is the tax break for developers contained in the budget. The reason I want to focus on it is because I think it's outrageous. I think it's a transfer of wealth from the public, to those who are profiteering from the housing crisis, but also because I heard the Taoiseach say the day after the budget, during leaders' questions, that this is not a tax break for developers. It reminded me of being down in the Convention Centre and hearing him say that we did not bail out the banks. Just saying what is a tax break for developers, which is the VAT cut for the sale of new apartments being dropped, him saying that that is not a tax break for developers. And then I was reading the papers at the weekend, I had kind of stored this away in my mind, and then I read in the Sunday Business Post, the headline, getting Donahoo to back developer tax breaks is a big win for Brown. So the media describes it as a tax break, it's very, very clearly a tax break for developers. You can look at the cost of this tax break for developers in the budget documents, it's worth 390 million euros. It's a cost paid for by the public into the pockets of the developers. And when you listen to what the rationale of this tax cut is, the argument is not being made by the government that this is going to bring prices down, that we are going to reduce VAT and that will be reflected in lower prices. That is not the argument being made by the government. Instead, the argument is, to quote the Minister for Finance, that this reduction will help address the viability gap in apartment construction as part of a social policy to deliver more and higher density apartments. Interestingly, the housing agency defined what a viability gap is, and they say a viability gap is where the cost of building an apartment or a house is higher than its market sale price. But that's not, there is no viability gap according to that definition. The cost is lower than its sale price, a very substantial profit is being made on each apartment being sold by the developers. To get that, you can go to the Department of Housing's own document, the Total Development Cost Study, which says in 2024 that the developer margin for a two-bed urban apartment, the developer profit, is 48,605 euros. It's a profit margin of 8.9%. And for two-bed suburban apartments, a profit margin of 48,587 or 9.7%. So according to their definition of viability gap, there is no viability gap, there is none, because a profit is being made. And in reality, what they're talking about is juicing the profits of the developers further. Developers have come looking for another tax break, and the government has said, oh yes, we'll hand it over. And Michael Taft, on his, is an economist, has done excellent work in pulling this together, and drawing from the work of Orla Hegarty, in particular, in just bringing this together in clear, kind of black and white figures that demonstrate what a robbery is taking place of the public, Fianna Fáil, up to their own, their old tricks together with Fianna Gael again. The profit margin is very, very healthy for the developers, including for the construction of apartments, and that's reflected in the Department of Housing's own figures. The Minister for Housing has previously stated that if there was even a small profit, people should be building apartments. But as we've seen, there's more than a small profit, for two beds, urban or suburban, there's a 50,000 euro profit. And what way has profits been going for the construction, for the developers in this country over the past number of years? Are things becoming harder for them, despite the fact that prices continue to need to rise, and therefore they need a tax cut to keep operating or something? That's not what the figures indicate. If you look at the Cairn Homes and Glen Vey, the two biggest Irish developers, 2022 Cairn Homes had a profit of 81 million, a profit margin of 13.1%, 2023 that goes up to 85.4 million, 2024, it's up to 114.6 million, and a profit margin of 13.3%. So a substantial increase in profits, and a small increase in profit margins. Glen Vey goes from 52.6 million, a profit margin of 8.1%, to in 2024, 97.8 million, almost doubling their profits, and a profit margin of 11.2%. So a substantial increase in profits. So these people are making very, very substantial profits already. There is no viability gap. And we have already the lowest VAT rate on construction work on new buildings at 13.5%. Now it's going to drop to 9%. And just a massive giveaway to the developers. And that's all it is. And it's going to have a distorting effect on land values. So to quote Orla Hegarty, the VAT cut adds 20,000 euros to this profit margin, the profit margin of the developers, for every apartment. More government interventions that are inflationary, that drive up land values, that shore up dysfunction, and that worsen the housing crisis. A sweetener for developers that will be absorbed into margins and land values, worsening structural problems in the sector. The CEO of Cairn Homes believes that the benefit for them will actually be even higher. Michael Stanley, Chief Executive of Cairn Homes said a suite of budget measures announced on Tuesday, together with new apartment construction guidelines unveiled during summer, are probably worth about 70,000 to 80,000 euros per apartment. That's on top of the 50,000 euros per apartment profit that they currently make. All of this is going to lead to higher land prices, as more profitable units are squeezed into a site. Land prices make up a significant portion of apartment costs, even more than developers' profits. The consequence will actually be inflating prices, which should be the last thing that the government is seeking to do. And it illustrates a whole number of things. One, it illustrates who the government represents. People are always saying to me, why can't they solve the housing crisis? Because they represent those who are benefiting from the housing crisis. That's what this policy proves to you. During a housing crisis, during a time where the developers are making big profits already, they're giving a tax break to the developers, as opposed to investing in public housing. So it tells you who the government represents, but it also gives you a hint of what the alternative is. And the alternative is using the money to build homes. Look at what makes up the cost of an apartment. So just over 50% is made up of construction costs. So it costs half the price of an apartment is the cost of building it on average. The profit, the land prices and the developer's margin together make up 20% of the overall price. You just do the maths. If you have public building on public land, you cut prices by 20% because you're getting rid of the land cost, because you have public land and you're getting rid of profit. Profit is not a necessary cost here. You don't need to be paying for these developer's substantial profits. We don't need to be giving them even more profits, which is what we're doing with this tax break. What we need to do is to use public money to build social and affordable homes on public land. That's the main intervention that we need, as opposed to throwing more and more money at landlords, at big developers, at those who are profiteering from the housing crisis.