Ireland’s housing shortage is well documented, and it is universally accepted that we need to dramatically increase our housing output, and quickly. Patrick Cormican of Sherry FitzGerald looks at the likely impacts of the Residential Zoned Land Tax, which is among the new measures which aim to do this.
As reported by the CSO in January, it is very disappointing that just over 30,000 homes completed in 2024, a decrease on the 32,695 units delivered in 2023 and some way short of the 40,000 projected before last November’s election. In a local context, Galway city and county saw a combined 1,244 new completions in 2024, down from an already low base of 1,316 units in 2023. It is also worth noting that of the 30,000 homes completed, only a third were available for sale.
The new Programme for Government contains a mixed bag of proposals and recommendations, all with a view of ramping up the sector to build more than 300,000 new homes by the end of 2030, to fall in line with the revised housing targets. This indicates the need to increase our housing output from 30,000 to 50,000 units a year, every year for six consecutive years — no easy feat given the outputs in recent years.
With a new minister for housing now in place, our elected representatives need to be brave and earnest in making the correct political and policy decisions, some of which may not win universal support.
On the positive side, the expansion of the First Home Scheme, the continuation of the Help to Buy Scheme, and the commitment to development land audits are to be welcomed, while in 2025 we will see more affordable purchase and cost rental schemes finally being delivered. However, some proposals may potentially impede housing delivery and prove counterproductive.
The Residential Zoned Land Tax (RZLT ) is a new measure introduced by the Government and it came into effect on February 1 this year. The aim here is to ‘encourage’ land owners of zoned and serviced sites for residential development do a number of things: 1 ) build homes on said land, 2 ) sell it to someone who will develop it, 3 ) rezone the land or 4 ) commence a non-residential development. The ‘incentive’ for landowners to do one of the above is an annual tax, which will be three per cent of the market value of the land.
Both Galway city and county councils along with all the other local authorities will produce maps identifying land that fits the criteria for RZLT, and said maps will be updated on an annual basis. The first liability date is February 1, 2025, and this is then payable by May 23, 2025. Understandably owners of residential zoned land will need professional advice on land values and examine their options.
The logic behind RZLT has been likened to a carrot-and-stick approach: the stick is the tax to push landowners into action, with the carrot being the profits from housing development, to motivate them to follow through. In theory it makes sense, but the reality is far more complex. Rather than solving the problem, could RZLT become another obstacle in the uphill struggle to increase housing supply?
Owning land is one thing, but developing it into viable housing is another. Successful housing projects require predictability, which in turn depends on a reasonable time frame to manage risks and costs. Ireland’s planning and infrastructure system, however, is overloaded, with approval for housing schemes often taking three to five years, or longer if planning is refused. During this time, costs can increase, and demand can shift, which threatens the viability of projects.
While the Residential Zoned Land Tax (RZLT ) aims to boost land sales, it will likely increase the pressure on an already strained planning system, leading to more delays and additional costs for landowners and developers. Developers may also face an unexpected three per cent tax on land they hadn’t planned for, while dealing with the uncertainty of a three to five year build-out period.
Given the many existing taxes and costs associated with housing development — such as Stamp Duty, VAT, and Development Levies — adding another tax could potentially hinder the goal of increasing housing supply. The RZLT aims to combat land hoarding, but developers are more concerned with having enough viable land, not too much. Expanding the supply of zoned land would be a more direct solution, helping to lower land prices and reduce hoarding. In Galway city, we have the added intricacy of the proposed ring road that is stopping any progress on parcels of zoned residential land that the planned route dissects.
Ultimately, the impact of RZLT will become clearer in the next few years. If Ireland had a more efficient planning and infrastructure system, RZLT might make sense, offering a simple incentive to use land or pay for it. But in its current state, it may add complexity and costs to an already challenging process.
The real goal should be to make housing development easier, creating an environment that encourages building. This could include streamlining planning processes, supporting developers, and attracting investment. A more proactive strategy, like the one Ireland used to attract global companies, could involve progressively incentivising landowners and developers to build the homes we need.
Landowners will need to consider this tax carefully and take professional advice. For valuation, disposal or other advice, contact Patrick Cormican, associate director, Sherry FitzGerald Commercial & New Homes on 091-569123.
