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Stamp Duty and Building Profits

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Instead of tinkering with stamp duty, the Government, as advocated by your correspondent Mr X (3rd December 2007 and July 2006), should immediately implement the Kenny report to limit profits on building land. It should also dig up the All Party Committee on the Constitution's progress report on private property which, no doubt, it will find buried under a tent in Galway.

The magnitude of profits made by the building industry are mind blowing. Over the ten years to end 2006, 608,000 new houses were completed and average annual prices increased by 199% from €102,000 to €306,000. On this basis, the cumulative value of new house sales over the decade was €131 billion.

During this same period, building costs increased by 61%. If land and other costs and profits had only risen in line with building costs over the decade then the average price of a house would have hit €164,000 in 2006 and the cumulative value of sales over the ten years would have been just €86 billion, a difference of €45 billion. After allowing for VAT of €8 billion, the residual difference of €37 billion is largely attributable to profits for land owners and builders.

On this basis, about one-third of future mortgage repayments by house buyers will be used to pay for these extraordinary profits. It should not be ignored that financial institutions have also profited as they have lent far more than strictly necessary. Likewise, the exchequer, through stamp duty, and a raft of service providers including brokers, insurance companies, solicitors and auctioneers have benefited from this windfall.

In addition to being burdened by excessive borrowings, many recent purchasers have had to purchase lower grade accommodation, live in less accessible locations, work harder and longer, and demand higher earning to pay their inflated mortgages. This has disrupted communities, reduced leisure time and living standards, and impacted on national competitiveness and long term growth prospects.

It is ironic that having sought a reduction in stamp duty on the grounds that it would stimulate the market, builders have ignored the fact that dropping overblown prices would have a much more significant impact on demand.

Lead letter published in the Irish Times on 7th December 2007.

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This page contains a single entry by Brian published on December 6, 2007 6:12 PM.

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