Reform zoned land tax to help solve housing ‘puzzle’, says PwC

Ireland’s tax on idle land zoned for housing must be reformed to encourage the level of private investment required to help solve the Republic’s housing crisis, PwC has said.

In a pre-budget submission, the Big Four accountancy firm has called on the Government to address the issue of housing development costs through taxation policy.

“At a time when the Government is actively focused on setting significantly increased targets for new housing output, it is critical that the policy environment for institutional capital is reviewed, and enhanced, if we are to attract the level of funding which will be required to support these new targets,” PwC said in the submission, published on Tuesday.

At the top of the firm’s wishlist for Budget 2026 is reform of the residential zoned land tax. Introduced in 2022 to encourage landowners to sell idle or vacant sites upon which housing could be developed, the tax is levied at 3 per cent annually on the market value of the land.

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PwC said that while the tax is aimed at bringing down the cost of land by encouraging it to be brought to market, there are “several issues” with its implementation that should be addressed as a “matter of urgency”.

Currently, landowners can defer payment of the tax under certain conditions. However, the Revenue Commissioners can claw back these deferred obligations if the ownership of the land changes.

The Coalition should remove these clawback conditions for developers who sell unfinished land to third parties but are being engaged to complete the development on the site, PwC said.

This so-called forward funding model is an increasingly common feature of the market here because it gives developers a degree of certainty around the financing of large-scale housing projects.

PwC also said the stamp duty residential rebate scheme, which is due to conclude at the end of 2025, should be extended.

The firm has also called on the Coalition to temporarily reduce the 13.5 per cent VAT rate on construction, “specifically targeted at new, affordable houses and apartments for first-time buyers”.

PwC said the average cost of delivering a three-bed, semidetached house in the greater Dublin area is €408,000, €48,478 of which is related to VAT charged at the 13.5 per cent reduced rate on the supply of immovable goods.

A temporary reduction would be “an effective measure to enable viability and increase affordability of newly developed residential property”, PwC said.

Paraic Burke, tax leader at PwC Ireland, said that at a time when geopolitical risks are rising, the Republic must look to “control the controllables” domestically.

“While there are constraints about what we can do at international levels, domestically, Ireland has full control to determine its destiny on key domestic issues such as housing, decarbonisation and energy security,” he said.

Mr Burke said a whole-of-government approach is required to solve the Republic’s “housing puzzle”.

Among other things, PwC has also called on the Coalition to reduce the 33 per cent capital gains tax rate, which it said is one of the highest in Europe.

A new 20 per cent rate would help to promote the transfer of businesses to future generations of business leaders, it said.