Can Irish land tax support housing development?

The Irish government is introducing a residential zoned land tax to increase housing supply – but the mechanism for sharing land value uplift has prompted stakeholders to express concerns


  • Edward McAuley
  • Tony Mulhall

16 November 2023

High density living area with houses close to each other near a park

Although the housing supply problem in Ireland is most acute in Dublin, other smaller cities and towns close to major employers experience similar issues with unaffordability.

Many commentators attribute some of the current house price inflation in Ireland to the low-cost mortgages that have been available for more than a decade. As in the UK, others also argue that the lack of land for development and its protracted processing through the planning system are also culpable.

In reality there are multiple variables on both the supply and demand sides. Isolating any one is challenging, but the residential zoned land tax (RZLT) will present an opportunity to observe an apparently uncomplicated market intervention to stimulate the release of land for development when it is implemented.

Local authorities map zones subject to tax

The RZLT is part of the Irish government's Housing for All plan to 2030. Its intended purpose is to increase housing supply by building on zoned, serviced land for housing. It is also intended that the tax will encourage the use of existing planning permissions on land that is vacant.

Levied as an annual tax, the RZLT is rated at 3% of the land's market value and will operate on a self-assessment basis, with the first valuation date being 1 February 2025. Lands that are subject to the tax have been identified, with local authorities having published draft RZLT maps. The tax will be introduced and administered by the Office of the Revenue Commissioners next year.

The tax is payable by those who own lands identified in the RZLT maps that are:

  • zoned in a local development plan for residential use, or mixed use including residential 
  • serviced or capable of being sufficiently serviced to support residential development
  • not exempt from the tax, as set out in the legislation and detailed below.

Landowners had until 1 January this year to make submissions to the relevant local authority about whether or not land on the map was eligible for the tax. They were able to:

  • suggest an amendment to the map if they felt that land it represents did not meet the criteria
  • request a change of zoning of their land so that it is not subject to the tax
  • identify other land that should be subject to the tax.

However, on 10 October Ireland's minister for finance Michael McGrath announced in the budget for the year ahead that he was extending the liability date for RZLT by one year, to 2025, which should lead to a deferral of payment dates and allows landowners additional time to engage with local authorities on the status of their land.

Where landowners did object to the inclusion of their land on the map by local authorities, they could have appealed to the planning appeals board, An Bord Pleanála, before 1 September this year if their submission was unsuccessful. Landowners may now also be given more time to object.

Each local authority will publish a final RZLT map by 1 December this year, and will update this annually. The tax will now first fall due on 1 February 2025.

Areas zoned residential in development plan maps may include lands that are in bona fide non-residential use. In some cases it would not be in the interest of the local community for that use to change, although the dominant zoning may imply conversion to residential. There are therefore a number of exemptions from the tax, including:

  • land that is zoned for residential use but is actually used by a business to provide services to those living in adjacent residential areas
  • land used for infrastructure or facilities such as utilities, transport and facilities for social, community or recreational purposes
  • contaminated land or land where there are historic or archaeological artefacts.

Related article

How Ireland can boost its housing supply

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Landowners raise concerns given legislative precedent

The RZLT is not a new concept. Under the Urban Regeneration and Housing Act 2015, a vacant site levy controlled by local authorities was imposed on residential development land, again to stimulate development.

In practice it was subject to a number of successful legal challenges about, among other things, the meaning of 'vacant and idle', a test that had to be satisfied for the levy to be imposed. Without amendments to the act, it was regarded as difficult for local authorities to prove that the criteria it set out had been met. The aims were not achieved and the revenue collected was minimal.

The RZLT is designed to replace the vacant site levy. Although it relies on planning designations in local plans, it is implemented by the national taxation authority, the Office of the Revenue Commissioners. The tax is therefore less likely to be contestable, and the revenue expectations are considerably greater. But the question still remains: will it have the desired effect of increasing the volume of residential land coming forward for development?

Landowners, particularly those who farm, raised a number of concerns.

  • The measure effectively penalises farmers for using land to grow food, a strategic part of the Irish economy. Given that there are safeguards in the Irish constitution about rights to private property, this presents potential constitutional issues.
  • At 3% the levy rate is unaffordable for many farmers, who are unlikely to be able to meet the additional annual tax liability from their farming enterprise.
  • In some counties they argue that more land was zoned as residential than was necessary, or more than the market would absorb.
  • They also asked questions about the definitions of serviceable land and issues on mixed zoning of sites of quantifying the proportion of the tax. 

Although those with farming interests lobbied to have land that is in active agricultural use exempted from the tax, this was rejected by the government, which explained that farmers who did not intend to develop their land for residential purposes should instead exercise the existing provision to have it dezoned. This would also signal to the planning authority that alternative lands should be zoned to meet estimated housing need.

Dezoning also prompted farmers to ask whether they would receive claw-back payments, where dezoned land might be sold subsequently at prices reflecting its ultimate development potential. Farmers sought to establish an entitlement to share in any future uplift that might occur even after the land was dezoned. 

The government was seeking to give landowners a financial incentive to bring their land forward for development; but at the same time it wanted a share in the uplift in value arising from zoning.

Value sharing mechanism must tread balance

In addition to giving landowners incentives to bring forward land for development, the Irish government has proposed a type of land value capture mechanism.

Its explanatory memorandum avoids the term land value capture itself, preferring the concept of a land value sharing (LVS) contribution mechanism. This will enable local authorities to share in the increase in land value arising from its zoning for development.

Following an independent report by Indecon International Economic Consultants and pre-legislative scrutiny on the proposal, the mechanism was included in the General Scheme Land Value Sharing and Urban Development Zones Bill 2022. This is due to proceed through the Irish parliament later this year.

The legislation intends to help secure increased revenue to support the infrastructure necessary for housing development. Policymakers recognise that at present it is the landowner who benefits from the uplift in value of the state's decision to zone land for development. However, the mechanism needs to be designed to ensure it does not disproportionately affect a landowner's constitutional right to enjoyment of private property.

Therefore, a key challenge in implementing the LVS is ensuring that it collects a fair value for the state but avoids discouraging housing supply. The independent economic appraisal advised that this risk should not be underestimated, particularly if LVS results in higher costs for housebuilders rather than reduced land prices.

One of the key objectives of the measure is to influence land prices and reduce speculation. To provide greater certainty about the level of the obligation as early in the planning and development process as possible, the independent review said the LVS amount should be related as closely as possible to the initial decision to zone the land, rather than the final value after the grant of planning permission.

While it could be argued that this tax will be factored in to the price of the land, developers that have already bought sites but won't meet the planning submission deadline for avoiding LVS will be affected by the mechanism. There could be many such development sites where planning applications cannot be progressed due to infrastructure deficits; and when these issues eventually get resolved, developers could be hit with the LVS tax, which may challenge development viability.

The explanatory memorandum states that: 'while this would not account for the ultimate maximum value uplift that results from the grant of permission for development on the land, it would be more likely to be borne by the initial landowner or subsequent purchasers, rather than directly influencing the cost of building the housing [that is the] subject of the permission at the end of the process. As such, there would be less of a risk of [having an] impact… on housing supply and purchase prices.'

Clearly the government perceived that there was sufficient uplift in value at the zoning stage to bring the land forward even if this were shared between the state and the landowner. The government seemed less willing to impose a requirement to share the uplift arising from obtaining planning permission itself, lest it negatively affect the housebuilding process by adding to house prices or reducing supply.

The current proposals therefore involve a 'zoning uplift-only' obligation, to provide clarity and certainty for both the landowner and the local authority as to the amount of the contribution arising as early as possible in the development process, from the point of zoning. It does not apply to the value increase from the grant of planning permission.

The obligation will be based on 30% of the uplift between the existing-use value (EUV) of the land at the point of zoning and its market value (MV) with the benefit of zoning for such purposes. But there will be no further benefit associated with any particular grant of permission extant at the time of the valuation.

'The legislation intends to help secure increased revenue to support the infrastructure necessary for housing development'

SCSI views on the LVS proposals

The Society of Chartered Surveyors Ireland (SCSI) has concerns about market uncertainty with the impending introduction of the tax.

The SCSI will be seeking:

  • reconsideration of the retrospective introduction of the measure
  • a land price register to enable transparency and inform policy, which would particularly benefit the application of the LVS
  • a review of the measure that treats the way LVS is applied to private and public lands differently, which could affect values for private- and public-sector buyers of land
  • clarity on the valuation approaches and definitions in the proposed LVS legislation, so that EUV and MV can be clearly understood by the valuation profession. 

The application of the vacant site levy demonstrates how a poorly designed and implemented measure yielded little improvement in the supply of land and almost no revenue. So the challenge is to design and implement LVS policy effectively.

The profession also hopes that the application of the RZLT will have better results; but there is a clear tension between the desire to farm land and the imposition of penal taxes to ensure land is used for residential purposes.

A common shortcoming in all land markets is the lack of good-quality comparable data to enable price discovery; that is, where land value is identified, calculated and derived. Regulation or taxation that depends on reliable data often falters where such information requires complex processing and becomes contestable.

It is hard not to think that the independent reviewers of the Irish LVS measure didn't have an eye on the UK Levelling-up and Regeneration Bill, now the Levelling-up and Regeneration Act, before giving their advice. In focusing solely on the uplift resulting from zoning the land, those drafting the legislation would seem to have explicitly avoided much of the complexity in the design of the infrastructure levy in this bill.

The question now is whether Irish policymakers can design the detail of the LVS scheme in a way that can be easily implemented without creating a complex process as the policy develops.

SCSI recommends further engagement with stakeholders, particularly those such as the Society itself as custodians of RICS Valuation – Global Standards (Red Book Global Standards) in the Republic of Ireland, to ensure the process is fit for purpose.

It is imperative that any legislation deals with this process uniformly, across all landownership types and without mechanisms that might introduce further complexity and development risks in an already challenging sector.

Tony Mulhall is senior specialist, land and resources, at RICS

Contact Tony: Email 

Edward McAuley is director of practice & policy, SCSI

Contact Edward: Email | LinkedIn

Related competencies include: Sustainability, Taxation, Valuation

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