Irish Budget Stamp Duty Measure Fuels House Price Inflation

by Jason Gorringe, Tax-News.com, London

16 December 2004

A measure in the Irish budget cutting stamp duty for first time homebuyers appears to have backfired on the government by driving up the price of starter homes, it has been reported.

Far from making life easier for young buyers to get on the first rung of the home ownership ladder, estate agents have reported that the budget measure, which gives first time buyers an extra EUR11,500 to spend on second-hand properties up to a value of EUR317,500, is actually having a counterproductive effect.

"We have seen a lot more people coming to the market since the budget,” noted Martin Doyle of HOK Residential, the Times reported.

“Properties that weren't selling are now attracting interest and first-time buyers will use their savings on stamp duty to bid if they find themselves in a competitive situation with another buyer."

Some estate agents have reported an increase in enquiries from first-time buyers of 15% over the average level for December, while others have observed a bidding frenzy between competing buyers as they use the extra cash afforded by the budget in an attempt to secure a purchase.

The government has apparently been surprised by the rapidity of the house price inflation that has followed the stamp duty cut, although some observers believe the measure was doomed to failure and could go the way of its previous attempts to regulate the market through the use of taxation.

“Government interventions, by and large, have been ill-advised and have created a lot more volatility in the market,” observed Jim Power, chief economist at Friends First.

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