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GHOST TOWNS OF LEITRIM AND LONGFORD
Read more about: Economy, Fianna Fail, Housing, Longford-Westmeath, Policy, Sligo-North Leitrim, Social Policy, Taxation 
This post arose out of a discussion with Simon on Michael Taft’s C’mon Ye Know-Nothings, (18 September 2007). Fianna Fáil has produced an abundance of tax incentives to aid the construction industry. One of these schemes, the Rural Renewal Scheme 1999 (PDF FILE, 887KB), is set to run until 31 July 2008. According to the brochure, “the scheme covers all of the counties of Leitrim and Longford as well as certain areas in counties Cavan, Roscommon and Sligo. It is based on District Electoral Divisions.” The scheme is intended for commercial, owner-occupied, and rental residential properties.
In 1999/2000, the Department of Finance’s Task Strategy Group produced a review paper of the scheme, intended for Budget 2000. first of all, it outlined the terms of the scheme with regard to residential property, before moving on to its findings on the possible benefits of the scheme.
25 The scheme also provides for tax relief for both owner occupiers and lessors of residential property. The reliefs are similar to the relief available generally under the Urban Renewal Scheme with 2 major exceptions. In the case of the owner occupier relief the maximum allowable residential floors space is 210 square metres which is in excess of the maximum size in all other schemes. The relief available for lessors of rented residential property is conditional on the lessee of the property using the house as his or her main or sole residence for a lease of at least 3 months duration. This condition is important in that it is designed to discourage very short term letting and the availability of the tax incentives for holiday homes. The removal or further alteration of this qualifying condition would effectively cancel the incentivising effects of the tax incentives available to encourage people to reside in the area. A proliferation of second homes owned by affluent non residents would push up property prices to the detriment of locally-based investors.
26 It is far too early to give an estimate of the eventual cost of this scheme but media reports of late have detailed an upsurge in both residential and commercial property development in the area in the last few months. However, it must be taken into consideration that a lot of developers and property owners held back on the commencement of planned projects while the scheme was under consideration by the EU Commission.
Among the Task Stratgey Group’s conclusions was the following:
34 The question of equity also arises since the majority of the beneficiaries of property tax relief schemes are high net worth individuals or corporate investors. The introduction of further tax incentive schemes even in times of exchequer surpluses does not assist the policy of continuing to lower tax rates and widen the base from which taxes can be levied. The possibility that tax incentives for property development have contributed to the emergence of asset price inflation cannot be discounted. Such reliefs may not be the most appropriate and cost effective way of promoting the development of an area or promotion of a undertaking given the present economic climate with record growth and increasing construction costs.
Conclusion
35 The TSG may wish therefore to give its views on;
- the rationale for such continued tax reliefs in the light of the substantial tax cost involved,
- the practicality of limiting the number of such tax relief schemes by focusing on a small number of deserving areas in the light of the actual experience of trying to do so,
- the tax equity and base broadening aspects of taxation policy in relation to such reliefs,
- the feasibility of further caps or limits on the tax reliefs available to investors e.g. by restricting the percentage of investment that can qualify as in the case of film relief.
There appears to be limited public support for restricting these type of reliefs with many requests being made for additional and more extensive designation of particular areas.
Given the fact that the scheme was extended to July 2008, it is reasonable to assume that the group’s findings were ignored by Fianna Fáil.
So. What has been the effect of the scheme? Very few things in this world are mono-causal. However, even by 2000, the Department of Finance had noticed a rise in interest in construction in the areas covered by the scheme. We have the figures for construction in Leitrim and Longford, so let’s see what happened. First of all, Leitrim.
From 1999 to 2006, a total of 6,452 housing units were constructed in Leitrim – almost one quarter of which (1,545) were constructed in 2006 alone.
From 2002 to 2006, the number of households in Leitrim rose by 1,547. This figure has been easily absorbed into the available housing in the county, and as of April 2006, the housing situation in Leitrim looked like this:
Almost 22% of housing units, according to the 2006 census, are empty. Hardly surprising, given the fact that from 2002 to 2006 there were 4,648 housing units built, yet the household numbers increased by 1,547.
Least it be thought that Leitrim be an exceptional county, a similar pattern is found in Longford, the other main beneficiary of the Rural Renewal Scheme. From 1999 to 2006, 5,842 housing units were completed in the county. From 2002 to 2006, 4,604 units were completed, a period that saw an increase of 1,736 households.
In April 2006, the housing situation in Longford was thus:
Again, I’m not arguing that the Rural Renewal Scheme alone is responsible for all of this. However, it is part of a wider government policy to place incentives for construction investment at the front of economic policy. Even in 1999, the Department of Finance was clear on who would be the beneficiaries of these type of schemes: “the majority of the beneficiaries of property tax relief schemes are high net worth individuals or corporate investors.”
David McWilliam’s theory that there is a generational battle going on in Ireland, is one that believes that the exhaust fumes run the engine. Some middle class people have benefited from these schemes, but the main beneficiaries have been those high net worth individuals and corporate investors the Department of Finance talks about, the type who give Fianna Fail a helping hand every now and then.
This is an excellent analysis and shows the extent to which the housing ‘boom’ was manufactured by government policy rather than just a response to blind supply-demand factors. In the comments which gave rise to this article – on ‘Come on ye Know-nothings’ – there seemed to be a general consensus that investment has been directed away from more productive areas into housing. The trick is to, building on this analysis, come up with formulas to reverse that. Of course, that assumes that there are a number of productive areas waiting to start-up/expand if only given the investment (a debateable assumption) and there is the political will to put in place appropriate tax measures to slow down investment in property without affecting overall economic growth. Tricky, indeed.
In regards Leitrim, most of the investment tends to go into Carrick-on-Shannon, possibly the easiest town in all of Ireland to find decent, cheap accomodation. The thing about a lot of the new houses built in Carrick and the surrounding areas is that many of the town’s new residents are Eastern Europeans who moved to the town because there was so much work to be had in construction. When they stop building, the migrants will leave and there will be even less demand for the housing.
Of course, eventually the decentralised will take up residence in the town and that should fill up a few of the houses, when the new retail developments take shape that should bring a long a few people and many of the new properties were developed with holiday-home owners in mind, but it’s all little too bubbly for my liking.
you’ve missed the whole point. The houses weren’t built to fit any sort of demand. In the words of the department of finance – ““the majority of the beneficiaries of property tax relief schemes are high net worth individuals or corporate investors.”
and, you’re looking at 22% of all housing in Leitrim completely empty. When holiday homes are taken into account, that rises to 29%.
you actually highlighted the fault-line yourself. Migrant construction workers living in houses that they themselves are there to build. That is not a construction strategy – that’s cowboy stuff.
Fianna Fail policy has been consistent over the years – to organise the redistribution of wealth in favour of the already wealthy. In time, Haugheys and his acomplice, Aherns, principal legacy will be seen to have been the creation of a new Ascendancy. This particular tax break is a perfect illustration of this policy.
Gordon
Well, I’m not sure what point I missed. For the most part, I was agreeing with you. I know there wasn’t the demand there for the housing that has been constructed. That said, I imagine that in the medium to long term those houses will be used in one manner or another, if only as council housing.
As it stands, Carrick-on-Shannon is Leitrim. Drive through it some day. There are many commerical developments still in the construction phase. When completed, this will bring in new blood. Also Bank of America – the single most important employer in the area – is expanding its operations, so that along with the opening of the new government offices will bring in new heads in need of beds. Much of the construction was conducted in anticipation of these new developments. Was that a good idea? Maybe not. But the problem isn’t quite as pronoucned as it might seem from a glance at the figures.
Sorry Niall, I responded before I headed out this morning (7.30am), so was still a bit groggy.
Thing is, there’s a glut of housing across the country. The national average for unoccupied
housings is 12.1% – and it’s 15% when holiday homes are added into the picture. For example, there’s 45,000 empty housing units in Dublin (25,000 in Dublin city council area alone). In Meath, over 6,000 housing units empty ; In Carlow, over 2,000 ; In Kildare, 6,700, and so on. And not one of these is a holiday home. How is Leitrim, with over 22% of its housing units empty, going to pick up business, even with Bank of America expansion. And as for decentralization!
The overall point is that this was not a housing policy, not in the slightest. Demand was not set by the mick jagger generation, or whatever McWilliams is calling his books these days. Demand was created by substantial government intervention through a policy of lush tax incentives to aid high net worth individuals and corporate investors. Anyone who’s bought in Leitrim in the last few years has been screwed, and all to help the financial backers of FF. And this is before we get into the substandard building materials and techniques used in Ireland. We’ve houses that are being bought over 30 years, that have been built to last twenty, if even that. Again, no government regulation of the building industry. not very comforting, I know. Leitrim should look to Eamon Sacnlon, Jimmy Devlins, and Michael Finnernan each time the mortgage bill arrives. They’ve FF to thank for the rip-off, anyway.
(Leitrim county council has been steadily building – or buying – housing since 1999. Figures below.)
Year: 1999 2000 2001 2002 2003 2004 2005 2006
Figure: 30 32 63 79 30 80 20 88
Don’t worry Conor, I wrote my comment while drunk, so it wasn’t as coherent as it might have been. I certainly think that you have a point about the glut of extra housing, I just don’t think we’re heading for an apocalypse. There are still many, many people in the housing market, so while there may be a ‘readjustment’ I don’t think that we’re going back to the 80s any time soon.
And back to Leitrim, they don’t actually have any TDs, poor souls. Devins, Scanlon and co. don’t really depend on Leitrim constituents. If they’re fucked, they’re proper fucked.
I agree about the ’80s thing. I don’t think we’re going back there. The economy is a lot more open, which has its negatives of course, but also means that if we’re sazzy enough we can adapt to the changing situation.