Residential zoned land tax: The stick and more stick approach to addressing inactivity

by | Apr 5, 2023

The stated objective of the Residential Zoned Land Tax (RZLT) is to activate land for residential development. Adopting the stick rather than the carrot approach, the RZLT in simple terms intends to penalise what it views to be inactivity in respect of in-scope land by levying a three per cent annual tax on its market value.

Penalising inactivity in a housing crisis? No problem with that you might say. There is one fundamental problem, however. The RZLT assumes that the landowner is entirely to blame for any such inactivity. And herein lies a key issue.

In January 2023, it was reported that land with the capacity for more than 45,000 homes was stuck in the planning system trying to obtain planning permission.

For context, 45,000 is over 15,000 more than all of the new homes built in total in 2022. The decision on whether to grant planning permission or not is firstly under the control of the State in the form of local authorities and, subsequently, where necessary, An Bord Pleanála.

Subjecting owners of land to RZLT while they wait for a decision to be made does not cause the land to be developed any faster and adds to the cost of development, which ultimately needs to be recovered on a future sale to end buyers.

As it stands, the RZLT legislation does not treat differently those who are actively seeking to acquire planning permission (and develop) from those who are not. This needs to change to remove the inherent unfairness of the tax as currently proposed.

One potential means of addressing the control issue would be to introduce a ‘reasonableness’ test when considering what land should be in scope.

Provided a landowner is seeking to acquire planning permission and/or commence development (active) and is doing so in good faith, the tax should not arise because of factors outside of that landowner’s control.

An unintended secondary impact of the RZLT is the level of resources it has consumed both publicly and privately and the knock-on impact this will have on the bringing forward of new developments which also require input from these resources.

Feedback to date suggests:

A broad interpretation of the RZLT was taken by local authorities when deciding which land should be in scope for the first draft maps. From appeals published in January 2023 a large number of landowners appear to dispute their land as being in scope on the grounds of infrastructural deficits or lack of service capacity preventing current development of the land.

Assisting with the preparation of RZLT appeal submissions has been a huge drain on the capacity of planning consultants to undertake what would otherwise be their day-to-day activities. So much so that some developers have noted it is impacting the ability to obtain the resources of a planning consultant to bring forward new developments.

With reportedly almost 1,700 RZLT appeals lodged by January 1, 2023, the RZLT appeal process continues with local authorities due to publish determinations on those submissions made by April 1 next.

Those determinations can then be appealed to An Bord Pleanála with final maps due to be published by December of this year. A similar process will occur each year with landowners (and others) afforded the opportunity to make a submission to have land removed from the maps.

The drain on resources may therefore continue for some time yet. It is worth recalling that the conclusion of a 2015 State consultation on an RZLT type tax was that land hoarding was not a significant limiting factor in relation to residential development.

Rather, it was found that there were a range of limiting issues of which land hoarding would only be one, including an infrastructure deficit, building standard requirements, accessing finance and planning requirements.

It is difficult to understand what has changed in the intervening period as, if anything, recent events such as Covid-19, the war in Ukraine, cost inflation, supply shortages and increased cost of funding would appear only to have added to the limiting factors.

A tax on ‘land hoarding’ should theoretically be welcomed by developers, as it would put more land on the market for development. However, the RZLT in its current form has the potential to be an additional cost of development at a time when viability is a huge challenge, particularly in the case of the development of new apartments.

In our view, while there is a place in principle for a tax which achieves the aim of the RZLT, for such a tax to be effective all other aspects of the market need to be functioning correctly first. We do not believe this to be the case currently.

We are concerned that the RZLT in its current form will hinder rather than incentivise new development. We would call on legislators to address the challenges with the RZLT as currently proposed so that it achieves its intended purpose.

Meet the authors






Paul Dunlea
Director, Real Estate Tax Deloitte Ireland LLP






Niall McCarthy
Manager, Real Estate Tax Deloitte Ireland LLP

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