Living City Initiative* A new Pilot project for Urban Regeneration Information Note Department of Finance February 2013 *This Initiative will be subject to EU State Aid approval
Living City Initiative A new Pilot project for Urban Regeneration Background to the Initiative The historic central areas of some of Ireland s cities have suffered for a long time from the relocation of family homes and businesses to the suburbs, a phenomenon which was exacerbated by prolific ribbon development during the Celtic Tiger years. The historic hearts of our cities have also suffered greatly from the general economic downturn in recent years. The Living City Initiative is a targeted pilot tax incentive which aims to seek to address this issue in two ways by focusing on: 1. encouraging people back to the centre of Irish cities to live in historic buildings 2. encouraging the regeneration of the retail heartland of central business districts. The Initiative will provide tax incentives for works performed to refurbish residential and retail buildings either to bring them up to a habitable standard or even to make improvements to buildings which are currently inhabited. The incentives will be targeted at owner/occupiers rather than property developers. The Living City Initiative is being legislated for in Finance Bill 2013. Legislation will be provided subject to commencement order which will be dependent on EU State Aid approval. The pilot scheme will also be subject to an ex-ante cost benefit analysis. Living City Initiative February 2013 2
1. Residential Many urban centres in Ireland contain areas which house buildings of cultural and historic importance. In our cities there is a particular prevalence of Georgian houses many of which date back to the middle of the eighteenth century. Despite the age of these buildings, it is clear that with the proper care and attention they can preserve their unique characteristics and beauty and they can continue to be an important part of the living fabric of our cities. There are many excellent examples of areas which benefit enormously from the presence of well maintained Georgian structures. Unfortunately there are also examples where Georgian buildings are not well preserved and have fallen into a state of disrepair and in some cases, dereliction. The costs associated with refurbishing these buildings, given their age and their historic importance and resultant planning restrictions, can sometimes be prohibitive. The Minister for Finance, with his colleague the Minister for Arts, Heritage and the Gaeltacht, has been examining possible ways to promote and support the refurbishment of buildings which might have been neglected over time. The Initiative is a pilot project which is designed to generate interest in refurbishing Georgian buildings with a view to attracting greater residential occupancy in these areas and restoring these areas to some of their former glory. Attracting families back to these areas will provide an impetus for the areas to be re-born. Ambitions to take action and revive Georgian residential areas must be tempered by the country s current economic situation and the provision of tax incentives in this pilot scheme will have to be clearly targeted at the specific areas where Georgian houses are located. While the value of the incentives to be provided will be modest, this Initiative should be regarded as one part of the overall regeneration of these areas. There is no single measure which alone can rebuild areas and communities and the Government s Living City Initiative February 2013 3
Initiative will have to be complemented by the efforts of the wider society in terms of supporting the Initiative and availing of the incentives which are on offer. 2. Retail The refurbishment of historic buildings, although an important measure, will not by itself revive the fortunes of these areas. To truly encourage a Living city centre, a large and diverse range of retail offerings is necessary in order to make city centres an attractive destination for shoppers. Therefore there is also a need to encourage improvements to retail facilities and to that end incentives will also be provided for the development and upgrade of retail premises in specific areas. Residents need to have shops nearby and shopkeepers need local residents. The two are inter-dependent. Under the pilot initiative, incentives will be offered to retailers to encourage them to upgrade their premises to attract their local clientele. How will the Initiative work? The Living City Initiative is designed to provide, on a pilot basis, incentives which are aimed at complementing the efforts of other public and private bodies to boost the residential and retail quality of historically and culturally important urban areas. The Initiative will provide tax incentives for works performed to refurbish residential and retail buildings either to bring them up to a habitable standard or even to make improvements to buildings which are currently inhabited. The incentives will be targeted at owner/occupiers rather than property developers. There will be a broad definition of refurbishment and the types of activity that will be covered. However, there will be a requirement for a certain amount of work to be completed before the work will be eligible for tax relief. The cost of such refurbishment or conversion works must be at least 10 per cent of the pre-works value of the property Living City Initiative February 2013 4
for the relief to be claimed. This means the works must be substantial and not just relating to minor redecoration, for example. As regards the residential element of the Initiative, residents will be able to claim tax relief for the cost of the refurbishment works in the relevant Georgian houses. This relief can be claimed at the rate of 10% per year for 10 years against their income 1, but only for years in which the house is the principal private residence of the person. If the property is sold within the 10 year period, entitlement to the relief stops and the new owner will not be entitled to claim any relief. There will be a system of certification which will be performed by the relevant Local Authority to ensure that works have been undertaken and that planning permission, where necessary, has been obtained. The certification process will generally entail a prerefurbishment inspection to identify the proposed works and a post inspection to ensure these works have been completed to an acceptable standard and that the costs of those works are reasonable. The size of some of these houses means that they would be regarded as being too big for the average family. Therefore, a pragmatic approach is being adopted whereby larger houses can be divided into smaller units. There will be minimum sizes placed on these units to ensure that an acceptable living space is provided 2. The objective is for significant societal benefits to be gleaned from increased residential occupancy which will provide knock-on boosts elsewhere. Local tradesmen can be expected to have greater business opportunities during the refurbishment phase which will in turn bring benefits to local suppliers etc. Therefore the Initiative would also provide benefits for the SME sector. 1 For instance, if the total refurbishment costs amount to 25,000 the resident can claim 2,500 each year as a deduction against their income for a period of 10 years. 2 For instance, a 4 storey building (3 storeys over basement) could be divided into 2, 3 or 4 units. Living City Initiative February 2013 5
Local service providers such as crèches, cafés etc. will also see the benefits of increased residential occupancy and the consequent increased demands for their services. Retailers will be entitled to relief on works undertaken to upgrade or refit their shops. Accelerated Capital Allowances, a type of relief which has been in place for quite some time, will be available to retailers to allow them to claim for refitting works etc. over a period of seven years at a rate of 15% for the first 6 years and 10% for the final year. This relief for the conversion and refurbishment of certain commercial buildings will come within the ambit of the high earners restriction, the property relief surcharge and any capital allowances remaining unused at the end of the tax life of the building will be terminated in line with the provisions introduced last year. Which Areas Will be Designated and Why? The legislation in Finance Bill 2013 sets down the parameters for the pilot Living City Initiative. It also empowers the Minister for Finance to designate the cities, or particular areas of those cities, which are suitable for inclusion in the Initiative. The scheme will follow the same standards regardless of the areas designated. The Minister would expect to consult with his Government colleagues before designating any area. Pobál, the state agency that supports local communities, has a sophisticated index to measure deprivation in different local areas across Ireland. A scoring is given to local areas based on a national average of zero and ranging from approximately -35 (being the most disadvantaged) to +35 (being the most affluent) which takes into account several deprivation statistics from the 2011 census. The results for the main cities are set out below. Living City Initiative February 2013 6
Table: Pobal HP Relative Deprivation Index for Irish Cities 2006 2011 Dublin City -1.11 2.22 Cork City -4.08-1.90 Galway City 3.02 5.09 Limerick City -7.42-6.66 Waterford City -5.69-4.51 Source: 2011 Pobal HP Deprivation Index for Small Areas, based on 2011 Census of Population data Table: Total Population by Local Authority Area 2006 2011 % Change Dublin City 506,233 527,612 4.2 Cork City 119,418 119,230-0.2 Galway City 72,414 75,529 4.3 Limerick City 59,788 57,106-4.5 Waterford City 45,748 46,732 2.2 Source: 2011 Pobal HP Deprivation Index for Small Areas, based on 2011 Census of Population data The HP relative index scores for Limerick city at -6.6 and Waterford at -4.51 are by far the lowest. Data from Census 2011 allows for comparisons on unemployment data and participation rates to be made between the main gateway cities. Unemployment Rate Unemployment Rate Males Participation Rate Participation Rate Males Dublin City 18.5% 22.3% 62.4% 68.2% Cork City 22.2% 26.4% 54.4% 60.9% Galway City 18.6% 22.0% 61.5% 66.1% Limerick City 28.6% 32.7% 55.1% 62.2% Waterford City 25.1% 29.6% 59.8% 66.2% Source: Census 2011 This census data shows that Limerick City has the highest overall rate of unemployment and the highest rate of male unemployment of each of the five main gateways. Waterford has the second highest overall unemployment rate and rate of male unemployment. The Living City Initiative February 2013 7
rates in these two cities are also significantly higher than the national averages recorded by the census. In light of the above, it has been decided that the pilot phase of the Living City Initiative will be targeted at two specific urban areas which have been identified as being most in need of urgent action Waterford City and Limerick City. The specific parts of the two cities to be designated will be a matter for discussion with the relevant local authority. Waterford City Waterford is a city with a population of 113,000 (this includes Waterford city and county). This accounts for 2.4% of the total population. The recession has had a particularly hard impact on the South East with the loss of significant numbers of construction jobs and high profile business closures. At 19.4% the unemployment rate in the South East of the country is significantly higher than the national average of 14.8%. This also represents the highest regional unemployment rate. Long-term unemployment in the region is 12.2%, higher than the national average of 8.9%. The region also has a lower than average participation rate and faces a series of challenges in terms of re-skilling those who have lost their jobs. Limerick City It has been recognised by recent Governments that Limerick has its own unique problems. There is already an ambitious housing regeneration scheme in place which is designed to return housing estates back to their communities. The importance attached to Limerick regeneration can be judged by the fact that very significant amounts of public funds have been spent on housing redevelopment in the area in recent years. Living City Initiative February 2013 8
While it is vital to redevelop the housing estates, this will achieve little if the city centre ceases to be vibrant and self-sustaining. As the population of Limerick city centre is currently estimated to be less than 2,000 people, many dwellings lie vacant. Unfortunately, there are clear signs that the lack of maintenance is having a profound effect on some buildings. While some of these properties are very well-kept others are run-down and show clear signs of neglect. Some buildings are in a very bad state with some even depending on scaffolding for support. With the assistance of the Limerick local authority, specific Georgian residential areas have been identified as being suitable for inclusion in the Living City Initiative pilot scheme. Residents will be able to avail of tax relief for the entire cost of refurbishment works performed in these Georgian houses. Conclusion The Living City Initiative is a targeted pilot tax incentive which aims to seek to address the need for urban regeneration in two ways by focusing on: 1. encouraging people back to the centre of Irish cities to live in historic buildings 2. encouraging the regeneration of the retail heartland of central business districts. While the value of the incentives to be provided under the pilot Living City Initiative will be modest, this Initiative should be regarded as one part of the overall regeneration of these selected areas. There is no single measure which alone can rebuild areas and communities and the Government s Initiative will have to be complemented by the efforts of the wider society in terms of supporting the Initiative and availing of the incentives which will be on offer, once EU state aid approval has been obtained. All queries in relation to the Living City Initiative should be directed to the following email address: livingcity@finance.gov.ie Living City Initiative February 2013 9