Tax breaks for new apartments are set to be unveiled in next month’s Budget, write Craig Hughes and Adam Van Eekeren.

VAT on new-build apartments will be reduced from the current rate of 13.5% in an attempt to ease the housing crisis.

Under EU rules, VAT cannot be entirely scrapped for new builds, with a 5% rate the lowest permitted.

Tánaiste Simon Harris said yesterday that centrist parties will be removed from Government if they fail to make major strides in housing.

“I think for the centre to hold in Irish politics, I think it’s really important and significant that we see a real delivery of scale in housing over the course of this government,” he said.

Tax breaks for developers have long been controversial in Irish politics following reliefs that were introduced during the boom.

Many blamed them for inflating the housing sector and ultimately contributing to Ireland having one of the worst recessions in the Western world.

Finance Minister Paschal Donohoe had been resisting a VAT cut on new apartments but has now conceded.

Speaking in New York yesterday, Taoiseach Micheál Martin said the “priority will be on new builds” in the Budget and that the Government would “try and target all resources” in this area.

He said the Programme for Government commitment to expand the controversial First Home Scheme will not be included in the Budget next month.

Under the scheme, the State takes a 30% equity stake in the home to bridge the affordability gap for firsttime buyers, but critics say it fuels property price inflation.

The Government is under pressure to ramp up housing delivery. During November’s general election campaign, then-housing minister Darragh O’Brien claimed 40,000 new homes would be built in 2024, but final figures came in 10,000 short of this.

Government TDs have admitted that they believed they are on “borrowed time” on housing.

The Irish Daily Mail revealed earlier this month that the level of home building is set to drop “below current levels” in the coming years if existing trends continue.

In a series of stark updates to Minister for Housing James Browne in July and August, his officials warned that while there should be an uplift in housing delivery in 2026, this will plummet in subsequent years based on current trends.

The officials estimate that delivery will remain flat, at between 30,000 and 33,000 new homes.

The existing targets require an average of 50,500 new homes to be delivered during each year of the lifetime of the Government, with revised targets to be unveiled in the coming weeks.

In a report yesterday, the Economic and Social Research Institute(ESRI), a State-funded think-tank, said a notable slowdown in housing commencements in 2025 has caused it to revise down its new-build forecast for 2026 to 36,000 units.

It said the outlook beyond the forecast horizon “appears to be weakening”, with falling planning permissions and low commencements.

Over the summer, business lobbying group Ibec called on the Government to reduce VAT on new-build apartments to 5% and to discontinue development levies on new-build apartments.

The Construction Industry Federation also backs the move.

The Taoiseach has been hinting recently of more incentives for developers and a reduction in State involvement.

That will form part of a national housing plan that will be ready within the next month and will create a financial framework for the sector over the next five years.

Mr Martin said last week that more initiatives were needed to get private-sector investment.

“To get to the figures we want – to get to the 50 to 60,000 per annum – we quite simply need more private sector and particularly apartment building happening,” he said.

Mr Martin added that the private sector dependency on State funding needs to be phased out.

“The housing action plan will outline the degree to which that dependency has to be eased over the next decade,” he said.

“The State will stay involved, obviously hugely, in terms of both construction of social housing and in terms of the support of affordable housing, which is quite significant right now.”

Mr Martin said there is not sufficient housing supply and this is having an effect on house prices.

“We need to reduce that and the only log - ical way to achieve this is to bring more supply into the market,” he said.