Fiscal Incentives to Invest in Heritage Buildings

Independent economic analysis and advice

The Heritage Council has published a report entitled ‘Assessment of Possible Fiscal Incentives in Relation to the Built Heritage in Ireland’s Towns’ that examines the case for using fiscal incentives to encourage investment in heritage buildings in towns in Ireland.

The report was produced by Peter Bacon & Associates.  Kevin Hannigan of KHSK Economic Consultants was a member of the team that undertook the study.

A copy can be downloaded from the Studies page on this site or from The Heritage Council site.


There is a Big Problem

The report concentrates on buildings constructed before 1921 that are located within urban areas but outside the five largest cities.  It estimates that there are in the region of 50,000 such buildings, mostly in private ownership.

The Heritage Council has identified that many of these are either in decline or already derelict and that the fabric and sustainability of many towns centres is under threat as a result.

There is an obvious market failure associated with privately owned heritage buildings.

Many are not designed optimally for efficient modern uses and various regulations restrict changes.  This imposes private costs.  However, the benefits of protecting them accrue publicly.  The result is a sub-optimal level of investment.


Investment is Urgently Needed

Increased investment in restoration would also have a positive stimulatory effect on local economies and the report shows that there would be positive net economic benefits from successful incentives even before the non-monetary benefits of heritage is included.

However, the realisation of these benefits depends crucially on effective and efficient incentives that have an impact while limiting deadweight.

For this reason, the report rules out the introduction of commonly discussed incentives such as reduced VAT or special allowances related to rates or property taxes.  However, it recommends certain adjustments to the VAT legislation such as easing change of use restrictions.

fiscal incentives

The most eye-catching recommendation is that a ‘Living Towns Initiative’ should be introduced based on an amended version of the existing Living Cities Initiative that provides tax reductions for investments in certain classes of buildings.

It also recommends that the use of National Lottery funding for heritage should be greatly expanded and that opportunities to access the next round of EU funds to promote investment in heritage buildings should be exploited.


Fiscal Incentives

However, the most innovative recommendation of the study takes a quite different approach.  This is that a revenue-neutral system should be developed to incentivise investment in restoring existing buildings, usually in town centres, by displacing new development that typically occurs on the periphery of towns.

This would be done through the creation of a defined heritage area and a surrounding support area in planning strategies.  A levy on any development in the support area would be ring-fenced and used to support investment in restoration in the heritage core.

fiscal incentives

In contrast to recommendations for incentives that rely on arguments that investment in heritage would stimulate the economy, this approach recognises that there is a trade-off between restoration or new build in order to meet any given level of demand.

Therefore, this approach aims for displacement of activity by adopting a ‘carrot and stick’ model that improves the economic feasibility of restoration, compared with new build, from the point of view of investors.

As well as being revenue neutral, this approach would also have a number of other benefits since it could be implemented on a local basis and would be flexible in response to local conditions.

However, it would require that a local consensus is built in favour of protecting heritage and that this would sometimes be required across county boundaries and local authority areas.  This would not be easy.

The question then is not whether it is possible to identify measures that could protect heritage buildings but whether there is the will to create the structures that achieve these aims.

Put another way, do we value the built heritage sufficiently to put aside artificial divisions arising from bureaucratic and administrative structures?

This is the real challenge because, if not, then there is also a question mark over the feasibility of providing fiscal incentives.

Download a copy of the report