News & Events
People who would prefer to purchase a home rather than continue to rent are faced with significant challenges. The two core issues they face are a lack of available housing and the almost complete absence of affordability within the housing market.
At the Dublin Economic Workshop’s 3rd annual housing policy conference, Minister Simon Coveney said that 40% of those seeking a mortgage could not achieve a borrowing of €300,000, yet at the same time no new houses here being built in Dublin for less than €300,000.
The Programme for Government proposes among its housing policy measures a State backed scheme to support first time buyers called to ‘Help to Buy’. That scheme is designed to bring the mortgage holder up to meet the market price rather than bringing costs down to meet mortgage holder’s ability to pay. It is expected that this scheme will be central to the Housing Action Plan, which will be launched tomorrow (July 19th 2016)
First Time Buyer Challenges
The low level of new housing supply and affordability are closely intertwined, primarily because housebuilding is left solely to the private, (for-profit) market to deliver. As a result, developers can name their price, or at least they could until the central bank introduced prudent financial measures to limit the amount people could borrow. A clear evidence based measure to prevent mistakes of the past and a repeat of the very recent housing credit bubble. This measure, or ways to circumvent it, are the focus of intense lobbying by developers and the building industry, who would rather see easier access to credit for first time buyers than address the causes overinflated house prices which are too expensive for the public to purchase.
The Housing Action Plan should be addressing the factors which drive up the cost of a house, and thus the deposit needed instead of focusing on unsustainable access to credit. We also need a realistic debate about what the Government and certain vested interests in the property sector define as being affordable because the figures used are simply not at a level that many first time buyers will be able to achieve in the current context.
One key reason why the cost of housing is set so high is because from the very outset there is profiteering and speculation on land. Peter McVerry Trust, the Housing Agency and the politicians on the Housing and Homelessness Committee have raised the issue of land speculation and land hoarding. Unfortunately, the vacant levy site when announced was pushed out until 2019, which is now being brought forward to 2018, at which point the housing situation could be significantly worse. It also seems there is no political appetite or any moves byt senior officials in the civil service or local authorities to tackle the single biggest problem in the overall housing system.
A second contributory factor undermining first time buyers is the cost of living in Ireland and in particular how those in the private rental market will find it extremely difficult to save for a deposit when paying very high rents. Rents are continuing to increase in the absence of any legislation to link rent increases to the consumer price index. This means tenants continue to pay more in an increasingly costly rental market. As the proportion of their net income spent on rental accommodation increases, their ability to save for a deposit and to meet the new, prudent rules set down by the Central Bank is undermined. Without cost rental schemes and the introduction of legislation to index rents to the consumer price index, this problem will continue to hinder those who would like to purchase a home.
Help to Buy Scheme
Instead of tackling the problem of land costs and other costs affecting affordability the ‘solution’ being put forward is one which not only pushes first time buyers into paying more than they should it also makes housing more expensive for everyone.
The proposed help to buy scheme will be presented as a measure to help first time buyers buy the expensive homes on offer from the property industry. Indeed it will help many people to buy these overpriced units. In 2013 the Conservative Government in the UK introduced a scheme to aid developers there. This scheme has helped some first time buyers to buy their home with the State acting as a guarantor of sorts.
Unfortunately, that scheme has not turned out as many of its supporters said it would. In the UK, the Help to Buy Scheme led to an increase of £8,250 to the average house price nationally. So not only did developers get better profits because of the State’s intervention to allow first time buyers to pay what developers wanted, everyone else in the housing system ended up paying more for their houses as a direct consequence.
The Irish help to buy scheme is likely be devised in such a way to ensure that the State ensures all the speculators are rewarded, that developers get their money, that the first time buyer has an unnecessarily large mortgage and that the cost of housing will rise for everyone. It is a policy measure that is incoherent and at odds with an evidenced housing strategy. It will be a scheme that will help to paper over the cracks in a dysfunctional housing system.
If the Government was serious about a solution for first time buyers and creating an effective help to buy scheme it would immediately tackle land and property speculation, move to regulate rent price increase and roll out a fast track cost rental system to allow low and middle income households rent at much lower rates than current private market rental rates.