New policies will help the hard-pressed
We would be waiting a long time for the market to right itself if we didn't intervene, writes Housing Minister Simon Coveney
The Government is not in the business of inflating house prices. We are in the business of supporting the delivery of enough homes for people, whether they be social or private. The current shortage of housing supply needs a significant Government response and it's getting just that. Last week's Budget prioritised housing supply, with a 50pc increase in the housing budget and a series of new policy initiatives to drive supply. Some critics argued for a non-interventionist approach, to wait for the market to correct itself over time; we'd be a long time waiting.
We'll spend €1.2bn on housing next year, provide over 21,000 housing solutions for social housing tenants, fund multiple new initiatives to bring thousands of vacant properties back into use, streamline the planning system, fund housing infrastructure grants, create public-private partnerships for new projects and a lot more besides. Yet it's the first-time buyer initiative, representing less than 5pc of the housing budget, that has received all the commentary: positive and negative in equal measure.
There are lots of examples of supports for first-time buyers internationally, in the UK, Australia, New Zealand, Canada, Finland, South Africa and many more. Any government intervention in a housing market has risks, and needs to be designed to correct an imbalance. We have a severe imbalance affecting our housing sector where demand far outstrips supply. The results are not good; record local authority waiting lists, unsustainable rental inflation, homelessness at crisis levels, and inertia in the house building and purchase market.
First-time buyers are being squeezed more than anyone, trapped in a pressurised inflationary private rental sector, unable to purchase affordable homes. There are two fundamental reasons for this: lack of supply of starter homes and difficulty in securing a mortgage in line with the Central Bank rules. Ask anybody what it's like to save a deposit of €35,000 while paying the rent and you'll get your answer.
Strict Central Bank lending rules are in place for good reason. However, the new Budget measure was designed, in consultation with the Central Bank and Revenue Commissioners, to assist first-time buyers to put a deposit together to secure a mortgage for a new house. Five percent of the house value will be given back as a tax rebate to help save for a deposit. The restriction of 3.5 times income on mortgage lending remains unchanged.
So what we've done is help someone put a deposit together, which is the real obstacle, but not encourage over-borrowing that would drive house prices up.
We have also restricted the first-time buyer support to newly built homes, to encourage increased building. Applying the supports to a finite second-hand market would simply increase demand in an already crowded market and push prices up.
The core supply problem is that builders do not see the starter home market as worth building for, because they know the capacity to turn notional demand into a viable mortgage isn't there. If a first-time buyer wants to secure a mortgage of €300,000, the deposit required is €38,000 before even talking to the bank. The State will now provide €15,000 towards that deposit. It will make a significant difference to turning notional demand into real demand to buy homes, without increasing the mortgage ceiling available. Most importantly, it will give a very direct signal to developers that first-time buyers are back in the market to buy homes at the right price.
There's been some criticism of the thresholds set for the new scheme. First-time buyers will get 5pc of the value of a new property up to €400,000. In order to prevent a cliff effect over that figure, it was decided to limit the benefit to the value of €400,000, but allow property up to the value of €600,000 to qualify for the maximum rebate of €20,000. This was to ensure that a buyer of a property for €405,000 would not get nothing while a buyer of a property for €400,000 would get the full rebate. So it's capped at €20,000 but there's some flexibility in the qualifying upper threshold to accommodate the high-priced Dublin market.
In order to qualify for the rebate, the first-time buyer needs also to be borrowing 80pc of the house value, so this scheme will not be supporting buyers who have significant cash available. Instead, it's about supporting the hard-pressed person saving for a mortgage and deposit.
I'm sure of one thing. If we had not assisted first-time buyers in this Budget, I would have been rightly accused of abandoning a generation, locked out of the housing market, struggling to pay rent and unable to buy.
When judging the merits of any policy change, the best place to start is with the facts.
Last year there were 38,000 housing units sold in Ireland, less than 2,500 were new builds. Data on first-time buyers and new builds from 2010 to 2015 makes for stark reading.In 2010, first-time buyers represented 54pc of owner-occupier purchases across new and second-hand homes. By 2015, that figure was just 24pc. But what's most worrying is that only 2pc of the 38,000 homes sold last year were new homes to first-time buyers. That's only 760 across the whole country.
For every 11 existing properties bought by first-time buyers today, only one is a new build. While movers and investors' transactions in the property market have grown by 285pc and 344pc respectively since 2010, first-time buyers are up by only 15pc. We need to be building 7,000 affordable homes for first-time buyers, not 700 per year. That's what the first-time buyers supports are aimed at.
We are beginning to see an increase in supply. Nearly 3,500 new homes were completed in the second quarter of 2016, a 17pc increase on 2015. I hope we will reach 15,000 by the end of the year. We aim to get to 25,000 by 2019.
The Government's action plan for housing and homelessness, Rebuilding Ireland, is a good foundation to build a growing but sustainable housing sector. It takes a coordinated approach to all parts of the housing sector, recognising that each part is interlinked.
At the heart of the plan is a major focus on supply: 47,000 more social houses, a larger, more predictable private rental sector, and a much more balanced home purchase market.
The first-time buyers Help-to-buy scheme needs to be viewed in the context of the range of supply initiatives that the Government is pursuing.
I think we will only be able to judge the effectiveness of the measure when we assess the impact on supply of new affordable homes in a year's time. The initial soundings are encouraging, with a number of developers talking about increasing supply next year to respond to improved viability in the starter home market.
Getting supply of new homes moving in the right direction is good news for all sectors of the housing market. It will ease pressure on the rented sector, in turn helping to moderate social housing need and families presenting as homeless and ultimately helping deliver more homes.