Three quick fixes that can help boost the building of new homes
The housing crisis shows few signs of easing, but there are three steps, which could be taken relatively quickly, and have a tangible effect on the market.
At residential property developer Regency, we believe that introducing a grant for some buyers, tweaking the mortgage rules governing loan to income, and reducing the rate of VAT on new homes could increase house building by as much as double the current rate.
We welcome the new housing ministry but rather than postulating around reports & submissions, if the Government were to enact these three key measures then thousands of property seekers would be able to purchase homes which would in turn ease pressure put on the rental market.
The 1980s and 90s saw the extensive use of a grant for first time buyers. That could be replicated today, but it should be available to non-first time buyers.
A buyer grant would enable a greater number of people to purchase, and so encourage more building. The criteria to receive the grant should prioritise apartments to improve density and reduced commutes in certain areas. Crucially, it should include people who have bought before but do not have any equity from a previous property - a growing demographic since the crash.
The grant should be graded between those who are first time buyers (FTBS), those who bought a house which is now in negative equity, and those who bought an apartment in negative equity. The potential grant on offer could be €15,000 for houses and €20,000 for apartments.
A second step would be to amend the loan to income (LTI) ratio to 3.75 rather than the current 3.5.
The home loan caps have are pushing more and more people into the commuter belts of big cities - particularly Dublin. This means worsening urban sprawl and all the problems that come with that. By increasing the ratio to 3.75, more buyers would qualify for a mortgage and it would boost the rate of average income couples qualifying for a starter home in Dublin.
"The increase in rents has been the biggest contributor to the homeless crisis as people on rent support are unable to compete with the private sector for a limited number of properties. The Central Bank rules are slowing the migration of people from renting to purchasing, which is having a knock on impact on everyone else in the rental sector".
We estimate that a typical newly constructed three bed semi-detached house in Dublin costs in the region of €285,000. Assuming a household income of €65,000, which is a little above the mean household income across the State, the current LTI of 3.5 means buyers will need a whopping €57,500 deposit regardless of whether they qualify for the First Time Buyer exemption on the loan to value ratio.
Adjusting the LTI to 3.75 would reduce the deposit required to €41,250 which is still sizeable but may well be the difference between buying and not buying for many.
Even that lower deposit of €41,250 is still well above the €35,000 loan to value guide (LTV) under FTB rules which makes the FTB LTV exemption effectively useless for most would be buyers in the Dublin market".
Finally, Vat on new homes must be reduced from the current 13.5pc. This is not a new argument but it remains the case that the current rate is making house building prohibitive as builders will simply not see the returns in the price received.
The current cost of building homes in Ireland is too high - the prices that can be commanded simply don't cover the cost. A quick and effective measure which is open to the Government is to reduce the Vat rate for an extended period - we have seen this introduced in the hospitality sector where it has had the desired affect almost immediately.
The problems we are faced with currently are multi-faceted and there is no one panacea to cure Ireland's ailing housing market. But while the Housing Ministry figures out what other elements can be changed to improve the position, action can be taken now that will have an immediate and positive effect. These, relatively simple, initiatives would have a combined effect to encourage developers to commence or expand their building plans which should at least double the current completion rate of between 1,500 and 2,000 new houses per year in Dublin.
Aodan Burke is director of Regency