Help-to-buy scheme 'will need extension' to hit housing goals
The Government may have to extend the help-to-buy scheme beyond the end of this year to achieve goals on housing supply and promoting home ownership, according to a new report from Goodbody Stockbrokers.
Introduced in 2017, the scheme was designed to help first-time buyers with the deposit required to purchase or build a new home.
It provides for a refund of income tax and DIRT paid over the previous four tax years, limited to a maximum of 5pc of the purchase value of a home up to a value of €500,000.
It is estimated the scheme contributes to around 80pc of first-time buyer property purchases.
Housing sales have lagged behind supply recently which has led to an increase in the unsold stock of homes, according to the quarterly 'Irish Economy Health Check'.
This will in turn trigger a slower rate of new building in the second half of 2019 than previously forecast, said Dermot O'Leary, chief economist at Goodbody.
Meanwhile, funding constraints and lack of scale in the Irish housebuilding industry continue to act as limiting factors to ramping up supply over the medium-term.
Given that most first-time-buyer transactions are backed by help-to-buy, ending the scheme this year - as planned - may be premature, the report finds.
"Uncertainty around the extension of the help-to-buy scheme will likely reduce commencements in the latter half of the year and feed through into slower than expected completions next year," Mr O'Leary said.
"Many factors are at play, but now is probably not the right time to close the scheme," he added.
On the back of weaker sales in the residential property market, the uncertainty around the help-to-buy scheme, and the ability of housebuilders to scale, Goodbody has revised down its home completion forecasts for this year to 21,000 units from 22,000 units, far short of the estimated 35,000 units that are needed each year to deal with current demand.
The report also notes how the private-rental sector is playing a more prominent role in the housing market here.
Demographic trends, affordability constraints, and the Government's dependence on the private rental market as a source of supply in the housing market will continue to place upward pressure on rents.
"With household purchases remaining weak, the non-household sector has become an ever more important source of demand," Mr O'Leary said.
Elsewhere, the risk of a hard Brexit is ramping up again, according to the report.
It points to the possibility of a new prime minister in the UK "playing hardball" when negotiating withdrawal terms with the European Union, with threats already being made to exit the EU on World Trade Organisation terms in October.
"Such an outcome would be a game-changer for the Irish economy, with a significant hit to exports - particularly agri-food - and business confidence expected," Mr O'Leary added.
However, estimating the overall impact of a no-deal Brexit is difficult given the complexities involved, he said.