Monday 23 October 2017

Sceptical public remains to be convinced on building plan

Government's message is that this time it's different. Fionnan Sheahan examines if that's really true

Fionnan Sheahan

Fionnan Sheahan

DIG into the foundations of the Government's construction sector plan and a series of ugly cracks appear:

* Despite being kept alive by the taxpayer, the banking sector is now hindering economic development through a lack of finance.

* Developers who over-stretched themselves during the Celtic Tiger will have to be put back on their feet in order to supply the housing and offices so badly required by the country.

* Construction workers who were made unemployed by the economic collapse are not going to be retrained to work in other areas.

* First-time buyers are not capable of putting together a deposit of more than 5-10 per cent of the price of their house.

The plan is aimed at getting the construction sector back running at normal levels, to treble the number of homes being built every year and create 60,000 jobs.

The Government stands accused of relying on the housing market to generate revenue, thereby creating a property bubble and falling into the same trap that prompted the economic crisis.

Aiming to build 25,000 houses by 2016 is hardly comparable with the 93,419 houses built in 2006, as the end of the boom approached.

The message coming back from Taoiseach Enda Kenny and Finance Minister Michael Noonan has been: this time it will be different.

The overall plan though aims to acknowledge there are several blockages hindering the operation of a functional market, particularly a lack of supply of housing, and a shortage of finance for both developers and mortgage-applicants alike.

Confidence among bankers, builders and buyers is crucial.

To describe the problems with the property market as just an issue of supply is simplistic.

The underlying reasons behind the lack of supply, particularly in Dublin, also have to be identified.

The property bubble is being created at the moment by a lack of supply of housing – both new-builds and current owners not moving.

There is no shortage of zoned land in the capital, where there is planning permission for 30,000 units in the system.

The Coalition plans to make it easier for planning permissions to be changed to provide the market with what it wants, especially swapping apartments for houses.

The question has to be asked, why developers are not putting shovels in the ground if there are so many would-be buyers queuing up?

The feedback from the construction industry is a lack of belief that there are adequate numbers of mortgage approvals to sustain a large-scale injection of new housing.

The builders need to see there will be enough customers with mortgages both to start construction and access the equity and finance to pay for their output.

Leaving the buyer out of the equation completely for a moment, an understandable lack of trust between the builders and the bankers is inhibiting a return to sustainable levels of housing development.

The number of drawdowns of residential mortgage loans in 2013 was just under 15,000.

Just 7,500 first-time buyers and 5,350 mover-purchasers took out a mortgage.

The sector also believes much of the action in the market is being undertaken by the cash buyers and once these resources are drained there will be even fewer customers.

The Government's reckoning is that the way to fix the supply side is to create greater demand.

The aspect of the plan to garner the most attention, scrutiny and criticism is the proposal to make it easier for first-time buyers to get a mortgage.

The plan is an effort to kick-start house-building.

To allow banks to give out more loans, the State will guarantee a portion of the mortgages to first-time buyers of new houses.

The sharing of the risk will be undertaken through a government mortgage insurance scheme paid for by the banks.

The scheme will allow the first-time buyers to buy their houses with smaller deposits, by giving out mortgages worth 90-95 per cent of the value of the home.

The lower level of risk to the bank will also potentially lower the buyer's mortgage repayments.

The increased level of mortgage funding is expected to provide certainty to the construction industry to build more homes.

But the scheme would have to be tightly regulated to ensure it does not merely add to the property bubble of spiralling house prices and avoid the mistakes made in Britain, where it merely fuelled the bubble.

The scheme has to have a greater impact on supply than on demand.

The mortgage insurance scheme plan has to be examined in detail by the Department of Finance over the summer with Mr Noonan indicating he wants it ready for the Budget in October.

After the experience of the past decade, the Government cannot blame a sceptical public for wanting to be convinced that this time it will be different.

Sunday Independent

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