Home Truths: Time for Help to Buy for average and low earners
The big view on Ireland's property market
Since our housing crisis began, the Help to Buy scheme has proven to be the most effective policy measure yet introduced to get new homes rolling out in viable numbers.
This, however, has come from a Government whose selective actions and inactions on the housing crisis to date have largely: (a), enabled mostly high-earning first-time buyers to acquire new homes through Help to Buy; and (b), enabled big funds to develop build-to-rent blocks by altering planning rules and affording them outrageously low tax terms. The latter has become the Government's second most effective stimulation for new home builds in numbers. Let's call it: 'Help to Build, to Rent to People Who Can't Buy'.
From its introduction in Budget 2017, the effects of Help to Buy on the housing market were immediate. The rate of house builds surged from less than 5,000 new units just a few years ago, to 18,000 in 2018 and we are now expecting more than 20,000 homes this year. The Central Statistics Office (CSO) says 9,000 new homes were completed in the first half of 2019 - an increase of 17pc on the same period last year. Help to Buy has:
* Enabled new home building to become an economically plausible option overnight, on sites where building had previously not been viable. So it got firms building where, we'd otherwise still have empty sites.
* In doing so, it enabled small and recovering building outfits to 'get on the house building ladder' by completing smaller schemes, in turn qualifying them for better and cheaper funding options next time out. So it enabled smaller building outfits to upscale to bigger schemes.
* Through enabling new home construction, Help to Buy has cooled or reduced second hand prices in the vicinity of the resulting new homes. So just one more new home takes its buyers out of the market for existing homes in that area, reduces competition and cools second hand prices. Recent price surveys have confirmed this.
So as we approach Budget 2020, it is imperative that Help to Buy is continued for another year at least, albeit with already suggested modifications to restrict it to more affordable homes only.
But again it's important to note that Help to Buy hasn't helped everyone. In fact, it has only helped high earning FTBs to buy new, and by the knock-on of cooling mid-range second hand prices, it has also helped high earning second hand buyers.
With most 'starter' houses now priced from €300,000 to €350,000 in the greater Dublin area; mortgage lending limits mean that those who have availed of Help to Buy thus far, have by nature, had to be couples who both earn well above the median salary; or where at least one is earning a top 5pc salary.
The Government has often cited homes priced under €350,000 as being 'affordable.' But affordable for who?
In reality €300,000 to €350,000 is what two earners taking above average salaries (at least €45k each) can achieve in a mortgage loan and often only with money from their parents. A recent report in this newspaper showed that half of those expecting to buy their first home this year also expect to get even more help to buy from the bank of mum and dad.
In the meantime the very same CSO which gives us this home building data is actively distorting the affordability picture by suggesting that the mean average Irish salary is now €39,000.
This is balderdash which suits the optics for Government. Since the crash and the subsequent recovery, the gap between top earners and the rest has been widening continually. The Irish average salary as calculated by the CSO is just that, an average - it adds all the salaries together and divides by the number of people. Bad by primary math.
CSO doesn't allow for higher earners earning more relatively and doesn't tell us that which most people earn.
For example, if we had a business in 2006 where one person earned €100k and four earned €30k (a CSO average salary of €44k); then today we have one person earning €200k and four earning €25k. But by the CSO's take, the 'average salary' in this office has risen to €60k when the reality is that most in the office are earning less than they did in 2006.
Some experts think Ireland's median salary is closer to €28,000. If this is the case, you can already see (by employing mortgage lending rules) that two median earners making €52k between them can only stretch to a mortgage of €182k, a long way from the €350k price tag of most new three-bed homes in cheaper parts of greater Dublin.
So, having catered for the interests of the big fund investors and the privileged first-time buyers, isn't it now high time that the Government introduced a Help to Buy scheme in the Budget that can put true average to low earners onto the housing ladder?
Despite a block of two-bed apartments costing €300k per unit to build right now, density fixated local authorities are widely insisting on them; or else quotas of apartments in lower density schemes; despite these only being financially viable under build to let. But there is a middle way. Government could launch an architectural competition at home and abroad to come up with a basic palette of designs for medium density low rise two and three-bed housing types. The 1990s mixed unit local authority scheme at Golden Lane, Dublin 8, is once such scheme.
Three and four-storey sloped duplex type blocks that contain a mix of three-bedroom own entrance two-storey houses on top of two and three-bed own door, single storey homes at ground level. This type is already widely deployed in cities across Europe and the UK.
Having selected its'menu' of types, Government then decrees that those three-beds from the approved 'menu' that sell below €270k and two-beds offered below €250k, go free of VAT at 13.5pc. Now we have new homes that are €80k to €100k cheaper to buy.
But they won't do that. Why?
Build to Rent funds need priced out middle earners to rent in their shiny new blocks at premium rates. And we live in Ireland - where only the privileged get juicy tax holidays.