Why the buyers' break is really just a bank bail out
THE Fine Gael/Labour Government's sudden wake up to a two-year-old housing crisis has brought us a rash of new policies including "Construction 2020".
The all singing and dancing action swoop was branded and sold this week with the furious vim of a marketing campaign for a new energy drink.
And atop the snake oil soap box to sell this new fizzy whizz was the Taoiseach himself – fronting it up in a big gameshow compere style delivery for this most extraordinary of policies.
If Construction 2020 had theme music, it would be in the genre of an all-American World Wrestling Federation presentation, a pounding thrash metal track with repetitive buzzsaw electric guitar licks.
"Ladiezzz ... .and gentelmennnn (chugga chug chugga chug) ....We bring yooo.... (chugga chugga chuggg chugga chug) ....CON...STRUCTIONNNNN TWO THOUSAND TWENTYYYYY! (chugga chugg)."
After two years of inertia on the housing crisis, that's it. That's the big plan we were promised.
The deal: Jobs for plumbers, tilers, bricklayers and so forth. A sop for construction, but also, as many have already noticed, an extra big big sop for the banks.
Perhaps this is the core inspiration behind Construction 2020.
There's a big hidden agenda here because essentially Construction 2020 is about GUARANTEEING THE BANKZZZZ (chugga chugga). This time we're guaranteeing them so they can lend to first-time buyers.
This, despite the fact that we Irish are already in hoc for generations after bailing out our banks, supposedly to enable them to function on our behalf – and that means lending for homes in a market where house prices are rising fast.
The logic of the new Government plan appears to be this: to foist a great big chunk of the risk attached to first-time buyer mortgages (for new home purchases only) onto the taxpayer. This in turn will enable first-time buyers to borrow enough to pay for artificially overpriced housing.
This is turn will create demand for overpriced housing, which will in turn create jobs in construction.
This is a great big cart (full of soft sop for the banks and construction sector) which has been planted right before the horse.
Unless the real purpose of this policy is to bail out the banks again to enable them to lend (they don't seem to be able to do this right now), then these new measures are a back-to-front solution to a problem which can be solved more easily.
Any product that is severely overtaxed ends up being much too expensive, and in turn ends up not being bought. Sometimes, if the overtaxation is just too severe, the product ends up not being made in the first place.
This is exactly what has happened to housing in the greater Dublin area and will soon happen to housing in Cork and Galway. Despite the biggest demand for housing in Dublin for years, builders are not getting on site because it currently costs too much – simple. It costs so much to build a home that even at current inflated prices, builders cannot make a profit.
The reason housing in Dublin is too expensive to build is because it's taxed out of existence – primarily by the local authorities who are still (despite Government efforts) insisting on boom era levies which are completely out of sync with the current market reality.
Dublin's local authorities are currently seeking up to €60,000 per unit for the privilege of connecting to water and sewerage infrastructure. This is enough to add up to one fifth onto the final price for the home.
The councils are also still seeking a 20pc social housing cut which also adds significantly to the end price of a home. The councils are seeking extra charges from homebuilders for special infrastructure such as the Luas. Overall the state probably takes (between local and central Government) more than half the sale price of a finished home. This is unprecedented in any country in the Western world today.
So instead of simply cutting out the penal taxation and local government charges that are making houses too expensive to build in the first place, the Government is instead deploying the taxpayer's state guarantee (again) to ensure that hard pressed first time buyers can now borrow enough to meet the price of artificially overpriced housing.
Calling this "a boost for first-time buyers" is a bit like our European Union neighbours calling a massive and enforced national loan charged at well above the going market interest rates a "bailout."
So why do the local authorities need these penal charges on house construction today? We are already paying through the nose in property tax and they have been promised that money to cover their infrastructural expenses. Consider that in current circumstances the new homeowner is likely to pay twice if not three times over for access to water services.
First through the local authority levy which ends up on the price of the house they buy, secondly through the local property tax they will pay, and thirdly through a charge which is likely to be due to Irish Water for connecting new houses up to the mains.
This is what we get as rents rise in the capital by 15pc, when social housing construction has hit a record low and there are 90,000 people on our housing lists.
Can anybody in Government see what's wrong with this picture? At the very least don't try and sell us a mini bank bailout as a big break for first-time buyers. We're not that stupid. Are we?