Government's affordable housing plan will ‘very likely lead to higher house prices’ – ESRI

The shared equity scheme proposed in the Affordable Housing Bill could raise house prices, an Oireachtas Committee will hear tomorrow.

The Affordable Housing Bill, which is due before the Oireachtas Housing Committee for pre-legislative scrutiny, sets out a new affordable purchase shared equity scheme.

This would see the State take a 30pc stake in the homes of first-time buyers, who will take out a mortgage with the bank for the remainder of the cost.

However, in its opening statement, the Economic and Social Research Institute (ESRI) will warn the Oireachtas Committee tomorrow that this scheme will hike up house prices.

While lowering the required loan amount, it “would also act to alleviate both income and deposit constraints”.

The Institute will state that, following a review of the Help to Buy scheme, households which availed of it may have been able to “complete the transaction anyway”.

The ESRI will also warn that, because housing supply is “so constrained”, increasing purchasing power through a shared equity scheme will hike costs.

“This static approach does not take into consideration the fact that housing supply is so constrained in Ireland and increasing purchasing power for households (through a loosening of credit constraints by a shared equity scheme) will very likely lead to higher house prices.

“Such rises in house prices are likely to exacerbate affordability problems down the line.”

The Affordable Housing Bill 2020, published by Minister for Housing Darragh O’Brien several weeks ago, would see not only the implementation of a shared equity scheme, but ‘cost rental’ homes and affordable housing built on local authority land.

The Government’s Housing Agency will defend the shared equity scheme, saying that it targets “purchasers who need support”.

It stated: “The Housing Agency supports the principle of equity being provided to moderate income earners facing housing affordability challenges.

“It also recognises that it is necessary to have fairness and equality of treatment across society, in terms of having an equity charge to assist individuals to buy a home.”

It will tell the Committee that the shared equity scheme, as well as affordable housing on council land, “will seek to address the affordability gap that exists for moderate income households who are constrained from accessing sufficient finance to purchase homes at market prices”.

In a survey conducted last year, the ESRI found that around 70,000 households, or one in four private renters, did not have “sufficient income” left over after rent and other housing costs to cover a “minimum standard of living expenditure” prior to the pandemic.

The Institute will also inform the Committee that the economic fallout from the pandemic has “exacerbated” existing affordability challenges.

While 40pc of renters wish to purchase a property, the lack of funds for a deposit and insufficient loan size-to-income level pose challenges, according to research conducted by the ESRI.

To tackle these challenges, it will suggest that separate policies covering the availability of loans and deposit supports “can be of merit”.