Thursday 17 October 2019

Paul Melia: Prices are going through the roof because we simply aren't building enough homes to meet demand

'Headline-grabbing policies may sway the party faithful but will do nothing to resolve the crisis
affecting so many.' Stock photo
'Headline-grabbing policies may sway the party faithful but will do nothing to resolve the crisis affecting so many.' Stock photo
Paul Melia

Paul Melia

Houses have not become more expensive to buy because of the Help to Buy scheme. The main reason is the lack of supply.

We are producing nothing like the number of homes needed to meet demand, with official figures noting that just under 15,000 were completed last year, when at least 30,000 were needed.

Money is at the heart of the problem. Builders cannot borrow at competitive rates, and it's cheaper to buy second-hand than build in large parts of the country. While Leo Varadkar is clearly fighting for the Fine Gael leadership, his comments about Help to Buy appear designed to undermine his rival, Housing Minister Simon Coveney, rather than present a solution to the problem.

Davy chief economist Conall Mac Coille, who has warned about the impact Help to Buy and the loosening of the Central Bank lending rules have had on house prices, said some developers would have bought land based on the fact that first-time buyers would have additional money to spend. Uncertainty could result in some projects stalling, he suggested. Auctioneers also warn that buyers may rush to buy now, fuelling prices, rather than risk being locked out of home ownership.

Mr Varadkar wouldn't be the first politician to find an election promise having unintended consequences. Back in 2007, Progressive Democrat leader Michael McDowell announced the party would abolish stamp duty for first-time buyers if returned to office. It resulted in buyers delaying purchasing homes until after polling day, and the market stagnated.

Mr Varadkar has failed to set out bold solutions to the crisis. He will continue with his rival's 'Rebuilding Ireland' programme, designed to boost supply. He will impose a higher property tax on owners of vacant properties to encourage their use, but the penalties are unknown.

But there's nothing to address the lack of finance. Nothing about getting State-owned banks or the Ireland Strategic Investment Fund involved, despite the latter having a statutory mandate to invest on a commercial basis and support economic activity and employment. Nothing either about cutting the VAT rate.

Instead, the headline grabber has been concerns about the Help to Buy scheme, concerns which didn't appear to exist in October, just days after it was announced. Then, Mr Varadkar accused Sinn Féin of failing to support first-time buyers after it raised concerns about the impact Help to Buy would have on house prices. It was, he said, designed to give first-time buyers an "edge" when bidding for properties, and to incentivise builders to increase supply.

"I hope Sinn Féin will reconsider its position, support it and show it supports first-time buyers," the leadership frontrunner said. Headline-grabbing policies may sway the party faithful, but will do nothing to resolve the crisis affecting so many.

Irish Independent

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