Tuesday 25 June 2019

For Simon, stuffing developers' wallets is the simple solution

A man works on the roof of a new home. First-time buyers can avail of a €20,000 tax rebate on purchases of new builds. Photo: PA
A man works on the roof of a new home. First-time buyers can avail of a €20,000 tax rebate on purchases of new builds. Photo: PA
Colette Browne

Colette Browne

Keep calm and carry on doling out cash to first-time buyers, was the message from Housing Minister Simon Coveney yesterday when it was revealed that house prices surged in the first quarter of this year.

With price increases virtually stagnant last year, reaching just 1pc in Dublin, a report from MyHome.ie revealed that annual house price inflation is now running at 10.2pc. In the rest of the country, it's 9pc. According to the report, this translates to an average asking price nationally of €239,000, up €12,000 on the previous quarter, and a figure of €347,000 in Dublin, up €19,000 in just three months.

Coincidentally, this significant growth in prices is in tandem with the introduction of the Help-to-Buy scheme for first-time buyers and a relaxation of the Central Bank mortgage lending rules.

Previously, first-time buyers required a 20pc deposit for loans over €220,000, whereas they now need just 10pc - regardless of the value of the property. Coupled with this, any first-time buyer purchasing a new build, or building a one-off property themselves, can avail of a €20,000 tax rebate for properties worth up to €500,000.

To demonstrate how generous these new rules are, consider an example. Last year, a first-time buyer purchasing a house worth €400,000 would have required a deposit of €58,000. Today, that buyer needs a deposit of €40,000 and can expect to receive €20,000 of that back.

When it was announced in last year's budget, the Government was warned the scheme amounted to a windfall for developers, who would jack up prices to reflect the fact that first-time buyers had an additional €20,000 in their pockets. This week, those warnings were proved prescient when we learned the average house price in Dublin has increased by approximately the same figure as the grant.

In fact, the only surprise is that no one in Government seems remotely concerned that house prices have suddenly shot up, after a long period of relative calm and modest growth.

The minister is not just unconcerned; he was positively purring in interviews yesterday - because this was the plan all along. Inflate house prices so that property developers are incentivised to return to the market, thereby increasing the supply of houses that we so desperately need.

Speaking on Newstalk, Mr Coveney insisted the price surge was nothing more than a market correction and accused his critics of wanting to punish first-time buyers.

"If anybody suggests to me that it's good housing policy to keep prices down by locking first-time buyers out of the market, then I can't agree with that," he sniffed.

The remark is quite telling, as it indicates Mr Coveney is unable to envisage a world in which there are ways other than lining developers' pockets to make housing more affordable for young people.

The notion of the State declining to rely on a profit-hungry private sector to meet the housing needs of citizens is obviously anathema, while attempting to cut the myriad construction costs that feed into exorbitant prices is apparently too complex.

Instead, the Government prefers to hand first-time buyers a wad of cash, in the full knowledge that this sum will be incorporated into inflated asking prices by developers. Just three months into this madness, and we are already seeing the results that both left-wing and right-wing economists warned us of - double-digit house price increases.

As of March 7, a little over two months after applications opened, there had already been 3,753 applications for the Help-to-Buy scheme, with 1,488 of these applications successful and the remainder pending. Of the nearly 1,500 successful applications, there have been 562 claims, with 230 of these verified, and an average rebate of €15,130 paid out. This means the average first-time buyer availing of the scheme is buying a house worth just over €300,000 - a figure that Mr Coveney yesterday described as "quite a valuable house for a first-time buyer" that "not many would be able to afford".

Well, thanks to him they now can afford those prices, and developers will sure as hell be charging them. The idea that increases in prices for new homes will not have a knock-on impact on other areas of the market is also fanciful.

Justifying his approach yesterday, Mr Coveney was at pains to point out that building activity is up and the supply shortage, which the Government has been referring to as a "crisis" since at least 2014, will soon be addressed thanks to the measures he's taking.

He said that in 2015, 12,500 homes had been completed while the figure for last year was 15,000. However, there is doubt in some circles about the accuracy of these figures.

Housing lecturer Lorcan Sirr has pointed out that the metric used by the department to calculate housing completions, connection to the ESB grid, is unreliable because it includes reconnections of existing vacant units. According to Mr Sirr, a more accurate way to calculate the figure would be to examine the number of completion certificates logged under the Building Control Management System (BCMS), which records adherence to building regulations for new builds.

If this latter BCMS metric is used, the number of new housing units in 2016 was just 7,532 - approximately half the number cited by the department.

The number of social housing units delivered by the private sector would seem to indicate there has been a dearth of new development. Under Part V rules, developers are required to set aside 10pc of new builds, in developments with 10 or more dwellings, for social housing.

In 2015, this figure was a derisory 64 units. However, that figure looks positively gargantuan in comparison to last year's figure, just 37 social housing units.

How can it be that, despite everything the Government is allegedly throwing at this crisis, the number of small to medium developments completed last year actually decreased?

Mr Coveney deserves credit for volunteering for the housing portfolio and seems genuine in his desire to improve the situation. However, the figures suggest that he has become blinded by ideology and his conviction that private developers must be relied on to solve this crisis.

Irish Independent

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