Tuesday 18 December 2018

Our national love affair with home ownership endures - but changes are needed

The Central Bank has tried to help first-time buyers by removing some of the hurdles to home ownership (Stock picture)
The Central Bank has tried to help first-time buyers by removing some of the hurdles to home ownership (Stock picture)
Martina Devlin

Martina Devlin

Our romance with property was over, we were told - the maelstrom of the financial collapse would transform the next generation into renters.

Predictions were advanced with confidence - as predictions tend to be - that Irish people's emotional and cultural hardwiring about home ownership would undergo a shift.

But as the recovery continues, the signs are that our affair with property remains an enduring love. Whether it's a healthy one is another matter. Be that as it may, the generation below the singed Celtic tiger cubs is just as keen to climb on to the property ladder, despite witnessing the scorching experienced by their predecessors.

"Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, one by one," Scottish journalist Charles Mackay said in his classic non-fiction book, 'Extraordinary Popular Delusions and the Madness of Crowds'. But the herd mentality remains focused on home ownership - the emphasis on buying has not changed.

This is partly due to rising rents, of course: a mortgage can be cheaper than rent in some cases. The lack of long-term certainty in private rentals is another issue. Even allowing for such factors, however, the urge to buy remains high.

But first-time-buyers are pulled up short by a combination of supply shortage, unaffordability, deposit requirements and cautious lenders.

And so to the Central Bank's adjustments to its mortgage lending regulations, announced this week. It recognises barriers in the first-time buyers' market and has opened the door wider for a locked-out segment.

Are the Central Bank's lending restrictions an obstacle to home ownership or a safeguard against another credit-fuelled property boom? Both, in fact.

For first-time buyers, it must seem like scaling Everest, between the deposit stipulation and borrowing limits applied at a 3.5-times-income multiplier.

Not to mention cost: the average house price across Ireland is €250,000, and €380,000 in Dublin.

On the other hand, unaffordability is relative. To those who say house prices are insane - there was a time not so long ago when they were crazier. Dublin prices stand at 33.5pc lower than their highest level in February 2007, according to Central Statistics Office (CSO) figures for the year ending in September. And residential property prices are 37.5pc lower in the remainder of Ireland. Granted, banks were begging customers to borrow back then.

The 20pc deposit requirement introduced last year has proved to be particularly onerous for those without well-off relatives to help. And that has implications for fairness in society. Equally, lack of controls over bank lending contributed to the crash. So independent policy here has the community's welfare at heart rather than any particular segment.

But the sense of exclusion for those with their faces pressed against the window is reinforced by a CSO report showing house prices are up 7.3pc nationally for the year ending September 2016.

That window is a virtual one because housing is scarce. Builders have been slow to get their diggers and cranes moving again. Lack of supply means an increased risk of our obsession with property rewinding close to peak time levels. Shortages fuel demand.

Fortunately, the Central Bank has been careful, although governor Philip Lane has rowed back a little to dismantle some of the hurdles against first-time buyers. Some would have preferred a greater reversal but his job as a policymaker is not to court popularity. It is to protect against another housing crash.

Ghost estates, once walked through, are not easily forgotten.

But prudence is not a popular virtue, even in Ireland where our recent history should be instructive, and voices have been raised recently against "over-regulation". Let's remember how loudly bankers warned against regulation in the boom-time.

The Central Bank's changes have removed the €220,00 threshold, so first-time buyers now need only a 10pc deposit on the full purchase price. Everybody else is required to provide 20pc apart from buy-to-let customers who must have 30pc.

Solutions to unaffordability for first-time buyers continue to be advanced. In a submission to the Central Bank, the Construction Industry Federation suggested relaxing the borrowing restriction for those buying in cities, where property is more expensive. It urged loans of four or even 4.5 times income. The federation also proposed giving recognition to a track record in paying rent and to employment status, noting that some jobs - public service, for example - are safer than others. Practical suggestions, but I fear they might foster social division.

And the law of unintended consequences could follow any such interventions: a chain reaction whereby more money available to borrowers feeds directly into the asking price.

Some suggest first-time buyers should buy in less expensive counties. But those areas have little employment to offer, so cheap property there is of limited benefit to someone with their way to make in the world. Commuting costs can be a burden, and time spent travelling impacts on quality of life.

While a patchwork quilt of problems is contributing to the housing supply crisis, I'm mystified by Government's lack of intervention to ensure builders construct homes rather than offices. Builders prefer commercial property because the return is higher - many of those cranes on the Dublin skyline are working on office blocks.

Where residential property is developed, units tend to be unsuitable for first time buyers - three-bedroom houses rather than starter homes are more common. Clearly, builders can achieve a better return on that size of property. A tweak here would help.

Equally, we need to recognise it is not only tough for borrowers to receive loan approval - builders struggle to access the financial power to develop, too.

Re-starting an industry that collapsed so spectacularly is a complicated business. Nobody recommends banks wheeling out barrow-loads of money to all customers rolling up in a hard hat. But we do need builders to build.

Finally, hard though it is to feel barred from the housing market, it's harder again to be saddled with a property worth a fraction of the purchase price - the fate suffered by a significant number of first-time buyers who took out mortgages in 2006 or 2007.

Incidentally, I've just finished reading a 1940s' novel (Angela Thirkell's 'Northbridge Rectory') in which a character proposes marriage to another on the basis that he's inherited a house from an uncle. If only property ownership could be that simple. Since it isn't, we need to keep balancing competing needs.

Irish Independent

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