The Irish housing market is currently paced at an alarming speed, with this week notably mentioning three key points of fresh details, each of them holding no favourable news for those striving to break into the sector.
Initially, data drawn from the banks depicted a substantial decrease, compared to last year, in the count of fresh mortgages approved for new or used home buyers as well as the sums disbursed, a situation that can be partly attributed to the dire stock in the pre-owned home market. This downturn in proceedings holds a hint that an increasing number of potential purchasers may be becoming outpriced.
Secondly, the challenge ongoing in the rental sector continues, with this week’s Residential Tenancies Board figures putting annual rent rises at over 9%. Similar to the second-hand market, there is a huge scarcity of supply as property owners withdraw and the number of newly registered tenancies dwindle. This market is also at a standstill.
Thirdly, a study by the Economic and Social Research Institute attested that the size of households in Ireland continues to rank among the highest in the EU. The young average age of the Irish population significantly contributes, but so does the general lack of houses as well as suitable home sizes for smaller families or individuals living alone.
The upcoming general election debate over housing sure has some backdrop. A central matter will be the two significant supports offered to new home buyers to assist them financially – the Help-to-Buy initiative, a plan that grants a tax rebate of up to €30,000, and the First Home plan, a scheme allowing the State to share an equity stake in the property as an attempt to solve the affordability problem.
The new Taoiseach, Simon Harris, has already expressed his desire to extend the Help-to-Buy scheme beyond its planned end next year, having it run for an additional five years, or in other words the term of the imminent government. The government views this as a crucial assistance to purchasers. The fresh State equity scheme serves as another method to aid buyers in bridging the gap between their capability to pay and new house rates. Both schemes are strictly for first-time buyers who are purchasing a new home.
Contrarily, Sinn Féin stands pledge-bound to end both schemes, contending they inflate overall prices while creating distortions in the marketplace. They advocate that these resources should be redirected with the aim to bolster the supply, especially of affordable and social homes. An aspect worth observing will be the manner in which the party elucidates this in its manifesto for the general election. Will they opt for an abrupt halt to both aids for buyers or will they gradually phase them out? The situation isn’t as clear-cut. Immediate discontinuation of the Help-to-Buy scheme could cause disturbances, with new structures currently in progress having incorporated this scheme for probable buyers. Additionally, Sinn Féin’s commitment to augment the supply of socially affordable houses, providing more homes for people to purchase without state support, will demand time to manifest an effect.
Political considerations will also play a significant role. As the temperature of the general election debate rises, the Coalition parties will launch a dual offensive on Sinn Féin, charging them with deserting prospective buyers and lacking dedication towards home ownership. The principal Opposition party will hold that the government’s policies have proved ineffective in providing a sufficient volume of social and affordable homes, stating that an immediate change in strategy is essential. They are likely to highlight their already disclosed plan to substantially expand the supply of homes costing less than €300,000 and executing measures to generally promote construction. The government has, in response, committed to improving their construction policies and set new goals in this respect for the summer.
Both sides, hence, pledge to augment state resources for housing, with the goal of providing more affordable homes, but each has a different approach. And both will face the challenge to demonstrate their delivery methods, through alterations in planning and regulation, amongst others.
However, for Sinn Féin, the risk lies in the fact that removing gratuitous funding is rarely well received.
The subject of financial assistance for homeowners is at the heart of this discussion, examining its impact and prospective future. Despite a 2022 report from Mazars for the Department of Finance stating there is no conclusive proof that the Help-to-Buy scheme is influencing price increase, the most recent figures from the Central Statistics Office demonstrate an annual 9.2% rise in new home prices, compared to a mere 1.6% boost in second-hand home prices. The various factors contributing to this include buyer assistance, a scarcity of available property, ongoing demand, and the availability of more affordable mortgages for energy-efficient homes. Mazars’ study, conversely, suggested that the Help-to-Buy scheme was not only costly, but poorly aimed, often benefiting those who did not necessitate aid. The upper limit of €500,000 for eligible homes has also resulted in property development moving away from higher-price city centres towards Dublin’s periphery and commuting counties, contradicting policies promoting non-car-centric living.
From a buyer’s viewpoint, the Help-to-Buy scheme offers ‘free’ cash, typically used towards a deposit. The First Home Scheme also aids in reducing the affordability gap, but at the cost of the State owning a stake, usually in excess of €100,000; it’s not ‘free money’. Broker John Fahy of Pangea Mortgages asserts that buyers may neglect the implications of the State owning a stake, the future costs associated with it, and the price of buying it out. The lack of support for buyers of second-hand properties poses a risk for those utilising this scheme; the resale value of the house might not meet their financial expectations or needs. They will be banking on either a continual rise in house prices or a significant increase in their income.
Market reliance on demand support can become problematic, creating a dependency with escalating requirements, circumventing Central Bank borrowing rules with State funding. There is a compelling argument to cease these supports, but convincing voters of the viability and speed of the alternate solution – the delivery of more affordable homes – is a political challenge.
The risk for Sinn Féin lies in the fact that withdrawing freely available funds is generally disliked. Despite numerous interventions by the Coalition, they still face an issue as multiple young individuals remain unable to either rent or purchase properties, while rent and price rates persistently rise.