THERE IS AN impressive amount of blame being apportioned to the ‘help-to-buy’ scheme, and it comes from many respected commentators who frankly ought to know better, because if you are going to claim something is shifting something as big as the property market you had best do your homework first.
To begin with, the scheme is designed to shift supply. Just go and google ‘how to shift a supply curve’ and you’ll see that one of the first things mentioned is tax incentives – you give tax incentives and supply increases.
This is precisely what the scheme is about. That doesn’t mean it was the best choice, or the right choice, but we should be clear about what it is meant to ‘do’ in descriptive terms. The same economists who publicly say it’s a demand curve shifter, will likely teach the students in their econ 101 class the exact (and more accurate) opposite.
Now on to the numbers. There have been 2,400 applications for the scheme approved which, although it started at the end of 2016, was back-dated to July of last year. Of this, 800 (33%) were retrospective. This means that the recipients were claiming money for a decision made in the past.
A post-hoc fallacy
One third of something is a sizeable amount, so it would take Dr Who-style calculations to determine that a tax rebate for a decision already completed in the past was a primary influencer of an entire market price after the fact. This is the very definition of a post-hoc fallacy.
When it comes to cases claimed, the money being paid out has been two to one for retrospective cases (673 existing or ‘past’ cases vs 333 new ones). Most importantly, when we talk about ‘price rises’ we do so based on ‘completed property transactions’.
So again, the timelines don’t make sense, price rises are based on ‘done deals’ yet we are saying those same prices rose due to prospective deals? Have 333 property transactions already swayed an entire market? Last year did the 673 cases impact the other 46,300 transactions which weren’t done under the scheme? The saying that you shouldn’t confuse correlation with causation has never been more appropriate.
We seem to be desperately searching for answers to why our housing market is banjaxed, and sadly there are no simple answers except that we fail to tax property correctly, we have an economy which is a giant bet on the housing market and we came out of a crash so ill-equipped for a recovery that only novice-level management and ignorance of property cycles can explain it.
There are of course a lot of new cases ‘pending’ – another 2,400 are now on the cards – but most of them are opportunists availing of a tax rebate. It isn’t as if everybody suddenly piled into the the market due to this.
First-time buyers were already flocking to new homes for a few reasons; one was that the price (depending on location) is often competitive, and you normally don’t get into a bidding war on a new home the way so many do on second-hand homes where richer older people simply blast them out of the water with higher bids.
Expensive rents are pushing people to buy
First-time buyers need homes if renting is too expensive. The decision to buy is rational. Our problem isn’t help-to-buy, it’s that we have the equivalent of a food shortage and are trying to do like Jesus on the mountain and split loaves we don’t have to feed everybody; these are incompatible objectives.
The rump of claims to date are also for homes below €300,000 in value and below 90% loan-to-value. Again, this is typical of the first-time buyers who can avail of it. They are the same people who would have saved up enough to enter the market this year anyway, even after badly thought-out Central Bank rules just put off last year’s problem and made it into this year’s one.
Lastly, the geography matters. Of the claims paid out so far (again, it’s only 1,000 so far) every county is represented. There is no housing shortage in Donegal or Kerry that we know of, none in Longford, Roscommon, or Westmeath either, yet all of them have had applications paid out.
City rats and country mice agree
That is because cities (due to a base effect) may be what is driving demand and prices, but thus far it is rural Ireland that has been as much a beneficiary of the scheme as anywhere else. Coveney was wily in devising a scheme promoted as being for city rats that managed to serve country mice just as well.
The secular trend, at least up to 2020, will be one of rising prices in both ownership and rents. Trying to stop it is like trying to stop the tide – it may be an admirable endeavour, but it will result in only marginal effectiveness.
For that reason we need to continue to hit the housing market with all we have or it will eventually destroy our nation as it has in the past.
What you can’t do is have commentary showing that rents are sky-rocketing, that there is a scarcity of houses, a shortage of supply, a situation where owning is cheaper than renting, a flat yield curve, relatively low mortgage rates and rising homelessness (out of that same expensive rented sector) – and then a simultaneous incredulity at rising house prices.
Scratch that – you can. But only if you happen to be the Queen of Hearts who told Alice in Through the Looking Glass that she was able to think of six impossible things before breakfast each day.
For me that can all be achieved in one line ‘I’d like an affordable house, in the city, a decent size, a good finish, energy efficient, a large back yard, no bidding war, close to amenities, south facing or a good view, and a great mortgage rate’.
Good luck with that, the sins of our collective fathers took that away from the younger generation who are too naïve to realise it.
Karl Deeter is a financial adviser at Irish Mortgage Brokers and Advisors.ie
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