THE CENTRAL BANK has outlined what exactly its issues were with the government’s first time buyer scheme as outlined in the recent budget.
In a letter (which can be viewed here) to a number of TDs, the governor of the Central Bank Philip Lane outlines two strands of thinking regarding such subsidy schemes that seem to run along the same lines as much of the criticism that was focused on the €20,000 tax rebate when it was first announced:
- such schemes run the risk of reducing activity that would have occurred in their absence – ie, while some new buyers for a property would be found, existing ones would be forced from the sale
- raising demand in the housing market “will just tend to put upward pressure on prices”, with sellers of properties “effectively gaining more than the recipients of the study”
Lane argues that the operation of the scheme successfully would first require a “full-scale evaluation project”, something which “falls outside the scope” of the Central Bank.
He similarly argues that easing the financial situation of first-time buyers, something critics dispute the new tax rebate’s ability to achieve, “may support a greater level of construction of new homes”.
Lane also suggests that an unwanted effect of the rebate could be to see first time buyers attempting to purchase more expensive properties, which could see the expansion of total household debt (albeit, this is slightly mitigated by the government’s reduction of the minimum deposit condition from 80% to 70%).
The governor further queries the rebate given the disparity between the numbers of new homes being bought versus existing property sales.
Sinn Féin finance spokesman Pearse Doherty has been scathing in his response to the letter.
“Today, in his response to me, he (Lane) has confirmed that in fact the Central Bank was not consulted on the merits of the scheme before it was announced,” Doherty said.
Given that this scheme was mooted months ago, this is hard to explain.
“It is now time to drop this scheme before any permanent damage is done to the economy. I will be proposing a deletion of this scheme from the finance bill this week,” he added.