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Housing Scheme

Almost 10,000 Help-to-Buy claims processed since scheme began... but it could face the axe next year

The government has consistently faced criticism that the scheme has actually helped to increase house prices.

AN INDEPENDENT REPORT on the controversial help-to-buy scheme found that it did not play a major role in increasing house prices, but its future remains uncertain with a decision on whether to continue it expected in 2019.

In figures to November 2018, a total of 9,963 claims had been made under the scheme which is less than half of the overall applications of 21,859.

The Help-to-Buy scheme was an incentive introduced for first-time buyers in Budget 2017, to try to help them reach the level of savings required to afford a deposit for a house.

The scheme, which was announced in Budget 2017, entitles those buying new-build or self-build homes valued up to €600,000 to claim a tax rebate of up to 5% of the value of the home up to €20,000.

Of the almost 10,000 claims made, just 1,290 has been for the maximum €20,000. 

However, less than half of applicants have been able to make a claim on the scheme. Revenue says that many applicants don’t make it to the next stage because they do not purchase a property, or they purchase one not eligible for the scheme like a second-hand home. 

Driving up house prices?

Less than a year after it was introduced however, criticisms were made that the scheme was actually helping to contribute to an increase in house prices.

Central Bank governor Philip Lane told the Oireachtas Finance Committee in April 2017 that “of course” the impact of the scheme was to drive up house prices.

“I don’t think there can be any doubt that if you have additional capacity that the effect will of course be rising house prices,” he said.

A property report from and Davy in July 2017 said the scheme had a “significant impact” on the property market – with the average cash rebate being €15,000.

“Did Help-to-Buy contribute to house price inflation? What evidence there is suggests it did, as the price of newly built homes is rising much faster than existing dwellings,” the report author Conall Mac Coille noted.

The sustained criticism of the scheme as unworkable led to much speculation that the government would scrap it in the subsequent budget

The scheme has also come under criticism for other reasons, such as when Fianna Fáil TD Michael Moynihan stood before the Dáil and said Revenue has been writing people who were initially approved for the government’s Help-to-Buy scheme, demanding they pay back the money as well as a fine in some cases of thousands of euro.

He told Finance Minister Paschal Donohoe that some people had applied for the scheme, but because of the software that was used by the Revenue Commissioner, they were given a commitment “in error” that they qualified for the scheme.

Independent analysis

To monitor what effects the scheme was having, the government commissioned an independent report ahead of Budget 2019.

It found that “property prices were rising significantly prior to the induction of the HTB and have continued to increase since 2016 after the HTB was introduced”.

It also notes that while the number of new properties being built has gone up in recent years, it is still “significantly below the level required to meet demand”. 

The report from Indecon said: “[Our] econometric models suggest that prices of dwellings may have increased marginally since the introduction of HTB above what would otherwise have been experienced in the absence of the incentive.”

The report also noted however, that the increase in the cost of properties is not solely because of Help to Buy alone. The “primary driver” was instead wider economic conditions and the continued “misalignment” between demand and supply.

Its analysis also shows that the scheme has helped the reduce the time needed to save for a deposit. 

While overall Indecon determined that the incentive hadn’t had a major effect on the cost of housing, a rise in the price of homes eligible for Help to Buy would undo any positives that come from the scheme.

It said: “If the price of new HTB units was to increase due to the incentive, the net benefit would be reduced. This highlights the risks of any demand incentive in a market where supply is constrained.”

The government has also been consistently criticised that the measure was more about increasing the cost of housing than helping people find a home. 

Róisín Shortall recently asked in the Dáil: “Will the Minister clarify what is the objective of Government? Is it to increase the price of housing to help the banks’ balance sheets?

Sinn Féin’s housing spokesperson Eoin Ó Broin recently told the Dáil that schemes such as Help to Buy “are not managing to provide assistance to working families on modest and average incomes, in particular in large urban areas such as Dublin and Cork, who are looking to buy but because of the unaffordability of prices of €320,000 and more are not able to get onto the property ladder”. 

Ó Broin has also said that despite schemes such as Help to Buy, house building remains “painfully low”.”

As is noted by Indecon, it is not possible to say that any one factor has driven up house prices but the lack of housing supply – coupled with the fact that this scheme only applies to new builds – continues to feature heavily as the cost of housing rises and rises.

And, while CSO figures do point to an increase in home building in Ireland, it still remains far less than what’s needed as prices continue to rise.

Speaking to after the measure was introduced, then-Housing Minister Simon Coveney said the new scheme is aimed at driving supply of new build houses, that first-time buyers can afford.

The new plan will get developers to realise there is now a business case to build a lot more houses targeting first time buyers, said Coveney. However, as borne out by the stats, house building simply isn’t increasing at the rate needed and despite this measure being a help to some, it is not fully having the effect that was desired.

Minister for Finance Paschal Donohoe has said any decision on the scheme’s future will be announced in Budget 2020.

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