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THE HOUSING MEASURES announced by the Government in the Budget have received a mixed reaction.
One of the main talking points was the help-to-buy scheme for first-time buyers.
When announcing details of the Budget yesterday, Finance Minister Michael Noonan said: “The scheme will provide a rebate of income tax paid over the four previous tax years up to a maximum of 5% of the purchase price of a new house up to a value of €400,000 to first time buyers of new houses.
“Pro-rata rates will apply to lower priced houses. A full rebate calculated on €400,000 will also apply to houses in excess of €400,000 and up to €600,000. No rebate will be paid on houses in excess of €600,000.”
The initiative will apply to new builds only. Noonan said it will help first-time buyers save a deposit. He said he expected the building industry to increase the supply of new affordable homes in response.
The move was welcomed by the Construction Industry Federation, which said that the scheme will help to address “the chronic lack of supply in new builds”.
However, a number of economists have warned the scheme is likely to lead to a jump in property prices as it will increase demand.
David McWilliams didn’t hold back in his Irish Independent column today, saying all the good work done to halt a second property crash was “undone in a day”.
Speaking to TheJournal.ie today, Dr John McCartney, Director of Research at Savills, said the scheme is better for developers than buyers.
There are not enough housing units to go around. First-time buyers are competing with each other. If you give them each €20,000 on the same day the likelihood is that they’re going to react by each bidding more until the €20,000 is exhausted and ultimately the price will go up and up.
“Some people will still be disappointed and the people who win the bidding war will do so at a higher price point.”
McCartney noted the Irish housing market, including social housing, is based around the private sector and, in order to increase supply, building houses needs to be worthwhile for developers.
“We do need to incentivise developers to build because at the moment it’s not worthwhile for them.”
Cutting VAT
McCartney said an alternative to the approach taken by the Government would have been to cut VAT for developers, noting the positive impact the 9% rate has had on the tourism sector.
However, he noted the “optics” of this would not be good.
At the moment the Exchequer is not making any money from new homes anyway, it’s not a big stream of income to forfeit. The problem with that – the optics of cutting VAT – is that it’s very overtly a subsidy to developers.
He added that the approach taken by the Government, although it is likely to increase house prices, is “more palatable from a political point of view”.
“It’s a pity the minority government did not feel empowered to just make the simple argument of ‘Get over yourselves, the practical reality is we need the private sector developers to build’,” and cut VAT, he said.
On Today with Seán O’Rourke, Noonan defended the scheme, saying it will help young couples who are struggling to save a deposit for a house. Noonan described the scenario faced by people trying to get onto the property ladder as “like climbing a sand hill”, saying the rent they have to pay is “a drag on their savings”.
On the same programme, a woman criticised the first-time buyers scheme, telling Noonan her price range is €120,000 to €160,000, meaning she can’t afford to buy a new build.
Noonan told her the scheme is “designed to help people like yourself put the deposit together”, but she wasn’t convinced.
The minister said the purpose of the initiative is to increase the supply of housing and if he applied it to second-hand homes it would benefit sellers rather than buyers.
Homelessness
As part of the Budget, an extra €105 million is to be allocated for the Housing Assistance Payment (HAP) scheme to deliver 15,000 tenancies. A €28 million increase will see some €100 million being spent on emergency accommodation.
McCartney said while extra funding is to be welcomed, the current housing crisis boils down to a lack of supply, noting many people are in “a really difficult situation”.
He said the increase in HAP funding is “in principle giving renters more money, but not increasing units”.
McCartney said even if people receiving social welfare payments can now pay more, they are still likely to be outbid by other people who can afford to pay more rent.
One positive from the Budget is that we will get more units built. Once builders start building they can start making working capital and will build more. Pretty quickly that becomes self-sustainable.
The Peter McVerry Trust was among the homeless charities to welcome certain aspects of the Budget, but criticise others.
In a statement, the organisation welcomed the additional €28 million allocated to provide additional emergency homeless accommodation, saying: “The new funding is recognition by Government that we need to increase the availability of suitable emergency beds for those in need and to ensure that we respond to the rising numbers in homelessness.”
It also welcomed the additional €105 million allocated towards the HAP scheme, but added: “The impact of this funding and the HAP scheme in general is being eroded because of unrestricted increases in the cost of renting and the lack of security of tenure for tenants.”
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How the hell will it help someone from the west of Ireland, or for that matter 90% of Ireland where there are no new builds at the moment. This is a 20 grand handout for builders no matter what way you look at it. FG/FF are well on the way to destroying this country yet again!
@PaulJ: If I look at daft.ie where I live and so a search for “new homes” – There are none within a 10 mile radius and THREE new homes within a 30 mile radius.
@PaulJ: “The move was welcomed by the Construction Industry Federation” tells you all you really need to know.
Noonan prefers the interests of property developers and builders to the interests of ordinary home buyers.
Yesterday, Noonan let slip that he had been influenced by Tom Parlon of the Construction Industry Federation in the design and implementation of this proposal.
He also said, hilariously, that Tom Parlon said that the measure will not increase new house prices!!!
@Micheal OLainn:
If you cut VAT, you are completely dependent on the goodwill of the developers to pass on the saving.
And what are the chances of that?
Oil is a third of what it cost three years ago. Are heating bills down by 66%? Are they f***.
Karl Deeter was excellent on this question on Vin B last night. Only 24% of buyers are first time buyers today – down from 50% in 2007. Only 2% of those are new builds.
This will not start a “bidding war” because not enough people have been given the extra cash – just first time buyers and just for new builds.
It helps the very people who were shut out by the Central bank rules – first time buyers. It will increase the number of potential buyers for new builds, thereby incentivising developers to build more.
out of interest, is there still a lobbying register that publishes meetings between lobby groups like parlon’s and government bodies. i hope someone in responsible is ensuring that lobby groups are not bribing officials for influence.
Also hilariously Noonan assured RTE drivertime that Parlon and the CIF would act in the “national interest”. Whispering Mickey has moved beyond satire in his eternal defence of the wealthy and powerful.
@Billy Mooney: Agree with you here, the CIF are a powerful lobby group – just like the unions you know………………….
More money in the hands of Parlon’s parasites is bad news for everybody else. More money in the hands of the working class which the unions represent is good news for everybody.
@Brinster: I don’t ratecKarl Deeter. He is a mortgage broker and he is too polemical and pro property promotion. I disagree with his criticisms if the Central Bank deposit requirements and loan to income restrictions. Vested interests have an agenda and it is nit an agenda which favours buyers. Likewise with Tipom Parlon of the CIF.
There is enough people bidding for a very limited supply of new properties. The people consist of would be first time buyers and also people trading up from apartments and badly situated properties. It is a buoyant and highly competitive market because there are vastly more prospect buyers, huge demand, relative to limited supply.
More people buying will not incentivise builders and developers. Increased property prices will incentivise builders but at the expense of increased prices and those increased prices mean that buyers will be paying more, even after tax relief. It’s all about increasing prices putting more money into the pockets of developers.
I have noticed your strong pro FG stance and your commitment to market solutions.
Large mortgages and high rents evaporate wealthnfrom ordinary people up,to the super wealthy.
Tom Parlon said on a Newstalk interviews some weeks ago that his members would have to increase prices! Cant trust any of them.
A question: Would you trust or believe anything Noonan says?
Noonan defends everything that his friends make money on. What’s new.
The only way to reduce price is to increase supply. Make it easier to build high rise and prices will drop.
As always, the least effective measures come first. They felt they had to give something, anything, whether it works or not. As long as it doesn’t adversely effect the developer/auctioneer/banker triad.
The fact that it is for new builds makes it so blatantly obvious that this is for the builders and developers only. If truly it was for first time buyers then why should it be restricted to new builds only? Unless Noonan thinks that young families should live in the boonies far from their places of work?
@John B: very telling that on new builds.
John B, it should have included second hand houses as well, that would increase available houses to first time buyers and older people rattling around in large houses (like myself) where the kids are grown and flew the nest would seriously consider downsizing. This new build only restriction is – as you say yourself – benefits builders and developers only.
@molly coddled:
It’s a supply side incentive – that’s why it is restricted to new builds. It’s an attempt to address the lack of supply.
The number of second hand homes is fixed. Therefore the only way to increase the number of homes is to incentivise new builds.
They trialed this in the UK where it applied to both new and second hand homes. It didn’t work. This is a tax refund given to the applicant and not a tax break given to developers.
Amazing the number of people who all of a sudden want tax breaks for developers…..
@Brinster: the problem is that it is a demand support at a time of extremely limited supply.
Supply side incentives work by increasing prices paid by buyers so that developers come back into the market looking fir large margins of up to 35% and more which they received during the property bubble.
Th long term solution is to release development land at much cheaper prices. There is too much hoarding and no tax incentive to sell in the form of a land use tax.
Sully side incentives means giving developers more money.
A leaving cert economics student could tell you what this will do. Increased demand with no increase in supply = increased prices
Tell the leaving cert student to listen to those who know more.
Higher prices will stimulate supply.
… and increase the crippling debt burden on buyers while that odious lizard’s mates get more wealthy..
Fred, the leaving cert students learn how to add 2 + 2 to make 4. what you are suggesting is for them to ignore what they have learned, and listen to people who are telling you they know more, but try to convince you that the answer is 3 to simple questions like the former.
I think its emerging now that a lot of the “relief” measures the gov introducted in the budget won’t apply to a large number of people, and the gov knows this, so it won’t cost this lousy gov as much as they are letting on. Same for the childcare measures that won’t apply to a lot of people.
Its like giving people a gift voucher to spend on a shop and the shop is in Africa, or it went out of date last year.
They did the same with the relief for the flooding victims, pledging to compensate people who lost their homes with millions, but then introducted burocrary and form filling which resulted in an average payout of a little over one thousand euros or else people weren’t eligible.
And the 5 euro welfare increases, apply in March, so its only around a 3.80 increase.
Seriously, this crowd are atrocious.
Wait until next March and they’ll be making excuses to delay the increases till next July, over a one or two euro increase for people, yet they don’t think twice about giving themselves 4 figure pay rises.
They’re a disgrace.
how he can defend this is beyond me. This will create extra revenue for the government, extra lining for developer’s pockets, while prices go up. The only thing 1st time buyers get here is loaded with extra debt over the lifetime of the mortgage. But thousands of people out there are in need of housing and the government know this, they want to stimulate revenue only, have no interest in helping young families. Also extremely disappointed to see zero help for people who want to trade up or are in between homes,
“we need to incentivise builders to build because at the moment it is not worthwhile for them”…eh…maybe cut VAT for developers/builders on new builds? that’s too logical, too simple, most beneficial for all and makes most sense but it means less populist votes, let’s go with the grant that will ramp up prices and throw the market into disarray.
If you can afford a starter home up to 600k you don’t need a grant!
Noonan is a rotten bturd.
If you don’t already own a house, pay no additional tax. If you already own a house, add 10% tax. If you already own two houses, add 20%. 3 houses, 30%. You get the picture. I don’t doubt it has its faults but I was only 13 years old when I thought it up.
In my experience, any Govt. benefit to first time house buyers is just an excuse for builders/developers to boost up the price. Check the projected price for current housing projects in and around your area and see what they’ll eventually cost from January next year.
I’m pretty sure our Govt. owned banks will stall any recent mortgage applications, until they see “what way the future markets go”.
@Mercurial One:
Can you elaborate on “your experience” of Gov benefits to first time house buyers?
Is it extensive?
Which Govs? Which countries?
@Brinster: What are you asking me these questions for. It’s just a personal opinion on a comment board and not a financial marketing survey
Referendum on “Right2Home” needed else this mess will recur again & again for your kids and grandkids …
https://www.change.org/p/referendum-on-right2home-in-ireland
To be fair to Michael Noonan, the whole point of this is that the prices increase to the point where housing can be built profitably. It’ll lead to bidding wars by design.
German constitutional law treats property (homes) as a derivative, or instrumental, value in the general constitutional scheme. It strongly protects a particular property (home) interest only to the extent that the interest immediately serves other, primary constitutional values, in particular, human dignity and self-governance.
“The impact of this funding and the HAP scheme in general is being eroded because of unrestricted increases in the cost of renting and the lack of security of tenure for tenants.”
thats it. when will these pr***s ever get it? oh right, landlords, connections.
ill just leave this here > http://www.independent.ie/opinion/columnists/shane-ross/landlords-of-leinster-house-declare-interests-31153379.html
Rent Controls now!
Do you actually bid on new builds? I thought the prices are set before the houses are released to the market.
Land was bought at inflated prices during the boom years, the undeveloped land should be taxed but this would result in further losses to the banks etc. The budget initiative puts money into developers hands addressing the cost base and in incentivizing developments. I do not agree with this approach.
have your say