Consultants have urged Minister for Finance Paschal Donohoe to replace the €200 million help-to-buy housing scheme, saying the scheme is “socially regressive” and does not offer value for money to the State, but should not be dropped immediately.
Mr Donohoe published a July report by accountants Mazars on Tuesday after saying in his Budget 2023 speech that the help-to-buy scheme would be continued at current rates until the end of 2024. In it, accountants Mazars said the scheme should be withdrawn but not immediately.
“The scheme promotes demand for new housing in a market where the problems that exist are unequivocally supply constraints,” Mazars said, adding that the measures were “poorly targeted with respect to incomes, location, house prices and other socioeconomic factors”.
The help-to-buy system allows first-time buyers to apply for a refund of income tax paid in the four years before they apply for the incentive, the aim being to help people save for a deposit to buy or build a home.
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But Mazars said measures likely to cost €200 million in 2022 had “socially regressive impacts”, with relief provided in general to higher-earning people. The scheme was supposed to tackle the shortage of housing output and affordability issues but such problems “have intensified” with increasing deficits and higher prices.
“Almost half of the funds that have been spent are deadweight, in other words, they play no part in achieving an objective of the scheme. This is particularly the case in respect of self-builds where over three-quarters of the expenditure is deadweight.”
Mr Donohoe said the Government would consider recommendations from Mazars in future budgets, saying the measures introduced in 2017 had benefited 35,000 people.
‘Considerable risks’
Although Mazars found the help-to-buy scheme “should be withdrawn”, the firm said now was not the time to do so.
“A rational approach would not design the scheme as it currently exists, but there are considerable risks with ending the scheme. Retaining and revising the scheme is one option, but the use of a tax expenditure as the appropriate mechanism is questionable,” the report said.
“Furthermore, it is considered that the extent of revision that would be required would effectively amount to the design of a new initiative.”
Problems the scheme sought to address remain and the specific issues it sought to resolve were “not likely” to be addressed by the Housing for All plan but there were “considerable risks” to ending the scheme.
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Simply allowing it to expire at the end of 2022 would be “very disruptive” when rising prices and the prospect of an economic slowdown were already increasing risk perceptions.
Mazars said the scheme should be extended in its current format for two years but finish at the end of 2024. It added that self-build homes should be excluded for applications from the end of 2022.
It went on to say the minimum mortgage loan-to-value should be increased to 80 per cent from 70 per cent from the end of 2022 and called for a disincentive for purchasers “who do not need assistance”.
Promoting demand
The report said the Department of Finance raised concern about the scheme promoting demand instead of supply before it was introduced but said “no alternative” or the use of a tax expenditure mechanism was discussed.
“There were also concerns expressed when it was introduced that it can be difficult to remove schemes such as this once they have become part of the operation of the market,” Mazars said.
“This has clearly been the case as its operational life has been extended a number of times and the original conditions that constrained expenditure have been relaxed. This was not foreseen in appraisals of the scheme previously undertaken.”
Spending on the scheme has “far surpassed” projected values and was rising rapidly, the report added.
“This trend appears likely to continue and may accelerate. This is the result of a number of factors including the growth of the output of new housing, the impact of the enhancement and an in-built underestimate in the original projection.”
