ESRI claims shared equity schemes risk driving up prices

Shared equity schemes like the Government’s €75 million home-ownership programme risk driving up prices and worsening affordability issues, the ESRI will tell an Oireachtas committee on Tuesday.

The think-tank is among groups giving their feedback on Minister for Housing Darragh O'Brien's Affordable Housing Bill to the committee on housing.

ESRI researchers Conor O'Toole and Rachel Slaymaker will argue that a shared-equity loan scheme will be a benefit "in theory" as it would facilitate borrowing for households currently constrained by the amount needed to finance a purchase.

A shared equity scheme, which involves the State paying for up to 30 per cent of the cost of new houses in return for a stake, is intended to drive home ownership. However, the ESRI researchers will say that the current housing situation in Ireland is "so constrained" that increasing purchasing power for households through a loosening of credit constraints entailed by such a scheme "will very likely lead to higher house prices".

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“Such rises in house prices are likely to exacerbate affordability problems down the line,” they will tell the committee in their opening statement, pointing out that shared equity schemes work by stimulating more demand in the market rather than by targeting underlying supply issues.

While they would lower credit constraints and allow buyers to finance home purchases who would otherwise be locked out, the pair conclude that “on balance, with the current supply shortages it is likely these benefits will be outweighed by inflationary pressures”.

“The most successful interventions over the medium to long term will be those that operate through the supply and not the demand-side of the market.”

The financing of the scheme at budget time last year, through a €75 million contribution from the exchequer, was strongly resisted by senior government officials, documents from the time show.

One of the State’s most senior officials warned that the building industry had lobbied for such a scheme “because it would increase prices”.

Affordable price

In a letter to the Department of Housing, the Department of Public Expenditure warned that “it does not appear that the policy proposal has been sufficiently analysed”.

“Specifically in terms of addressing need, an effective affordable housing policy would deliver the right types of units in the right location at an appropriately affordable price.”

Department of Public Expenditure officials also noted at the time the department’s view was that “it will push up prices in a supply-constrained environment, most likely at a time when prices are starting to rise anyway”.

The Housing Agency, which is also giving evidence during Tuesday's pre-legislative scrutiny, will tell the committee that it "supports the principle" of equity being provided to moderate-income earners.

The agency will also give an update on the State's first "cost rental" scheme, which is expected to be completed in Stepaside, Dublin, this summer.

Cost rental, which involves State-backed projects that supply rental units significantly below the market rate, will be described as a “very welcome addition to the market” by the ESRI.