The Republic’s shared-equity housing scheme has not even started and already it has rendered the laws of economics too offensive to mention.
Under the scheme, part of the new Affordable Housing Bill, a first-time buyer of a new-build home can ask the State to take up to a 30 per cent stake in the property.
A budget of €75 million has been allocated for the first year of operation and 8,000 households are predicted to use the scheme in its first two years.
At the Oireachtas housing committee on Tuesday, Conor O'Toole, a senior research officer at the Economic and Social Research Institute, mentioned the obvious inflationary potential of the Government helping to bid up prices.
The scheme might look small compared with the overall housing market but it is almost a quarter the volume of the first-time buyer market, which sets the baseline for everyone.
O'Toole's reward for raising this incontrovertible point of supply and demand was an indignant scolding from Fine Gael and Fianna Fáil TDs and senators. Did he not want low-income families to get onto the housing ladder?
There is something unique to Irish politics about this exact form of sentimental outrage but otherwise it is all very familiar from a UK perspective.
British policy
The shared-equity scheme has been copied wholesale from a British government policy, help to buy, that has run with regional variations since 2013.
The Conservative chancellor who introduced it, George Osborne, was relaxed about its inflationary impact. Part of his aim was to kick-start a first-time buyer market perceived to have stalled after the 2008 financial crash. The scheme was never intended as a long-term solution to affordability: it will end in 2023. It is also designed to benefit from the government's equity stake rising in value.
Reports from the UK’s audit office and others subsequently found the inflationary aspect has been large enough to undermine affordability for everyone. Estimates of this effect have varied from a trivial 1 per cent to as much as 15 per cent. New-build houses in England attract a 20 per cent price premium the scheme is widely seen to underpin, if not to cause in its entirety.
The real scandal surrounding help to buy has been the soaring profits of Britain’s nine major housebuilders. Since 2013, their margins are up by a third and their payouts to shareholders have risen 40-fold. There is clear evidence the government scheme has driven this and poor evidence of it increasing housing supply. Housebuilders have been accused of constraining supply to capitalise on the higher prices, although they have blamed the planning system in turn.
There is no question the scheme has failed people on low incomes. Prices across most of England are so high that only the better off can afford the minimum 60 per cent stake, so the sharp-elbowed middle classes have taken over, assisted by the bank of mum and dad to pump further inflationary demand into the system.
Irish Ministers say their scheme will avoid this by using price and income caps and geographic variations. The UK did the same, to no avail. The average purchase price of a new-build, first-time home in Dublin is 19 times the annual minimum wage.
Minister for Housing Darragh O’Brien says the scheme will increase housing supply “by bridging the gap between the maximum mortgage that might be available to a household and the actual cost of a new home”.
This is Osborne’s kick-starting argument and still constitutes inflationary pressure.
Property developers donated £11 million to the Conservative Party last year, causing public and political disquiet about help to buy's role in fostering a mutually dependent relationship. How can any country, let alone Ireland, avoid the same outcome?
Fine Gael and Fianna Fáil are in danger of erecting not houses but another enormous Galway tent, for the electorate to stare into aghast.
Starter-homes initiative
If they wanted a British policy to follow, they could have looked at the 2015 starter-homes initiative, where the government would have ordered 200,000 new homes from private developers them sold them to first-time buyers at a 20 per cent discount. This failed to get off the ground because banks would not co-operate, claiming mortgage valuations were impossible. Could Ireland do better? The promise of the idea remains intriguing.
The UK’s co-ownership scheme, operating since the 1970s, is a mix of owning and renting via housing associations. Market experts predict it will comfortably supplant help to buy from 2023. It appears politically and economically benign, although perhaps more because it is a social enterprise than because it is not still pumping public cash into private housing.
Co-ownership is the flagship affordable housing policy of the Northern Ireland executive and considered a modest success, which someone in Dublin ought to have noticed.
Help to buy was closed in the North in 2016. Even before the renewable heat incentive scandal broke, Stormont could see some schemes from England were too flawed to adopt.
Imagine mentioning that at the Oireachtas housing committee.