Eoghan Murphy, the minister for housing, yesterday unveiled the details of the Rebuilding Ireland home loan scheme. Under this latest plan the government will use a fund of €200 million to help local authorities provide mortgages to people who have been turned down by banks.
The loans, which will be at lower-than-market rates, will be available to first-time buyers of properties worth up to €320,000 in the greater Dublin area, Cork and Galway, while the ceiling in the rest of the country will be €250,000. The scheme will be reserved for borrowers with an annual gross income of no more than €50,000, or €75,000 for couples, and will apply to first and second-hand homes and also to the construction of self-builds.
Doubtless there is a cohort of people trapped in the grey area of being unable to secure a mortgage while still being ineligible for social housing who will welcome this latest initiative to tackle the housing crisis. However, the scheme may well cause more problems than it solves, not least by distracting focus from the real crux of the problem — there simply isn’t enough existing housing stock available to deal with demand, nor is there anything approaching a sufficient amount of affordable and social housing being constructed. There is a worry that this plan is going back to the days of helping people buy over-priced houses rather than bringing the cost of housing down.
The reason people cannot get on the property ladder is because of a market failure to increase this supply. For instance, the reality is that this announcement will have a marginal effect in Dublin as there is a dearth of properties for sale and only a handful for €320,000 or less. It might have a more pronounced effect in areas outside the capital but not much more.
The securing of a mortgage is only the first obstacle; buyers will then be pitched into the increasingly torrid marketplace where there is ferocious bidding on the limited amount of properties for sale. Increasing the supply of housing must be the main objective of this government, yet this will only be expedited by a holistic approach, if it is to effectively repair a broken market that has been dysfunctional for the past decade as a result of the property and construction crash and the collapse of the banking system.
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The government should ensure that a proper planning process is in place that is efficient and dependable. While handing the local authorities this new responsibility it should be noted that, three weeks into the new year, there is still no definitive figure on the number of homes directly built by each of the local authorities last year. There are still huge issues with the planning process and the availability of affordable zoned land. Only when these problems are sorted can the government hope to address the pent-up demand for new housing units.
The hard-left parties in the Dáil are calling on the government to step into the role traditionally filled by the private sector in the construction of housing. Housebuilding is capital intensive and requires expertise. The government does not possess the financial or other resources needed to address the shortcomings in the property market.
If the supply of credit and the supply of housing are both working efficiently, then most people should be able to get on the property ladder. There is, however, a role for the state in the provision of social housing.
It is going to take a few years before Ireland has a functional housing market. Policies such as the one announced by Mr Murphy are largely window dressing until we reach that point.
Crucially, the government must remain focused on ensuring the fundamentals of the housing market are sound, and this will only happen when the massive demand for social and affordable housing has eased.