Government is now a property octopus with tentacles everywhere

Rolling Stone magazine once famously described Goldman Sachs, the world’s most powerful investment bank, as a “great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”.

It was a reference to Goldman’s role in the 2008 financial crisis and the speculative property bubble that blew the doors off the global economy.

Not to say the Government’s role in property here is anything like Goldman’s but it has become something of an octopus, with tentacles everywhere.

In its own eyes, it is endeavouring to make things better, to smooth the rough edges of the market. For critics, it has become a meddlesome beast, laden in bureaucracy and prone to changing policy on a whim. A key complaint about Ireland from investors is the high level of policy uncertainty.

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The sheer number of schemes and measures the Government now presides over is hard to get your head around. On the demand side, it bought about a third of the 33,000 units that came on stream in 2023 for its social and affordable housing programmes through local authorities, approved housing bodies (AHBs) and the Land Development Agency (LDA).

It also operates three property purchase incentive schemes – Help to Buy, First Home and a Local Authority Home Loan scheme.

Designed ostensibly to assist young people trying to get on the property ladder and arrest declining rates of home ownership, the schemes are also there to guarantee prices for developers to elicit more supply.

On the rental side, the Government plays an even bigger role through its various rent support schemes, the biggest one being HAP (housing assistance payment).

The last estimate – from 2020 – suggested that 54 per cent (almost 300,000) of renting households in the Republic received some kind of State support to help with the cost of housing, double the number two decades ago.

The shift from building homes to providing rent supports – the so-called bricks to benefits switch – has been one of the defining features of European housing markets. The Government now spends close to a €1 billion a year on these supports.

The Government also sets the limits for the rent pressure zones (RPZs) – the system of controls that caps annual rent increases at 2 per cent or the level of inflation (whichever is lower).

The rent cap was changed from 4 per cent to 2 per cent in 2021, a change that investors now claim is too onerous and which the Government, in the face of a slowdown in institutional investment, is likely to review again when current system expires this year.

On the supply side, the Government’s role is even more pervasive. Total State, or State-backed investment in housing last year was approximately €5 billion. Direct capital investment through the Department of Housing was approximately €2.7 billion.

The bulk of this – €1.86 billion – went to local authorities and approved housing bodies via a series of funding schemes – the biggest one being CALF (Capital Advance Leasing Facility), which supports building and access to borrowing through the Housing Finance Agency for social housing plus the leasing and purchasing of social housing units.

The Cost Rental Equity Loan (CREL) scheme, meanwhile, funds the development of the Government’s new cost-rental programme, where tenants pay discounted rents that cover the costs of delivering and managing the homes only.

There is also the Local Infrastructure Housing Activation Fund (to relieve critical infrastructure blockages), Croi Conaithe Cities (a fund to support the building of apartments for sale to owner-occupiers) and Project Tosaigh (to kick-start stalled developments).

The LDA, which builds on State land (mainly in partnership with private developers) and aims to deliver 14,000 new homes over the next three years, is the Government’s main vehicle to produce more affordable housing. It currently has access to €2.5 billion of equity capital from the Ireland Strategic Investment Fund (ISIF), €1.25 billion of borrowings as provided for under the LDA Act, and a further €1.25 billion that can be raised by the LDA through the performance of certain functions.

The fire sale of assets via Nama (National Asset Management Agency) and the influx of private rental sector investment from 2012 were facilitated by government policy, which included a capital gains tax (CGT) amnesty for investors (who held on to land) and the introduction of new legislation setting up property Reits (real estate investment trusts), which bought assets.

We have now reversed out of the CGT amnesty because of land hoarding, switching to the opposite policy measure: a vacant site tax.

There is a third tier of intervention in the form of tax breaks and allowances designed both to help buyers and offer incentives to those building homes. Tax reliefs cost the exchequer due to revenue forgone.

The recent extension of the waiver on development levies triggered an acceleration in housing commencements but it is unclear how many of them will materialise into actual homes. There is also a new landlords’ tax credit, mortgage interest relief and a renters’ tax relief.

It’s hard to imagine a bigger kaleidoscope of policies and measures sitting beside any property market in the world.