Sinn Féin is right to want house prices to fall. They are too high in Ireland in relation to incomes, pushed up in part by demand from the more highly-paid sectors of the economy and also by years of low supply. They are not as out of line in European Union terms as rental costs, but they do need to fall. But the reaction to party leader Mary Lou McDonald’s comments on the issues in a recent interview with this newspaper, when she said a substantial fall in house prices was needed, shows how tricky the transition could be.
The party’s politics works by setting up the “outsiders” in the economic system against the “insiders” – and hence in housing it talks a lot about the generation “locked out” of the market as opposed to the “vested interests” being looked after by the Government. And the housing market has, indeed, been rigged against the young for some years, via a combination of soaring rents and house prices out of the reach of many incomes.
Help-to-buy has become like a kind of drug to the market – withdraw the help-to-buy hit and the next group of potential buyers are suddenly priced out, even if house prices react by falling a bit
The fixes are not straightforward as more supply – the key factor – takes time. And few areas of policy are full of such difficult trade-offs as housing, with its complex relationships between the rental, new home and second-hand markets and between demand and supply in these areas.
Let’s take one area as an example – the help-to-buy scheme (HTB), which offers a tax rebate of up to €30,000 for first-time buyers of new homes. Sinn Féin has been opposed to this – and says it would scrap it, along with the newer First Home Scheme, in which the State takes an equity stake in the new home. And it is right that measures to boost demand tend to push up prices at a time of tight supply. New home prices, where the two State schemes apply, are rising at an annual rate of 10.4 per cent, according to the latest CSO data, while second-hand properties are 1 per cent down on the year. Higher costs are a factor in new home costs, too, but the State schemes are surely supporting prices.
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But HTB has become like a kind of drug to the market – withdraw the HTB hit and the next group of potential buyers are suddenly priced out, even if house prices react by falling a bit. And in turn this affects supply as developers worry about being able to build and sell at a profit.
Sinn Féin’s plan is to cut costs for house-building via other policies, up State output and thus increase supply and move the viable pricing level of the market down a bit. You can see the theory, but pulling this off will not be easy. And its policy of scrapping the schemes for first-time buyers sits oddly alongside its continued support for mortgage interest relief, a policy unwisely taken up by the Government in the last budget which is benefiting those who have already bought.
Similarly difficult trade-offs apply in the rental market. Rent controls help those already in accommodation, but discourage new supply for those still looking. And whatever new supply comes on stream, the private rented market will remain vital. Reforms can have unintended consequences for different groups, including for some of the potential younger renters which Sinn Féin is trying to attract.
A lot of these policies have emerged as fixes and stopgaps due to the underlying issue of lack of new housing supply. The Government is making some progress, with perhaps 31,000 to 32,000 house completions achieved last year. Sinn Féin says it can do better and that it can also up the supply of social and affordable homes. But it will face many of the same blockages in planning and the same conundrums in terms of how best to deliver affordable accommodation in the right places.
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As its term has gone on, the Government has gone in deeper and deeper in terms of housing policy. As well as the supports to first-time buyers, it has allocated huge State resources to a number of schemes aimed at increasing supply – and Sinn Féin promises to up this spending further. In its alternative budget for housing, spokesman Eoin Ó Broin says that in 2024 the party would have allocated an additional €1.43 billion to funding new social and affordable homes, upping delivery to 21,000 compared with the Government target of 13,700. The party says it can get things moving more quickly by changing State approval processes for new building through measures such as speeding up planning, availing of new technologies and bringing on stream vacant and repurposed properties.
While Sinn Féin’s policies differ in important respects, there is no longer a sharp ideological divide between a private and State-driven solution – whoever forms the next government will commit to throw billions of euro of State cash at the crisis. So the question for voters is twofold. Can Sinn Féin manage things more efficiently? And are its policies better?
Were prices to fall too quickly – and remember the Sinn Féin leader mentioned a figure for Dublin of €300,000 compared with a current average in the capital of €420,000 – it could be disruptive
The issue of house prices – what they should be and how to get there – will underlie the whole debate, alongside rental costs. Put together these make up housing cost levels which are among the highest in the EU. This goes to the heart of the challenge facing anyone wanting to “change” the housing market.
An ideal scenario, perhaps, might see prices drifting down as housing supply increases and becoming more affordable in real terms over a few years as wages rise. Inevitably State subsidies for new supply would be central to making this happen and to keeping housing supply and financing going as prices eased back. And remember that far more first-time buyers purchase on the second-hand market rather than buying new homes, so the prices here are important, too, in boosting wider affordability.
But were prices to fall too quickly – and remember the Sinn Féin leader mentioned a figure for Dublin of €300,000 compared with a current average in the capital of €420,000 – it could be disruptive. And, crucially, it would hit many younger people who have bought in recent years, many now facing a hike in repayments as they roll off fixed-rate mortgage arrangements, and some of whom would be pushed into negative equity. Achieving a significant drop across the housing market would also be difficult - unless the economy falls into recession.
Lower housing prices are a key part of the solution in the Irish housing market and if this disadvantages long-established occupiers by cutting the value of their main asset then so be it – prices have already surged ahead in recent years and they have done well. But making the transition to a point of greater affordability in the wider housing market – as opposed to just subsidising new homes – will be a mighty complicated task.