Housing’s vice-grip on squeezed middle not about to relent

IT’S in the context of ever-increasing house prices, slow progress on new home construction, rising homeless figures and soaring rents that Finance Minister Paschal Donohoe shaped the housing package in Budget 2018.

It includes €1.8bn in spending pledges next year, an increase in the vacant site tax to punish land hoarders, a €750m fund for builders and an additional €500m over the coming years for the social housing programme.

There are major question marks around the €750m fund, given that State money will be used to fund private housing.

There is nothing, as yet, to suggest that homes will have to be affordable, to cater for the squeezed middle who earn too much to qualify for social housing, but cannot afford to buy on the private market.

Only supply will restore some sense of normality, but what is happening in terms of delivery? Is progress being made under the Government’s Rebuilding Ireland programme? Is this crisis being solved?

On the private supply side, the latest figures from the Department of Housing show work on almost 17,000 new homes has begun over the last 12 months, a 47pc increase year-on-year. In the Greater Dublin area, work started on 10,125, up 46pc.

In terms of completions, some 17,651 homes were connected to the ESB network over the same period, with almost 8,000 in the Greater Dublin area. Units are also in the pipeline, with a 49pc rise in the number of permissions granted.

But completions are still not at the level needed to meet demand, which experts put at some 25,000 units a year. Upward pressure on prices is not just confined to Dublin, the commuter belt and Cork, where supply is returning. The number of homes built in Galway and Waterford remains low, and output in Limerick in the first eight months of the year has dropped year-on-year.

It’s too early to say if the Help-to-Buy (HTB) scheme, which is in operation since last January and allows first-time buyers to reclaim taxes up to €20,000 to help secure a deposit for a new property, is working.

A review from consultants Indecon published on Budget day says it cannot be said if the measure is boosting supply as intended.

“The HTB measure does not appear to have had any significant overall impact to date on the level of supply,” it adds, but cautions against abolishing the scheme, as it could lead to uncertainty in the market.

It also says there is no evidence that builders are hiking prices to reflect the State’s help for first-time buyers. A survey of 55 building contractors found that while 43pc had increased house prices for homes which would qualify for the scheme, most said this was due to increases in building costs. Accept that explanation, if you will.

But what the document really sets out in stark terms is just how expensive housing is. In 1991, some 70pc of householders where the head was aged between 25 and 34 years owned their own home. That’s dropped to 30pc.

It also says for a couple earning €84,000 and living in Dublin, 30pc of their income is made up of mortgage repayments. This compares with 17pc in 2012. Outside the capital, for a couple earning €75,000, it’s

25pc, compared with 15pc in

2013.

What HTB has done is help people secure a mortgage more quickly. Without it, and assuming 10pc of salary is saved, Indecon says it would take a couple earning

€85,000 3.6 years to save the deposit required to buy a

€303,000 home. With it, that drops to 1.8 years.

But HTB isn’t much help for those priced out of the market. They’re at the mercy of the rental sector, and there’s a plethora of problems there too.

There is “clear evidence” that the market has failed to supply rental properties which is affecting prices and increasing demand for State housing supports, a report on the tax treatment of landlords says.

Some 18pc of all households rent in the private sector, more than at any time in the last 45 years, but prices have risen by 56pc since a low point of 2011 and are now 13pc above boomtime levels. One in eight taxpayers, or 180,000, are landlords, but most own just one or two properties. Many are in mortgage arrears.

The report suggests this market failure threatens economic recovery, driving up wage demands, affecting competitiveness, and limiting the ability of households to spend in other sectors of the economy.

There are measures in place to boost supply, including funding to upgrade vacant homes and lease them for social housing, as well as the Living Cities Initiative and Home Renovation Incentive which provides a tax break for improvements, but these are not being taken up. While rent caps are in place, limiting increases, only supply will dampen price inf lation.

On social housing, units are slowly coming on stream. Some 11,000 homes across

697 local authority and approved housing body projects are being funded, with 160 projects on site, which will yield 2,700 units. In Budget 2018, the Government said it would fund more homes. Some

2,000 were due to be delivered in 2018. This will increase to 3,800. Rebuilding Ireland targeted 47,000 social homes by 2021. That’s increased to 50,000. Building is happening, but slowly. Those in the middle will be squeezed for some time yet.