Comment: Shared equity schemes will not deliver affordable homes

The first big test for Darragh O’Brien as Minister for Housing will be the launch of his affordable homes scheme in September.

Within days of taking office he promised to deliver homes at “prices in the region of €160,000 to €250,000 on a shared equity basis”.

Neither the Fianna Fáil election manifesto nor the new minister’s subsequent statements on the matter provide any detail as to how this will be done. In fact, O’Brien’s most recent comments suggest he is moving away from the direct delivery of genuinely affordable homes by local authorities and approved housing bodies.

On August 20, in a rather confusing briefing to the Irish Independent, he appeared to embrace industry calls for a government sector shared equity scheme for private house purchases.

This would be a significant policy shift and represent a backward step on the already underperforming affordable housing scheme of Eoghan Murphy, the former housing minister.

The outgoing government’s affordable housing plan promised to deliver 6,000 homes over three years. Budget 2019 included a €300 million serviced-sites fund to deliver these homes through to 2021.

The scheme is way behind schedule, with no affordable homes delivered to date and just 50 likely to be completed next year.

Under this scheme councils apply for funding to cover land and site-servicing costs for the direct delivery of affordable homes or in partnership with private developers. Homes are built on public land and made available to buyers approved by the council according to income and local connection criteria.

The homes are sold at a discount, with the local authority retaining an equity stake in the property. This must be paid down either over the lifetime of the mortgage or in a lump sum on sale or death.

Dublin City Council and Bartra will deliver homes using the serviced-sites fund in O’Devaney Gardens, Dublin 7. The developer will sell the homes for €360,000 with the Council taking a 14 per cent equity stake to the value of €50,000.

The purchaser brings a deposit of €31,000, a mortgage of €279,000, and must repay the council‘s equity stake. The value of the equity stake will rise and fall with the market value of the property.

Whether the new Housing Minister will continue this scheme in its current form or amend it is not yet clear. Since the general election, however, there have been growing calls from the private sector to extend the shared equity model to their developments.

In March a new lobby group called Irish Institutional Property (IIP) published a proposal for a shared equity scheme aimed at “bridging the housing affordability gap”.

IIP is headed by Pat Farrell, former secretary general of Fianna Fáil and one-time chief executive of the Irish Banking Federation. It members include Cairn, Hines, Kennedy Wilson, Glenveigh and Hibernia Reit.

In one example provided by IIP, an apartment costing €400,000 would involve the state taking out an equity share of €117,500. The buyer, with a gross income of €75,000 and a 5 per cent deposit of €20,000 would service a mortgage of €262,500. The equity loan would be repaid over 30 years, interest free for the first five years and then at 1.75 per cent index lined to CPI +1 per cent for the remainder.

The IIP proposals set a maximum property price of €400,000 outside Dublin and €450,000 in the capital. It also included a shared ownership variant in which rent would be paid on the state’s 40 per cent charge on the property at 1.75 per cent of the share value annually.

In May of this year, Ibec’s lobby arm for the property sector, Property Industry Ireland (PII), launched a similar, though more detailed, proposal called the Irish Equity Loan. PII’s council includes leading property industry figures from Sherry Fitzgerald, KPMG, Sisk, the O’Flynn Group and Glenveigh.

In one of its examples, a couple with a gross income of €90,000 would purchase a property in Dublin for €460,000. They would combine a deposit of €46,000 with a mortgage of €315,000. The remaining €99,000 would be funded by the government equity loan repayable from year one. No interest would be charged until year five at 1.1 per cent with no indexing.

Like the government serviced-sites fund, both the IIP and PII equity loans are set as a percentage of the future value of the home rather than the initial capital sum.

While IIP and PII were busy beavering away quietly in the background, a little celebrity glamour was added to the campaign for shared equity loans. In June, the Sunday Times reported that Bono had sought and secured an online meeting with Minister for Finance Pascal Donohoe for a series of leading property industry figures.

High-profile developers such as Seán Mulryan, Paddy McKillen and Michael O’Flynn are reported to have argued for a shared equity model. They wanted the state to act as the “buyer of last resort” to “protect and underwrite demand for apartments”.

While the proponents of the private sector shared equity loan say its purpose is to make housing more affordable, the opposite is the case. All three shared equity schemes lock in high prices, permanently. They are simply a ruse to circumvent the Central Bank’s mortgage lending rules.

Government would do well to read the 2013 report from the Housing Agency on the shared ownership schemes that operated from 1991 to 2010.

While different in details, they share the same core principal: facilitating access to credit for modest income households to buy overpriced homes.

The report found a long list of problems with the earlier schemes, including a mortgage arrears rate of 51 per cent. By 2017 shared-ownership homeowners were four times more likely to be in arrears than those on standard mortgages.

Shared equity schemes do not deliver affordable homes. They shift the risk of development onto working families and the taxpayer.

They also conceal the real problem: our broken private sector model of residential development in which inflated land, finance costs and developers’ margins deny working people access to genuinely affordable homes.

The only way Minister for Housing Darragh O’Brien can deliver genuinely affordable homes at €160,000 to €250,000 is by building public homes on public land and selling them at cost, with no hidden shared equity charge.

If he embraces the developers’ call for a government-funded shared equity scheme for overpriced private homes, he will be even less successful than his predecessor Eoghan Murphy.

Eoin Ó Broin is the Sinn Féin spokesman for housing and a TD for Dublin Mid-West.