On Tuesday December 22 Darragh O’Brien, the Minister for Housing, secured cabinet approval “for the priority drafting of the Affordable Housing Bill 2020”.
Despite having promised to publish his affordable housing plan complete with targets and legislation last September, it appears that the legislation hasn’t even been written yet.
What we do know is that a shared equity loan scheme will form the centrepiece of the Bill. In fact this is the only part of the new Government‘s housing policy that differs from Rebuilding Ireland, the Fine Gael plan that runs to the end of 2021.
Under the new scheme, first time buyers and those who lost a property due to relationship breakdown will be eligible for a secondary loan from a new state agency. The loan will cover up to 30 per cent of the value of the home to a maximum of €100,000. There will be a property price cap of €400,000.
The buyer will also be able to avail of the existing Help to Buy tax relief from Revenue, though not to the full €30,000.
Borrowers will start paying the secondary loan after five years at an interest rate of 1.5 per cent.
The State’s equity share will represent a percentage of the market value of the home. Where the property value increases so to does the owner’s liability to the state.
The scheme is closely modelled on proposals published by two industry lobby groups earlier this year.
Irish Institutional Property, who represent 14 of the biggest players in the property industry including Cairn, Hines, Glenveagh, Kennedy Wilson and Hibernia REIT, published a shared equity loan proposal in March of this year.
Led by former Fianna Fáil general secretary, senator and ceo of the Irish Banking Federation, Pat Farrell, IIP’s scheme proposed a 30 per cent secondary loan, with repayment commencing in year six at 1.75 per cent interest.
Ibec’s property wing, Property Industry Ireland, published a similar proposal in a discussion document called The Irish Equity Loan in May 2020.
Their loan was for between 25 per cent and 30 per cent of the market value of the property, with loan repayments kicking in at year 6 at 1.1 per cent.
Both schemes are based on the Help to Buy-Shared Equity Loan scheme that has been in operation in the UK since 2013.
Minister O’Brien has rejected claims that shared equity loans lead to house price inflation. However there has been significant criticism of the UK scheme.
The House of Commons Committee of Public Accounts published a report in September 2019. It concluded that the shared equity loan did not make homes more affordable, that 60 per cent of those who availed of the loan did not need it and as the loans were unregulated they put borrowers at significant risk.
The report also said that “the large sums of money tied up could have been spent in different ways to address a wider set of housing priorities and focus more on those most in need”.
Independent research published in 2015 by the UK housing charity Shelter, found that the shared equity loan scheme did increase house prices, adding around £8,250 to the average price of a home.
Their report concluded that “while the scheme has helped a small number of people to buy [this is] at the expense of worsening the overall affordability crisis for everyone else”.
Minister O’Brien secured €75 million for his shared equity loan scheme in Budget 2021. His hope is that up to 2,000 people will avail of the secondary loan from the middle of next year.
There is some speculation that both the delay in announcing the scheme and the modest level of expenditure approved in Budget 2021 is due to the fact not everyone in Government is as enthusiastic as Minister O’Brien. The Business Post has already reported on concerns with such schemes from the secretary general of the Department of Public Expenditure and Reform, Robert Watt.
Media reports in advance of last week’s cabinet meeting suggested that up to 40,000 households could ultimately benefit from the scheme. That would see Government holding an equity stake of more than €1.5 billion in private residential property. This would represent a significant risk to the taxpayer in any future property crash.
Shared Equity Loans do not make homes more affordable. They simply increase the level of debt held by working people. At best they lock in what would otherwise be unsustainably high house prices. At worst they inflate those prices even further.
On the same day as Minister O’Brien announced the details of his scheme, Daft.ie published their property price report for Q3 2020. Prices have increased by 7.4 per cent on last year. The average price of a home across the state is €269,000, in Dublin it is €391,000.
House prices are simply too high. Increasing first time buyer’s access to credit is not the solution. That is the kind of developer-led housing policy which caused the property crash and recession in 2008. It seems that Fianna Fáil have learnt nothing from their own past.
Minister O’Brien’s shared equity loan scheme is nothing more than an early Christmas present to big property developers. It is a reckless use of taxpayers money that will push home ownership further beyond the reach of many working people.
Eoin Ó Broin TD is Sinn Féin’s spokesman on Housing and author of HOME, why public housing is the answer (Merrion Press 2019)