Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

We have moved from the amendments into the substantive issue. The measure is being introduced as one part, and indeed a small part, of many actions to develop a fully functioning housing market that responds adequately to the needs of our citizens. They are all included in Rebuilding Ireland, the action plan for housing and homelessness which was launched last July. Every Deputy in the House knows the importance of repairing the construction sector and taking across the board action to increase the supply of houses. It was identified at the housing committee of the Dáil that this should be a priority, and it is a priority in the programme for Government.

Implementation of the plan is being led by the Minister, Deputy Coveney, and the Department of Housing, Planning, Community and Local Government. There is cross-departmental support for this. It is a huge issue. It is probably the biggest issue facing modern Ireland at this point in time despite all of the other difficulties around. The comprehensive action plan takes an holistic approach in addressing the many interacting structural constraints affecting the housing market in areas such as planning and land use, as well as regulation and skills deficits in the construction sector. While the primary focus of the action plan is to tackle structural constraints, fiscal supports can play a supporting and time bound role in addressing the current problems in the housing sector. It is in this context the help to buy scheme should be considered. Its role will be to complement the other measures in the action plan.

As to the extent to which the scheme could lead to an increase in residential property prices, there may be an increase but it very much depends on the speed and efficiency with which the industry responds. My background was as a teacher. When I got married at 26 years of age I was able to raise the money to buy a house, as were people in my peer group such as young nurses, gardaí and civil servants. This was the pattern. It was a long time ago, when salaries and real purchasing power were much less than they are now, even after the corrections done through the recession. The situation now is that while people of my generation were able to afford to buy houses the generation now cannot afford to buy houses. The principal reason is they cannot put the deposit together. This is the big constraint. They can get the mortgage; it varies depending on the prudential rules of the Central Bank, but by and large it can be raised.

The big constraint now is that frequently young people and young couples pay more money on rent then they would pay on a mortgage. As a result of the inability of the type of couples I am describing in the public and private sectors to come up with the deposit required, these houses are not being built. The point on the price of a three-bedroom house in a typical residential estate, which was commonplace 25, 30 or 40 years ago and which was the starter home for Ireland at the time, is an unproved assertion, because these houses are not being built in the cities any more. If we look at the recovery in the housing market, it is in more expensive houses in the €400,000 to €600,000 category. This is what is being built. Very few three-bedroom semi-detached houses are being built, which were the typical starter homes. The prudential regulation has aggravated this somewhat. People are caught in a trap where they pay heavy rents and rents are increasing because the supply is restricted. Because they pay so much on rent they cannot put together a deposit. We must try to break this vicious circle.

This is only one initiative, but it is an initiative to allow people who are working, paying rent and paying income tax to get a rebate of income tax to help them make the deposit. As the Deputy knows from the scheme now because it has been well discussed, for people paying €300,000 for a house, which is approximately the price of a starter home in Dublin in particular, the deposit will be 10%, which is €30,000, and they will be able to get €15,000 under the scheme so now they must save €15,000. If a house costs €400,000, which is the limit in the scheme, the deposit is €40,000 and people can get €20,000 a rebate on taxes if they have paid that much over the previous four tax years cumulatively. If it is a couple this can be doubled, as it is the combined tax payment of the couple. We must do something to crack this. It is a huge problem. We can do all of the supply side measures we like, but if we cannot address the issue of people not being able to put together a deposit the builders will not supply because the demand will not be there.

I fundamentally disagree with something Deputy Donnelly said previously and implied again today. In our previous discussion on this, he told me a leaving certificate student in his or her first month in economics would know that if we are addressing supply we can only do it through the supply side and not through the demand side. This is not true. Supply always in a proper market responds to demand. He may remember something we did years ago. It was not I who did it, it was Ruairí Quinn, which was the car scrappage scheme. How did this work? Bad cars were taken off the road by giving people £1,000 at the time, with which they bought new cars. What happened on the supply side? Cars were imported to serve the demand and supply responded to cater for demand. It happens all over the place. If there is a new money demand for something supply responds. It either responds in the domestic market or it supplies by the need being addressed by imports. It will happen here as well. Whether it increases the price of houses or not is a moot enough point, because the type of house we are speaking about is not on the market. It is not being constructed at present except for very isolated places.

I was as surprised as Deputy Donnelly was when, on the day we first introduced the scheme a developer, and supposedly a reputable developer, in Wicklow announced an increase in prices. I was so annoyed about it I went to the former Minister, Tom Parlon, and asked him to explain it. He addressed it and told me it was a coincidental announcement. It was not as a result of anything we did. It was something that was going to be done anyway with a second phase of houses because the first phase had been built. I do not know whether or not this is true, but I accepted the explanation because I have a certain regard for the man and I believe his heart is in the right place in trying to do the right thing by the Irish people on this issue.

On the Deputy's argument that this discriminates against people in negative equity, I believe it does the opposite. If the Deputy's first argument is correct and this drives up the price of houses, it will reduce the negative equity element of people who have negative equity because the value of their property will increase. It seems to me the Deputy can sustain one of the arguments but not both because they cannot both be correct at the same time. Will it work? I believe it is right and it is there for a three year period. We did not do an impact study because within the time available we did not have time, but two amendments have been tabled, one in the name of Deputy Michael McGrath and one in the name of Deputy Joan Burton, on impact assessments. When we come to these amendments I will deal with it. I am not adverse to doing impact assessments, it is just we could not do them up front and introduce the scheme when it needed to be introduced. We are dealing with an emergency.

When I discussed it with the Governor, the Central Bank agreed that it would be taken within the prudential rules and that it would be deemed to be an adequate contribution to a deposit to qualify under the prudential rules as enunciated by the bank. Of course, I did not get into crossing the t's and dotting the i's because the only piece that was relevant to the Central Bank was if it would be acceptable under the prudential rules.

The other thing to remember, if Deputy Stephen S. Donnelly's argument is correct, is that it would increase the price of houses and that, as a consequence, there would be no long-term benefit. If the price of houses was to increase, it would increase the mortgage liability over a 25 year period, but it would not necessarily increase the deposit required, or it would only increase it marginally. If the issue is the availability of a deposit, as long as we can contribute seriously to a young couple producing a deposit - while I do not agree that it should trigger house price increases - if there was to be an increase in house prices, the liability would be spread over the period of the mortgage. In doing it this way the key issue is still being addressed in providing assistance in seeking a mortgage. It may not work. I have spent six years listening to celebrity economists tell me that things will not work. They said we would have to default, that we would all be ruined, that nothing would work, that there was no point in cutting the rate of VAT for the hospitality industry and abolishing travel tax as it would not work. There are people who are against everything, but there is no point in being a Minister if you do not try things when there are problems. The Minister has to move to try to address issues. Conventional wisdom does not always address them. This is that kind of scheme to address the lack of supply due to the inability of young couples to come up with an adequate deposit for the purpose of purchasing a starter home which is typically a three-bedroom semi-detached house in an estate. It also addresses the issue of single houses in rural Ireland, where a couple may be given a site on which to build by their parents, parents-in-law or relatives. Slightly different arrangements would have to be made in that instance because such couples do not always use a contractor to carry out the work. Where a mortgage to the value of 70% of the house is raised, the issue can be addressed.

I know that I will not convince everybody - actually I am not trying to convince anyone - I am trying to outline my thought process in putting the scheme together and explain why we did it. We have listened to advice and are introducing some amendments in order that it will work effectively. We will talk about the impact assessment study when we come to the relevant amendments.