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

I thank all members for their contributions and I would like to tease this out further to see if there is any agreement across the House on this. Everybody agrees that not enough houses are being built at the moment to meet the potential demand, especially from first-time buyers, and analogous to that, rents are increasing because there is not a sufficient supply for apartments and houses to rent. It is all part of the same market failure in the housing and development sector. We are where we are, which is the cliché that is always used to describe these circumstances but we know how we arrived there as well. As I said previously, as well as implementing the troika plan that was negotiated principally with Fianna Fáil back in 2010, the Government from 2011 on brought in a parallel plan to repair the economy sector by sector.

I have no hesitation in saying that building and development was the sector that was most difficult to deal with. There are still huge residual problems in that sector even though we have restored agrifood, farming, tourism, foreign direct investment, financial services and so on. This is the residual sector and a lot of it is for the reasons that members will know. As well as that, the sector got into such a state of disrepair that it became the scapegoat, probably rightly. Bankers and developers were blamed for the crisis. As a result of it becoming a scapegoat, it was very difficult to repair it or to do anything to lift it off the ground, and we have the residue. Everybody, I think, agrees that there is a problem in the sector of supply. Whether it is for purchase or for rental or whether it is apartments or houses, there is a supply side problem. That problem is most acute at the starter home and apartment rental level, particularly in a city like Dublin. I think there is agreement on that.

The approach of the new Government, after discussions with everybody who supported the Government, has been that there must be a major new housing programme and it must be given priority. That was published by the Minister for Housing, Planning, Community and Local Government in July. Much of the supply side measures that members have advocated are in that. Direct supply side measures are in that programme. What we are doing here is we are taking out one small segment of the building and development sector where there is a particular problem with first-time buyer's getting deposits for mortgages. We are addressing that singularly in this particular scheme. We are not saying it is a cure-all for the sector. It is anything but. One could go through all the other problems in the sector, for example, the release of land onto the market, although there is some release of land happening now. However, in respect of the kind of use it or lose it provisions we want to put into the tax code or, to be more precise, use it or we will tax it provisions, I shared previously with members, and I am sure the Minister, Deputy Coveney, did so as well, the Attorney General's advice that due notice had to be given before a tax can be imposed on unused land or else the legislation would be deemed unconstitutional. The former Tánaiste knows quite well that the previous Government decided on doing that and it is going to come into effect in the form of a heavy tax on unused land from 2018. I can check the date for members but that is in place.

There is a lot of work done on the cost of building houses. Deputy Doherty's idea is that we should address the cost of houses and reduce the cost. There are two things I would like to say about that. First, policy is moving in the opposite direction because of the climate change agenda and because of the increase in building standards in houses. The regulations promulgated some years ago by the former Department of the Environment, Community and Local Government on better quality houses after the various scandals we had on defective builds and inadequate regulation is putting about €50,000 onto the price of a three-bedroom house. The movement is in the opposite direction. When account is taken of the climate change agenda, the need to ensure houses require very little fossil fuel heating and the very big insulation requirements under the regulations, they all have an effect on price as well. It is a very pious aspiration to say that we can solve the problem by bringing in measures that reduce the price of houses. We can do that to a certain extent, in terms of Deputy Donnelly's point about releasing more land on to the market. That would have an effect because there is no doubt that there is a premium being added on, not to the builders of houses but to the owners of the land on which the houses are built. That is a problem but that is being worked on as well and, as I say, the tax will be one such measure.

The other thing is that large tranches of land have been released now such as that at Cherrywood. Cairn Homes, the United States builders, have bought land at Cherrywood. Planning permission was granted for 11,800 units and it is developing it. That land has been released now. Ulster Bank sold its whole property portfolio in west Dublin to Cairn Homes. It has sites for several thousand houses and it is proceeding to construct.

Deputy Burton spoke about the inability of small builders. The Ireland Strategic Investment Fund has made money available for small developers through the banks. It would allow them to borrow up to 90% of the cost of a scheme and the interest rates are around 12% or maybe a bit lower. The ISIF has found that the builders are restoring their capacity to borrow again and they are not looking for the 90% but taking up between 70% and 75%. The fund is able to give them a reduced interest rate because the take-up is lower and, consequently, the risk is lower. The market is correcting itself. Intervention in the market under this scheme is a small area being addressed in the context of the generality of the scheme.

Deputy Boyd Barrett advocated very strongly for the provision of social houses through the local authorities or housing agencies. I agree with him. The commitment by the Minister with responsibility for housing is something like €5.5 billion for that purpose over the next five or six years. There is an enormous sum of money going into that and the local authorities are beginning to respond. It is a multifaceted crisis.

The other issue is about whether price will go up. One of the big problems over recent years has been that the market price for a house down the road was less than the cost of building a new house up the road. We cannot run a market that way. If it costs a person €250,000 to build a three-bedroom house and one can buy the equivalent house on the other side of the street for €200,000, who is going to build? The market was virtually closed after the crisis because house prices collapsed to the point where they were well below their replacement cost, especially starter homes, three and four-bedroom semi-detached houses and four-bedroom detached houses in typical housing estates where most people start their lives. These are the facts of it and they are all being addressed now. This is one part of it.

A couple of issues arose. Deputy Burton spoke about the cost of housing and agreed with me about the lack of starter homes. Deputy Doherty spoke about the statistics for mortgages and the average being below 80%, which is where we pitched this Bill first until we got the information from the Central Bank and then took it down to 70%. The reason for that is not because people do not have a problem in raising mortgages. The principal reason for that is their well-off parents who are putting up the cash. We all know that in our constituencies. The parents are chipping in for the deposits. The people who are really caught are the people who do not have parents with money. They have to try to put it together themselves and the two people are working. In the case of a young couple who go out to work every morning and pay €1,500 a month in rent, as quoted by Deputy Burton, how will they put €20,000 together? The effect of this measure is that they will only have to put €10,000 together. The benefit of the rent that they are paying is not being taken into account by the Central Bank and the Central Bank will not take it into account under the prudential rules. The lenders take it into account, however, because what the lenders or whoever is giving out the mortgage are measuring is the capacity to pay. When they are measuring the capacity to pay, one of the first questions is what a person is paying in rent and how long he or she has been paying it. If the reply is €1,500 a month for the past four years, that shows that person can afford a mortgage that costs €1,200 a month. That is the way it works but the Central Bank is not going to move position on giving allowances for rent because that allowance is being given by the mortgage provider.

The Central Bank is looking at the prudential rules. It is not going to abolish them or anything but it will move on them at the end of this month. It is taking seriously the submissions made by the parties in this House and by Members of this House who made individual submissions. The bank wants to avoid a situation where people borrow more than they can afford to service and we have another crash in the next downturn and a whole lot of people facing the threat of their houses being taken from them because they cannot afford their mortgage and so on.

I support the prudential rules, but they were introduced in a form that can now be nuanced. Now that the experience is in place they can be adjusted and targeted a little better, and that will be done. However, we cannot get away from the fact that many young couples at present cannot put a deposit together. The Deputy asked if alternatives were considered. They were. We considered a grant scheme. For all my life up to ten or 15 years ago there were grants available. There were two grants when I bought a house, one from the local authority and a national grant under certain circumstances. One could put the two together. They were abolished at some stage on the grounds that they were going into the builder's pocket. This time we directed the provision to the purchaser, not the builder. That is the reason it is on the demand side, not the supply side. We could have put it on the supply side if we gave the money to the builder, but that would not have worked. It would have gone straight onto the price or into profit.

We could have done it through a grant system. We examined it and I discussed it with officials in the Department of Finance. If we did it by way of a grant of, for example, €10,000 or €12,000 per three-bedroom house, the Department with responsibility for the environment would have had to be geared up to administer it. With all due respect to that Department, it is fairly heavy on staff demands when it comes to administering schemes. Then, every local authority would have matched it and it would have been necessary to have some type of inspection system for every house. We were able to deliver what we discussed previously, the help to buy scheme and home improvements, through the Revenue Commissioners more or less online. The applicant registers online and the builder registers online. Nobody is in the black economy and it is done by means of tax rebate. That does not mean that nobody administers it and it is done automatically, but the Revenue Commissioners assure me that they can handle the scheme with their current cohort of staff and without the additional cost of gearing up the Department of Communications, Climate Action and Environment and the local authorities. It goes straight to the purchaser and gives them the opportunity to use their extra capacity.

Finally, there is a misunderstanding about what demand is. Demand is not a couple of hundred thousand people who would like to have a house. That is social demand, not economic demand.