Pearse Doherty (Donegal, Sinn Fein)
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Before we come to amendment No. 16, I want to take issue with some of the Minister's comments on the section. Before the break the Minister gave his view as to why the scheme is necessary and the relevant sections are necessary in the Finance Bill. He made the point very clearly that this was related to the inability of individuals to amass the necessary down payment or deposit to meet the Central Bank mortgage rules. However, what the Minister is putting before us does not just address that issue but goes much further. What the Minister is putting forward in this section, allowing for a loan to value ratio of 70% and allowing for the purchase of a house to the value of €500,000, means that someone who has a deposit of €150,000, which is double what is required under the Central Bank rules, is being provided with a €20,000 tax rebate. That does not make any sense. Individuals who already have a deposit in excess of what is required under the Central Bank rules will still be eligible for the €20,000 rebate. That is an extreme example, involving a 70% loan to value ratio and a purchase price of €500,000 but there is still a problem with other scenarios. Even someone with €80,000 who wants to purchase a lower priced house would, because of the loan to value ratio, have in excess of what is required to draw down a mortgage and yet the State is going to benefit him or her with a tax rebate of €20,000. The Minister has said that the issue is not about an increase in house prices. However, as sure as night follows day, house prices will go up. We are already seeing evidence of that as a result of this measure.

The Minister also referred to the fact that this will be drawn out over a 25 or 30 year period but unless he decides to keep this going indefinitely, there will be an issue at some point when the tap is turned off. The Minister also made the point that the issue is supply and argued that the way to address the supply side problem is to increase demand. However, evidence suggests that demand already exists and that people can reach the loan to value ratios. Indeed, in the Central Bank's letter to the Minister, myself and others, the Governor points out that the average loan to value ratio for mortgages issued by the financial institutions is less than 80%, which is lower than what is required under the macroprudential rules. The Banking and Payments Federation of Ireland has produced figures on first-time buyers here. The data that I have in front of me on mortgage approvals, which comes from a report published in September 2016, shows a year on year increase in mortgage approvals for first time buyers of 24.9% and in mortgage draw downs of 11%. The approvals are happening at a faster rate than the draw downs, which raises an obvious question. If so many people are being approved for mortgages, why are they not drawing them down? The Minister has argued that the problem is that they cannot get mortgages in the first place but that is not accurate. The Central Bank pointed out that the average loan being issued by the financial institutions is below the macroprudential rules, which is why the Minister changed the loan to value ratio. The Banking and Payments Federation of Ireland has shown that the rate mortgage approvals is exceeding by almost 50% the rate of mortgage draw downs.

The issue is supply and this scheme is a very bad idea. I understand why Mr. Tom Parlon supports the scheme because it will put money into the pockets of developers. I do not believe that developers are not building because there is not enough demand. Demand does exist. If developers are not building because there is not enough profit, because they are not able to make a return of 10% to 15%, that is a whole different argument and we must have an honest debate on that issue. There are two ways to address it on behalf of developers. The first is to provide this grant, in the form of a tax rebate to individuals, which will push up house prices and improve the profit margins for developers. The second way to address it, which is what we should be doing here, is to determine ways to reduce the cost of building. We should be looking for ways to bring down the cost of building houses which will benefit not only builders, but also those who want to purchase a home. We must bear in mind that when a person takes out a €300,000 mortgage over a 30 year period at today's interest rates, he or she will pay back about twice that amount.

As such, the Minister's scheme is fatally flawed and the idea that we should introduce an analysis post the fact is barmy and bonkers. This was mooted months ago by the Minister for Housing, Planning, Community and Local Government and the Minister for Finance would have had an idea about it. That no analysis has been carried out by the Department of Finance of the impact on house prices and other sectors, as well as on supply and demand, is unacceptable and the wrong way to propose policy. This will have long-term consequences, which is why I am recording some of the facts from the Central Bank on mortgage drawdowns and mortgage availability as they completely destroy the arguments the Minister has made for this type of initiative. I have no doubt that it comes from a desire by the Government to address the issue, but while reference was made to celebrity economists, I have heard no one, celebrity or otherwise, outside the Construction Industry Federation and the Government say this is the way to address the housing crisis. We can call them whatever we want, but across the divide it is being said this is not the way to deal with it. The Minister, rightly, called it an emergency, but this is tackling it at the wrong end. The amount of money being spent on this type of solution should be invested in other ways to ensure the price of starter homes will come down. The Minister said the scheme was aimed at starter homes. If that was true, he would not be allowing for houses to the value of €500,000 or €600,000 to the end of the year. That is the reality. He said the cost of a starter home - a three-bedroom, semi-detached house - was €300,000, although it is probably in excess of that figure. If this was about starter homes, he would have gone with that limit. However, what he is allowing for in the scheme is for individuals to buy houses up to a value of €500,000, which is not the type of starter home he suggested.