Cian O'Callaghan (Dublin Bay North, Social Democrats) | Oireachtas source

I will start by following up on some of the points made by Deputy Duncan Smith about investment funds and the issue of buying homes and second-hand homes. Last weekend, there was coverage in the Business Post, by Killian Woods, of a new-build home in Malahide, in the Minister's constituency. It is in a great development with great amenities in a highly sought-after area. It has been vacant for the last four or five years and was bought by an investor. The point being made was simply that the return from the house price increases would be attractive enough for an investor to do that, without renting it out. Vacant homes have to be tackled. Taxes need effective measures there.

There is the wider issue that rental returns are so attractive at present that investors are buying homes, blocks of apartments and housing estates. They are also buying second-hand homes in bundles on the basis of very attractive rental returns and yields. They know there is a guarantee that if they cannot get them on the open or private market, they will be able to get them through long-term leases to local authorities or others backed by the State. Those excellent returns are completely skewing housing affordability. It is one of the issues that must be tackled. It is part of the wider phenomenon of the commodification and financialisation of housing that is taking place. During the Celtic tiger years, we saw how buy-to-let investors were encouraged to buy housing and how that wrecked housing affordability at the time. It was unsustainable and was one of the contributing factors to the crash.

We are seeing something similar now regarding investors and this situation must be tackled. In that context, I am very concerned - and this is not particular to the Minister - that the Government is continuing to back measures which are inflating rents and house prices.

Housing policy, housing legislation and this Bill should not be seen in a vacuum. We must see all of this in the context of what is happening economically internationally. Particularly because of quantitative easing, we are now seeing a flow of investment money into housing internationally because investors get good returns and good yields from such investments.

A countermeasure in this regard is allowed for by the European Central Bank, ECB, in the form of the State borrowing heavily to invest directly in building affordable homes for purchase and rent. That is what the Economic and Social Research Institute, ESRI, the National Treasury Management Agency, NTMA, and several other bodies have asked for and are seeking the Government to undertake to counter the harmful effects of quantitative easing in respect of the flow of investment money into housing. All those aspects must be tackled if we are serious about affordable housing, and such endeavours must go hand-in-hand with the legislative measures in this Bill.

We have an affordable housing crisis, and that includes a lack of affordable homes for purchase and for rent. To address this crisis, we must do exactly what the current Minister said should be done during the last election campaign. We must build about 10,000 directly built affordable homes every year. That is what is needed. The current Minister was absolutely right about that when he said it during the last election campaign. It is welcome that there will be hundreds of cost-rental homes available this year, but we need that availability to be on the scale of thousands of such homes if we are going to address this issue. We also need directly built affordable homes for purchase. Schemes such as those undertaken by the Ó Cualann Cohousing Alliance are very good but they are on a very small scale, and we must be doing this on a scale which produces thousands of homes. I do not mean large-scale in respect of very large developments. We require a range of developments in different locations around the country and in different parts of Dublin to deliver those thousands of homes and to build sustainable and high-quality communities.

The State has an absolutely key role in bridging the affordability gap. There are people who cannot afford the high costs, high rents and high purchase prices of the homes being delivered by the private sector and who do not qualify for social housing. It is that gap in the middle that must be addressed. We must be crystal clear regarding what we mean when it comes to affordable housing and cost rental. A percentage discount off the full market price will not cut it. The delivery of affordable homes for purchase and for cost rental does matter. I do not believe that private sector delivery alone is the way to go on this issue, because that sector is effectively just looking for that discount off the full market prices.

This Bill, in respect of improving it, must really nail its colours to the mast regarding defining housing affordability. It should be done properly in this Bill and that is an existing weakness and gap in the legislation that I will be seeking to address in my amendments. Affordability should be based on income and it should be something like a maximum of one third of income going to pay for people's housing costs, including utility costs. We should also be examining residual income and what people can afford to pay after they have met other essential costs, such as transport, childcare and those types of expenses.

Regarding the Part V aspect of this Bill, I welcome the expansion back to what was previously the case in this regard. As Deputy Smith said, what was there before was rather ineffective because of all of the opt outs. Potentially, therefore, this legislation will be much better than just restoring the original provision. One area of the Bill, however, needs particular work. I am not saying that this change must be made in time to be included in this Bill, because I know that this legislation must pass quickly. However, significant work will need to be done later on delivering value for money in Part V delivery. Much can be done to improve on this aspect. I would like to see that done and I will be raising this point on Committee Stage, and I will continue to raise it. We could be doing better at that point.

Turning to the shared equity aspect of the legislation, I have some specific questions regarding the Minister’s statement in that regard. He said that these will be short-term measures. What sort of timeframe is he talking about? The Minister also said that similar schemes have been looked at, not just in the UK but in other jurisdictions. What other countries and jurisdictions were looked at?

I am concerned that the Minister continues to quote the British National Audit Office report. It is a good report and it should be quoted, but it is the way it has been quoted that I have an issue with. The report refers to a 1% price premium and not to 1% price inflation, and that is a key difference. The report clearly states that for the same homes, the same square metres in size and in the same areas that people who availed of the equity scheme paid a price premium of 1%. It did not state that price inflation was confined to only 1%. The Minister has repeated that since the very start of these discussions about shared equity, and I urge him to re-examine this aspect. It is a flawed reading of that report and I ask him to look at it again. It is a good report and it should be part of what informs this debate, but it is very important that it is quoted correctly.

Moving on to price caps, and associated measures, if price caps were to be some measure of an effective guarantee in respect of the shared equity scheme, we would need much more localised price caps to be instituted rather than simply having a cap based on the median for an entire local authority area. The Minister and other Deputies will be well aware that can be a huge variance in prices within a local authority area. Using the Minister’s constituency as an example, there will be a major difference in the prices that first-time buyers might be looking at when purchasing a home on the open market in the northern part of that constituency compared with areas such as Malahide. There is great variance across that constituency. A €400,000 price cap on an affordable home in the parts of Fingal where house prices are more expensive might have some effect. However, it is not going to have any effect at all in those parts where the average house price on the open market is well below €400,000. Therefore, if price caps are to be utilised, having them on such a blunt scale will be very ineffective. I appreciate that there may be complications regarding how far it may be possible to localise such price caps and it may not be possible for the Minister to bring about extremely localised market price caps. However, if price caps are to have an effect as a measure, they will need to be much more localised.

I have serious concerns about the shared equity part of the Bill and I do not believe those concerns have been properly addressed to date. I am concerned that the shared equity scheme will add fuel to the fire of house prices. When we look at the people lobbying in favour of this scheme, they started lobbying for it in February 2020, just after the election campaign, when house price inflation was much more stable. Those lobbyists were looking at this mechanism back then as a means of trying to kick-start house price inflation. There is no need for that now because it is already happening. There is too much of it happening now and, therefore, I reiterate in the strongest possible terms that this aspect must be looked at again. We had very serious warnings from the Central Bank and the ESRI regarding this initiative, as well as from several commentators.

In addition, we have had warnings that we are potentially looking at house prices reaching Celtic tiger levels again. We are also seeing the sharp increases in the prices of construction materials because of the uptick in construction building internationally due to Brexit and quantitative easing and investors not getting returns on bonds and yields. Therefore, they are putting investment money into some of the construction materials, effectively speculating on them and pushing up those prices. Given all that, it makes no sense for the Government to be adding fuel to the fire of house price increases via this scheme.

A former senior official in the Department of Public Expenditure and Reform warned that the property industry wants an equity scheme because "it will increase prices". Those words were from a neutral Government commentator. What is happening here is a resuscitation of the failed policies of the Celtic tiger era, when the Government ignored warnings from commentators and from its own Civil Servants and championed tax subsidies for developers which led to a sharp increase in house prices. Thousands upon thousands of families had to deal with the burden of unsustainable debt and unaffordable house prices and the last thing we want to see is a repeat of that.

Evidence from the UK on its shared equity scheme, where equity loans have been in place since 2013, is that the loans have led to increased house prices and a boom in profits for large developers. It is no surprise, therefore, that large developers have been lobbying for such a scheme here. A study by Professor Geoff Meeks of Cambridge University found that in the four years after the shared equity scheme was introduced, average share prices on the FTSE 350, where most large developers are listed, increased by 47% but the share prices of the leading developers benefiting from the shared equity scheme increased by 230%. In the years before the shared equity scheme was introduced, the share prices for those developers did not increase above the level of other stocks and shares on the FTSE 350. An analysis of house prices in ten towns and cities across England found that homes available under the equity loan scheme were, on average, nearly 15% more expensive per square metre than comparable homes not eligible under the scheme. A 2019 report by the National Audit Office, the same report quoted by the Minister earlier, found that the scheme was used largely to purchase larger and more expensive new-build homes compared to homes bought by other first-time buyers without the scheme. In the east midlands, for example, the average purchase price for a first-time buyer of a new-build property in 2018 was less than £158,000 but buyers availing of the shared equity loan bought homes that cost, on average, more than £235,000. In north-east England, where the take-up of the equity loan scheme was the highest in the UK, the gap was even wider. The average price paid by first-time buyers for new-build homes was less than £110,000 but those availing of the shared equity loans purchased homes costing more than £182,000.

The Bill lacks a proper definition of affordability. There is a very strong case to be made for defining affordability in terms of people's income and ability to pay. I have a strong fear that if this is not done, many of the very welcome affordable housing measures in the Bill to help people who are short of full market prices will miss an entire cohort of people who do not qualify for social housing and are way off being able to afford homes at full market prices. They will continue to be consigned to paying high and unaffordable rents for years to come. Home ownership levels of 70% were referenced recently by the Tánaiste. It is welcome that the leader of Fine Gael wants to see home ownership levels back to the level they were at when his party took office in 2011. I am interested to hear the views of the Minister for Housing, Local Government and Heritage on home ownership. Would he like to see a restoration? Not long ago, around the time that the Minister started in electoral politics, home ownerships levels in Ireland were at about 82%. Would the Minister like to see restoration to that kind of level and how soon can we get there? I hope some of that detail and some of the targets in that regard will be contained in the Housing for All strategy. It is important that we have targets and are able to measure progress. It is all very fine for Deputies to refer to restoring the home ownership levels to those that pertained when they took office in 2011 but we need to have a roadmap and strategy for getting there.

On cost rental and affordable purchase, the model of delivery is of crucial importance. Private sector delivery, as envisaged by the Government, will push up prices and costs, making homes less affordable. Let us take the example of the Part V proposal submitted by Bartra for O'Devaney Gardens, comprising 104 units, of which 31 have one bedroom, 56 have two bedrooms and 17 have three bedrooms. This works out at an average, inclusive of VAT, of €354,000 per home or €315,000 excluding VAT. If the State was financing the building of those Part V homes - this goes back to my earlier point about Part V and value for money - we could potentially save around €4 million on the Part V element of the scheme or €38,000 per home. That would bring the cost down to an average of €277,000 per home excluding VAT. That is significant in terms of cost rental or affordable purchase. The reason for this is that the State has access to borrowing at much more favourable interest rates and lower financing costs than the private sector. There are other savings that could be made without compromising on quality. Ms Orla Hegarty has provided good detail on how with economies of scale in terms of fixtures and fittings, we could achieve savings. The County and City Management Association, CCMA, is also looking at this issue and at where savings can be made. It is looking at the possibility of having elements of universal design for the internal build-out of social homes but having external variants and unique external designs, which is very important. I would not like to see us return to decades past where we had only one or two external designs that were built en masse. We could see significant savings on internal elements and that should not just be done for social homes but also for cost rental and affordable purchase homes. Of course, this can be done if we do not rely solely on private sector delivery.

I will be concluding shortly and am glad that I have not had the same effect in this Chamber as Deputy Duncan Smith had, although his contribution was very good. Apologies, I could not resist that. On a very important point-----

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