Dáil debates

Tuesday, 13 June 2006

3:00 pm

Photo of Eamon GilmoreEamon Gilmore (Dún Laoghaire, Labour)
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Question 53: To ask the Minister for the Environment, Heritage and Local Government if his attention has been drawn to the publication of the affordability index for house prices by EBS Building Society and DKM economic consultants; his views on the index and its findings and in particular on the conclusion that first-time buyers are spending an average of 27.25% of their net income on mortgage repayments which is 4.25% higher than in 2000; his further views on the Dublin figures which show that first-time buyers in Dublin are spending an average of 32% of net income on servicing their mortgages; the measures the Government are contemplating to address continuing house price rises in view of increasing interest rates; and if he will make a statement on the matter. [22628/06]

Photo of Pádraic McCormackPádraic McCormack (Galway West, Fine Gael)
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Question 55: To ask the Minister for the Environment, Heritage and Local Government the steps he will take to alleviate the financial burden on young couples and families in view of the publication of the affordability index by EBS Building Society and DKM consultants which shows that up to 32% of household income of first time buyers in Dublin goes to financing a mortgage; and if he will make a statement on the matter. [22805/06]

Photo of Noel AhernNoel Ahern (Minister of State, Department of Environment, Heritage and Local Government; Minister of State, Department of Community, Rural and Gaeltacht Affairs; Dublin North West, Fianna Fail)
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I propose to take Questions Nos. 53 and 55 together.

I am aware of the house price affordability index referred to and also of the trend in affordability as measured by the index compiled by my Department to assist in monitoring developments in the housing market.

Despite increased house prices, affordability has remained relatively favourable. This is because of the substantial improvement in employment and incomes due to our economic success and the fact that large reductions in personal taxation have further boosted take-home pay. These factors, coupled with low interest rates and the uptake of longer term mortgages, have kept mortgage repayments relatively affordable. Also first time buyers are entitled to mortgage interest tax relief on higher amounts of interest, up to €8,000 in the case of a couple, for the first seven years of the loan. Nonetheless, borrowers and lending institutions should exercise care in regard to the level of new mortgages, particularly in the context of an upward trend in interest rates.

My Department's affordability index shows that mortgage outgoings as a percentage of net income are still less than in the early 1990s. The recent EBS index showed that the average proportion of net income required to meet mortgage repayments is well within recognised affordability criteria and within the limits applied by lending institutions in deciding mortgage applications. The affordability position improves further when measured on the basis of typical first-time buyer prices, longer-term mortgages and more representative levels of joint income.

The relatively favourable affordability figures help to explain why demand in the housing market continues to be very strong. Housing demand has been driven primarily by the strength of the economy and unprecedented population growth in recent years, particularly the very high level of immigration related to economic growth. In response, Government has taken action on a wide front to maximise access to home ownership, particularly through measures to promote adequate supply of housing to meet demand.

Photo of Eamon GilmoreEamon Gilmore (Dún Laoghaire, Labour)
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The affordability index by EBS Building Society and DKM economic consultants indicates that the first-time buyer couple nationally spends €1,300 per month on a mortgage and a first-time buyer in Dublin spends €1,700 per month on a mortgage, that is €325 per week nationally and €425 per week in Dublin. Does the Minister of State consider that is affordable or does he agree with the assessment made by the economist from DKM consultants who said we are now approaching the peak of affordability and that the current level of house price rises is not sustainable?

Photo of Noel AhernNoel Ahern (Minister of State, Department of Environment, Heritage and Local Government; Minister of State, Department of Community, Rural and Gaeltacht Affairs; Dublin North West, Fianna Fail)
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Are those prices affordable? Relatively so, people seem to be getting by and there is still a significant number of first-time buyers in the market. Some 45% of mortgages for new houses are to first-time buyers. It was always difficult for a first-time buyer be it now or ten or 20 years ago. Whenever any of us had a mortgage it was always difficult in the early years. Our own index shows that in the early 1990s people were paying a higher percentage but the position relaxed after 1992. I am concerned about price increases. There is no doubt that since this time last year prices have begun a new upward spiral. I do not agree that price increases of 15% or 16% for second-hand houses in Dublin are sustainable in the long term. I sincerely hope what we are seeing now is only a short-term blip and that the situation will soon calm down. We were making much progress over a few years and, 15 or 18 months ago, many of the experts said that increases last year might have been only 5% or 6%. For whatever reason — partly, I imagine, because of 100% mortgages and 90,000 extra jobs in the economy — prices took off into a new spiral about this time last year, which is worrying.

Photo of Pádraic McCormackPádraic McCormack (Galway West, Fine Gael)
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The Minister for the Environment, Heritage and Local Government, and this Government, said in the past that although house prices are high, interest rates are low, so that houses have remained affordable. Does the Minister of State now accept that, on foot of the EBS report, this is no longer the case? Will the Minister of State comment on reports at the weekend that if interest rates continue to rise, as is forecast, the loan amounts for which first-time buyers will be eligible will be slashed by about €100,000? Does the Minister of State accept that such a scenario could result in a slump in demand for houses and the devaluing of houses as a result? Is the Minister of State aware of the anger which exists among young people buying houses and among their parents, who in many cases are trying to help them to buy houses, and all of whom face a difficult situation?

Photo of Noel AhernNoel Ahern (Minister of State, Department of Environment, Heritage and Local Government; Minister of State, Department of Community, Rural and Gaeltacht Affairs; Dublin North West, Fianna Fail)
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It has always been difficult for people buying their first houses. Nothing has changed. The new Department index, which we have compiled for many years, was published last week and is relatively up to date, indicates that affordability was worse around 1990-91, and then eased off. This and the EBS report are based on a 25-year mortgage. They use figures below the normal affordability index which a lending agency would use. It may be good or bad but, perhaps sadly, the typical mortgage now is more likely to be 35 years than 25 years. I am not promoting such mortgages but they are a fact of life. If one has a 35-year mortgage, one's affordability index improves greatly from what was published last week.

It is always a struggle for first-time buyers and prices have certainly increased but, because we have a booming economy, people's wages have increased, their tax bill has decreased and interest rates are still at historically low levels, the overall affordability, while it has worsened in recent years, has not worsened to the extent to which people may think it has.

Photo of Eamon GilmoreEamon Gilmore (Dún Laoghaire, Labour)
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I put it to the Minister of State that it is spurious comparing affordability now with affordability in 1991-92, when interest rates shot up dramatically on foot of the currency speculation which took place at the time, and which was unique to those years. The most recently published figures show house price increases in the first four months of this year are the highest in six years since the early part of 2000.

Can the Minister of State give some explanation to the House why house prices are now rising, especially given the very high level of output from the construction industry and the increase in supply of housing? Does he consider that Irish houses are now over-priced?

Photo of Noel AhernNoel Ahern (Minister of State, Department of Environment, Heritage and Local Government; Minister of State, Department of Community, Rural and Gaeltacht Affairs; Dublin North West, Fianna Fail)
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If houses are over-priced, why are prices rising? I suppose they are rising for different reasons, namely, because an extra 90,000 people were working in the economy last year and because we had 55,000 immigrants into Ireland last year, people who are at the age when they rent or buy houses. The house price rises were partly due to those factors, but also because of a policy started about this time last year by the financial institutions. They introduced gimmicks such as 100% mortgages, interest-only mortgages and intergenerational mortgages. The financial institutions which started that trend this time last year contributed greatly to the house price rises. The spiral of house price rises calmed down over a few years to rises of some 7% or 8%, but we now have a new spiral of rises of up to 15% or 17% for second-hand, established houses in suburban Dublin.

There is nothing we can do to produce extra houses such as those. One can build houses and apartments further out of the city, but the established houses, whether they are in Dún Laoghaire, Merrion, Glasnevin, Drumcondra or wherever, see great demand from people who possibly bought outside the city and are moving back in.

The spiral we are in is worrying. It is partly due to the booming economy and partly due to the fact that the financial institutions seem to have a great deal of money and are being too generous in handing it out. If the rainy day comes and interest rates are significantly increased, I hope that all the loans given out will have been stress-tested, which they are supposed to be. Otherwise concern could arise.

Photo of Pádraic McCormackPádraic McCormack (Galway West, Fine Gael)
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The Minister of State seems to suggest that longer-term mortgages are the solution to young people's problems in this regard. He acknowledged that 40% of houses are now bought by first-time buyers, and that house prices have risen. No doubt the Minister of State is aware, as I am, that a first-time buyer cannot now buy a second-hand house in Dublin city for less than €317,500, the cut-off point for stamp duty. After that, the Government takes at least €10,000 or €15,000, depending on house prices, from hard-pressed young people trying to buy their first houses. I know this from practical experience because two of my children are trying to buy houses in Dublin and cannot buy a second-hand house for anything near €317,500. They are being penalised further by the Government for €10,000 to €15,000 in stamp duty, depending on the house price.

The stamp duty cut-off figure was introduced in the previous budget. I knew it was too little at the time. Will the Minister of State consider, given the way house prices have increased, recommending that this stamp duty exemption limit be raised to at least a realistic figure such as €450,000 so that young people buying their first houses — and most of the houses coming on the market are second-hand — are not penalised by the Government by a figure of €10,000 to €15,000 on top of the exorbitant prices they pay for houses?

Photo of Noel AhernNoel Ahern (Minister of State, Department of Environment, Heritage and Local Government; Minister of State, Department of Community, Rural and Gaeltacht Affairs; Dublin North West, Fianna Fail)
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I am not recommending that the answer to affordability is longer-term mortgages. I am simply saying they are a fact. Many people are now getting 35-year mortgages. I heard of some financial institution spokesperson talking of intergenerational mortgages. Maybe that is a concept yet to come in, but such institutions are using other financial gimmicks.

The real solution is supply. We have tried to create that supply. Last year was the 11th year of overall increase in output, and this year's output figures are running ahead of last year's figures.

Photo of Pádraic McCormackPádraic McCormack (Galway West, Fine Gael)
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Would it be better if the Government were not taking stamp duty from first-time buyers?

Photo of Noel AhernNoel Ahern (Minister of State, Department of Environment, Heritage and Local Government; Minister of State, Department of Community, Rural and Gaeltacht Affairs; Dublin North West, Fianna Fail)
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I am sorry if I keep repeating the same figures, but the output figure for last year was 81,000, while 14 or 15 years ago the figure would typically have been about 20,000. The level of output by the industry has hugely increased. Under any law of economics, supply should sooner or later equal demand, which should bring a bit of sense to the situation.

Photo of Pádraic McCormackPádraic McCormack (Galway West, Fine Gael)
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What about stamp duty?

Photo of Noel AhernNoel Ahern (Minister of State, Department of Environment, Heritage and Local Government; Minister of State, Department of Community, Rural and Gaeltacht Affairs; Dublin North West, Fianna Fail)
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I am not the Minister for Finance and will let him decide on that.

Photo of Pádraic McCormackPádraic McCormack (Galway West, Fine Gael)
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The Minister of State has special responsibility for housing.

Photo of Noel AhernNoel Ahern (Minister of State, Department of Environment, Heritage and Local Government; Minister of State, Department of Community, Rural and Gaeltacht Affairs; Dublin North West, Fianna Fail)
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Yes, but stamp duty is a matter for the Minister for Finance. It has been adjusted before and I am sure it will be adjusted again. Let us be consistent. The last time it was adjusted, the Opposition accused us of putting up prices. Which way does it want it? There are many houses available for under €317,500.

Photo of Pádraic McCormackPádraic McCormack (Galway West, Fine Gael)
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We do not want first-time buyers paying €15,000.

Photo of Noel AhernNoel Ahern (Minister of State, Department of Environment, Heritage and Local Government; Minister of State, Department of Community, Rural and Gaeltacht Affairs; Dublin North West, Fianna Fail)
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There is a tendency to get carried away with the average house price. There are many affordable new houses, even in Dublin, under €200,000. Plenty of second-hand houses are priced well under €300,000. I accept the figure is under pressure but the first-time buyer is still a major player in the housing market.

Photo of Pádraic McCormackPádraic McCormack (Galway West, Fine Gael)
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The Government still takes €15,000 off the first-time buyer.