Noel Ahern (Dublin North West, Fianna Fail)

I welcome this opportunity to clarify the Government's thinking regarding stage payments. We share many of the concerns expressed by Senators Coghlan and Brian Hayes, particularly those relating to the needs of consumers.

This Government has made it a priority to tackle the housing market and, in particular, to support first-time buyers. We want to ensure that home purchasers benefit from increased supply and increased choice in the housing market, while also ensuring they are not disadvantaged by any practices in the market that might make it more difficult to access a home. In this regard, the Government's effort has been to increase housing supply to its present record levels.

The Bill proposed by Senator Coghlan seeks to ban the system of stage payments for newly constructed houses in housing estates. The Bill does not seek to interfere with stage payments in the case of one-off houses. We appreciate fully the intentions of the proposed Bill and I have discussed this matter in the past with Senator Coghlan and other Members from the south. I have a feel for what they are saying and I find it difficult to understand why the situation should be different in Cork from that in Dublin. The question, however, requires more rigorous examination before the House should be asked to enact legislation of this kind. The Government is prepared to have such an examination undertaken, taking into account the various views that have been presented.

In opposing the Bill today, I am not ruling out an appropriate legislative intervention, but further work needs to be carried out. While drafting the Housing (Miscellaneous Provisions) Act 2002, consideration was given to taking a legislative approach to ban stage payments in speculatively built new housing estates. Legal difficulties were identified with regard to putting in place appropriate legislation. These difficulties related to its possible effectiveness, its potential consequences on the housing market and difficulties regarding ensuring compliance and effective enforcement. There is a range of potential legal complexities relating to the use of definitions aimed at limiting the application of the proposed legislative approach. These also require further work to ensure that they have the effect intended.

The Senator will agree that it would be important to ensure that any legislative route should avoid such potential obstacles. However, before coming to a legally-based approach, we need to have a closer examination of the practice and its real effects. We all want to ensure we do not hinder or interfere with the supply of houses in any part of the country. I am not saying the Bill would do that but we cannot be sure how some people in the business will react.

While there are currently no legislative provisions governing stage payments, there is a voluntary code of practice regulating these. The Irish Home Builders Association, under the auspices of the Construction Industry Federation, operates a code of practice on stage payments. The code provides that the cumulative value of a stage payment should not exceed the value of works completed at that date and it sets out a schedule indicating appropriate levels of payment at different stages of construction. While this code is voluntary, it applies to approximately 80% of home builders and it includes a complaints procedure regarding members who breach the code.

I am aware that there is public concern about stage payments and that they can present some additional costs. In other cases, they may offer purchasers additional flexibilities. These are the issues we must explore further. For example, I understand that among the complaints which the IHBA has received generally, none of these related to stage payments since the introduction of the code in 1999. In addition, I understand that stage payments have not been an area of significant complaint to the Office of the Director of Consumer Affairs.

While I recognise the code of practice does not currently prohibit stage payments in the case of newly constructed houses in housing estates, it does demonstrate that measures such as a voluntary code can be a very effective tool to shape these matters without recourse to legal measures. Often it is better to secure agreement on all sides on codes of practice for these issues rather than to wave the legislative stick.

The question of stage payments was also considered in a High Court case regarding unfair contractual terms taken by the Office of the Director of Consumer Affairs and supported by my Department. While the court did not consider the propriety of stage payments, it ruled that stage payments that exceed the percentages stipulated in the IHBA code of practice shall not apply.

The Law Society has released a report on stage payments that claims the system adds up to €7,000 to the price for a purchaser but the exact basis for this claim is not spelled out. Under stage payments, purchasers do not necessarily pay additional interest charges, although they may, of course, begin paying part of their mortgages earlier than would otherwise be the case. In particular, purchasers find themselves making stage payments before they are in a position to live in their new homes. That is a burden because some purchasers may also have to pay additional rental or other costs at the same time.

Concerns have also been expressed about the possible risks that the stage payments approach may carry for home buyers. While there are a couple of private schemes that can offer some insurance in the case of stage payments, it is not clear whether this would be sufficient in all cases.

In considering the question of stage payments, the overall impact on home buyers must be the central consideration. This impact occurs at a general market level where our aim is to ensure a healthy supply of quality housing. There is also an individual impact where the aim is to make quality housing as affordable as possible having regard to both purchase and transaction costs. We know it suits some people to make stage payments in one-off houses or where they are retaining a lot of flexibility in the design or individual fit out of their house. In some cases, it is suggested that the existence of stage payments has facilitated smaller developments with fixed price contracts to go ahead more quickly. This may be of particular relevance where smaller local builders are involved. We need to examine all of these aspects. The record house completions in recent years and the measures introduced to assist first-time purchasers speak for themselves. I assure the House that the Government did not achieve these successes to have the benefits undermined by unnecessary market practices. However, given the legal questions that arise, it is vital that we rigorously pursue all potential options to ensure the most effective action can be taken where required.

My Department has already had discussions with the construction sector and the Director of Consumer Affairs on this issue. These consultations are crucial in identifying the exact nature of the problems that may be experienced by consumers, considering all potential solutions and assessing the effectiveness of the current code of practice. The construction sector, which has benefited from the increased demand for housing in the current market, must share responsibility for the impact of its practices on the consumer, particularly if its construction colleagues in other parts of the country do not feel the need to adopt the same practices. In this regard, we consider this Bill is premature and should await the outcome of our exploration of all potential measures.

I assure the House that if the outcome of the rigorous review now proposed and the associated consultations demonstrate the need for legislative action, the Government will deliver. If it becomes clear that the legislative route is the only viable option, we will also take the opportunity to consult with other stakeholders, including the Law Society, to ensure the best legislative option is developed. Let there be no doubt the Government is concerned to ensure house buyers get the best deal and all necessary measures to protect consumers are taken.

I note Senator Brian Hayes said he would prefer if the House did not divide on the issue, a sentiment I share. It is difficult, if not impossible to understand why the system of buying a house in Dublin differs from that in Cork. I would like to carry out an in-depth examination of the system, pursue talks with the CIF or the Home Builders Association and follow through with the Director of Consumer Affairs. I am not convinced that legislation is the appropriate way to go. I would prefer to talk as an equal to members of the construction industry rather than under the threat of legislation. Waving a big stick too soon might not necessarily be the right way to go. It might rub some people up the wrong way.