Paudie Coffey (Fine Gael)

I welcome the Minister of State to the House and thank him for facilitating the debate on housing. It is an appropriate time to debate this important matter of concern for many citizens, whether they are people on housing lists or people who have purchased privately and are paying mortgages. We need to debate the issue of housing and to consider in detail how we will meet the new challenges of the current economic climate.

The last occasion this House debated housing was in October 2007 when, despite the concerns expressed by the Opposition, the Minister of State's predecessor, Deputy Batt O'Keeffe, stated, "A key point I want to make is that recent trends in aspects such as house prices and housing output involve, essentially, a return to a more normal and sustainable pattern and will not necessarily have negative results as some media comments might suggest." He was referring to media reports that the housing market was about to experience serious challenges and would not experience a soft landing but he got it wrong on that occasion. Disappointingly, the Government questioned media commentators, economists and Opposition Members who raised concerns about housing and labelled them as prophets of doom. The current reality is stagnation in the housing market and increases in negative equity.

The delivery of social and affordable housing needs to be reviewed. I welcome the announcement by the Minister of State of the housing provisions Bill. The targets in this area are not being met at present and hundreds, if not thousands, of people are languishing on housing lists in local authority areas. These people will not be comforted by statistics about spending on the national development plan if their houses are not built. In the past several years, local authorities have reduced their direct provision of social housing and have depended instead on developers and Part V of the Planning and Development Act 2000 to deliver on their obligations. However, local authorities need to be properly resourced if they are to meet the challenge of housing.

I disagree with the Minister of State when he stated, "The continued prudent approach to managing the economy and public finances which has been the hallmark of this Government will be crucial to the achievement of this objective." That could not be further from the truth. The end of the housing boom has exposed the fallacy of the Government's claim to superior economic management. The credit fuelled and tax driven housing boom contributed to a deterioration in the underlying health of Ireland's economy. With house building overtaking foreign trade as the main driver of economic growth, 2002 marked an important milestone in the Irish economy. Building overtook manufacturing as the largest single employment sector in 2004. Construction accounted for 14% of Irish jobs, or more than twice the OECD average, by late 2006, while 2007 was the sixth year in succession that new housing output significantly exceeded underlying household formation, estimated at 50,000 per year.

Over-building did not initially slow house price growth thanks to tax breaks for developers and investors, housing demand from immigrant building workers and property speculation driven by cheap credit and capital gains. Average house prices doubled between 2000 and 2006 and tripled between 1997 and 2006 but the IMF was able to relate only half the growth in house prices to underlying economic fundamentals such as income and interest rates. At the peak of the housing credit cycle in early 2006, mortgage lending increased by more than 30% per annum. Some 69% of mortgages had loan-to-value ratios of above 90% and 36% had ratios of above 100%. This massive credit expansion drove up house prices, which in turn became the security for further credit expansion. The result was that by 2007 Irish household debt was the highest by far in the eurozone. In late 2006, the CSO reported that 15% of the Irish housing stock, or 300,000 houses and apartments, were vacant. I question whether that demonstrates the protection of the fundamentals of the economy. The current housing market is suffering from excess supply, high mortgages and a rapid increase in the number of repossessions coming before the courts. The housing market was seriously overheated but the Government exacerbated the problem at a time when controls were needed. The banks also had a role to play in the way they loosened credit and threw money at people. We are now seeing the flip side in terms of a credit crunch and string tightening by banks.

It has become more difficult for first time buyers to enter the property market, despite falling house prices. The Central Bank has reported that mortgage lending growth fell in May to its lowest point since 1992. The first time buyers' share of the market was 22.5% in the first quarter of 2007. In the same quarter of this year, it was 17.4%. That first time buyers are unable to purchase property has to be a cause of concern for the Government, politicians and the general public. They also face higher mortgage rates, tightened credit and lending criteria and decreased job security. Banks are also requiring larger deposits before offering mortgages.

It is a person's fundamental right to have a roof over his or her head, irrespective of whether that comes from public or private housing. It is the Government's responsibility to assist people on housing lists and prospective house buyers in finding comfortable and adequate housing. New initiatives are needed to stimulate demand in housing markets. The shared ownership scheme, which was intended to help people on housing lists, is good in theory but it needs to be reviewed in order to support with grants or equity loans those who cannot meet the full cost of a house in the present climate.

The Minister of State has indicated that the forthcoming housing provisions Bill will review direct provision of social and affordable housing by local authorities. Some local authorities abdicated their responsibilities through the Part V provisions which allowed them to use 20% of private developments to meet housing demands. However, housing programmes and land acquisition need sustainable models of community building. Local authorities have a role to play in this regard but if they are given that role, they need to be properly resourced.

I am aware that the national development plan provides funding for social and affordable housing. I hope there will be no cuts to housing assistance grants for disabled persons and essential repairs or to the newer housing adaptation grants because these are a significant source of help for people in meeting their accommodation needs. Where funds are not taken up by local authorities, the Minister of State suggested that they would be redistributed. In my constituency of Waterford, these grants are in high demand in both the city and the county. As chairman of a housing strategic policy committee, I have experienced the difficulties that arise in regard to providing the local authority portion of grants. The Department of the Environment, Heritage and Local Government offers 90% of the funds but the local authority has to provide the remainder. Due to the number of applications that were made previously in my area, that 10% was difficult to find. It is a successful scheme. I encourage the Minister of State to ensure it is properly resourced.

My colleague, Senator McFadden, will address the issues of homelessness and grant schemes in more detail. There is an over-supply of housing at the moment given the current level of vacant housing stock of which there are 300,000 made up of houses and apartments. We need to move this housing stock. I am speaking not of developers but of people on waiting lists for houses, including young couples wishing to have a house of their own to start a family. These vacant houses must be removed from the market and be lived in once again. It is up to Government to provide the initiatives required be it by way of equity loans, affordable housing schemes or shared ownership schemes. It is important this stock is moved as this will assist in stimulating the housing market and in moving the construction industry in the right direction.

I welcome this debate. We could speak all day about the serious implications of the current housing situation. However, with proper policies, sound management and the required investment and resources we can overcome the challenges we face. We need to reduce housing waiting lists and to assist young families obtain a house of their own. I thank the Minister of State for attending the debate today.