Affordable housing scheme will just push up prices for buyers

• Date: 19 December 2020
• Author: Cliff Taylor
• Published date: 19 December 2020
• Publication title: Irish Times (Dublin, Ireland)

State policy should be about getting more houses built in the right places at the right prices. Of course there are interventions needed, too, to support those who can't afford to buy, or in some cases rent. The Government is pursuing new approaches here, for example piloting some cost rental schemes and trying to increase the supply of social and affordable housing. All these involve State subsidies of some kind.

However, adding the proposed affordable housing scheme to the mix, involving the State taking up to 30 per cent equity on properties valued at up to €400,000, will further increase demand in a housing market where supply has already been hit by coronavirus. And it comes on top of the help-to-buy scheme; a tax rebate for first-time buyers. With the new-homes market undersupplied, and competition for apartments from institutional buyers, this points to upward pressure on prices in this area of the market as the economy emerges from the virus.

Will homebuyers be able to avail of both the help-to-buy and the new equity schemes? If so, they can get their deposit via help-to- buy and see a big cut in the purchase price. A lot of new homes will be selling for €399,999.

The building and property trades always love these schemes, of course, and will row in, saying they will help increase supply. But there is already plenty of demand in the market - mortgage approvals have rebounded after a brief hiatus during the first lockdown. So there is plenty of incentive for builders to construct new homes. If demand is underpinned by a post-coronavirus rebound in the wider economy next year, the supply shortfall will be even more evident.

The virus will hit housing completions this year, due largely to a shutdown in construction during the first lockdown. Housing completions this year will fall to about 18,500, from 21,000 in 2019, according to the latest quarterly commentary from the Economic and Social Research Institute (ESRI). New commencements have fallen sharply and the knock-on - the ESRI predicts - is for completions below 20,000 in 2021.

Another report from the ESRI recently estimated the necessary rate of completions to keep up with population trends was about 28,000 a year - others have put it at 30,000- plus. And the market is a lot of small markets and different housing types - for example, one key area of shortage is affordable smaller houses or apartments close to the city centre. The risk, in subsidising buyers when supply is tight, is that in many...