Sinn Féin says abolishing the Help-to-Buy scheme will be good for first time buyers – is it right?

The wheels on the Irish property market are spinning. This week we saw three important pieces of new information, none of them encouraging for those trying to get into the market.

First, figures from the banks showed that the number of new mortgages approved for first-time and second-hand buyers and the amounts drawn down are both well down on the same time last year, partly due to the dire level of supply in the second-hand market. This fall in activity, the wheel-spinning, may also indicate that more and more would-be buyers are finding themselves priced out.

Second, the crisis in the rental market rolls on, with rents up by more than 9 per cent year on year according to this week’s Residential Tenancies Board figures. As in the second-hand market, we also see a crisis of supply, as landlords pull out and fewer new tenancies are registered. This market is stuck, too.

And third, an Economic and Social Research Institute study confirmed that household size in Ireland remains one of the highest in the EU. The relatively young age of the Irish population is a key factor here, but so too, is the shortage of housing in general and also of appropriately sized homes for smaller families or single people.

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Sinn Féin says abolishing the Help-to-Buy scheme will be good for first time buyers – is it right?

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It is definitely not free cash. Buyers are often not considering the implications of having a State stake [in their home], the costs of servicing it in future and the price of buying it out

It is quite the backdrop for the general election debate on housing. And one issue is going to be central to the row. It is the two big supports for first-time buyers to help them financially – the Help-to-Buy scheme, which offers a tax refund of up to €30,000, and the First Home Scheme, in which the State takes an equity stake in the property to help tackle the affordability gap.

Battle lines here are already being drawn. New Taoiseach Simon Harris has said he wants to see the Help-to-Buy scheme, due to finish at the end of next year, extended for five years, in effect for the term of the next government. The Government sees it as an essential support to buyers. The newer State equity scheme is another way to help purchasers jump the gap between what they can afford and new house prices. Both apply only to first-time buyers of new homes.

On the other side of the argument, Sinn Féin has promised to abolish both schemes, arguing that they push up prices generally and distort the market and that resources need to go instead into boosting supply, particularly of social and affordable homes. An interesting point will be how the party spells this out in its general election manifesto. Will it go for an immediate end to both supports for buyers, or some kind of phasing out? This is not straightforward. Closing the Help-to-Buy scheme overnight could be disruptive, as new developments currently in train will have factored in the availability of the scheme to potential buyers. And Sinn Féin’s promise to increase social and affordable housing supply and thus provide more homes which people can buy without supports from the State will take time to have an impact. So might any impact of the end of support schemes on house prices, though this is hard to forecast.

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And there is politics to be considered, too. As the general election debate hots up, the Coalition parties will turn both barrels on Sinn Féin, accusing it of abandoning new buyers and not being committed to home ownership. The main Opposition party will argue that Government policies are failing to deliver anything like enough social and affordable homes and that a new approach is urgently needed. It will presumably focus on its already-announced plan to vastly increase the supply of homes costing €300,000 or less, as well as measures to boost building more generally. The Government also plans to up its building game and promises new targets here over the summer.

[ The Irish Times view on the latest data on the rental market: the crisis rumbles on ]

Both sides, in other words, will promise to increase the already-vast State resources directed to housing to try to provide more homes that people can afford – but in different ways. And both will be under pressure to explain how they will actually deliver, via changes in planning, regulation, and so on.

The danger for Sinn Féin is that taking away free money is never popular

In the middle of this debate will be the supports to buyers, their impact and their future. A report by Mazars for the Department of Finance in 2022 said there was no “definitive evidence” that the Help-to-Buy scheme was pushing up prices. However, the latest Central Statistics Office figures show new-home prices rising at an annual rate of 9.2 per cent, while second-hand prices are up just 1.6 per cent. Whatever the precise cause, the support for buyers, the lack of supply and the ongoing demand, supported by often-cheaper mortgages for A-rated homes, are having an impact. And, as Mazars found, Help-to-Buy is expensive and badly targeted, helping many buyers who do not need support. Because of the €500,000 limit on the cost of a qualifying home, it is also pushing development out of more expensive land in city centres, for example towards the borders of Dublin and into the commuter counties, contrary to official policy of moving away from car-based lifestyles.

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At least from the buyers’ point of view Help-to Buy provides free cash, often used to fund a deposit. The First Home Scheme also helps to close the affordability gap, but at the price of the State taking a stake, often at an initial value of €100,000 plus. It is definitely not free cash. Buyers are often not considering the implications of having a State stake, the costs of servicing it in future and the price of buying it out, according to broker John Fahy of Pangea Mortgages. With no supports open to buyers of second-hand properties, the risk for buyers using this scheme is that the second-hand value of the house is not what they anticipate or require financially when they come to sell. Their finances will be based on the hope that house prices generally continue to rise – or that their income increases significantly.

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And so the problem with demand supports is that they become like a drug to the market and the dose gradually increases. They are a State-financed way around the Central Bank borrowing rules. There is a strong case to end them, but to do so politically you have to persuade voters that Plan B, the provision of more homes at lower prices, can work. And work quickly.

The danger for Sinn Féin is that taking away free money is never popular. The problem for the Coalition is that despite all its interventions, many young people can still neither afford to rent nor to buy and that prices and rents continue to head higher.