Government schemes to help first-time buyers get on the property ladder may increase house prices in the short term, the Organisation for Economic Co-operation and Development (OECD) has warned.
In its latest report on the Republic, the Paris-based agency highlighted housing affordability as a major challenge, while noting the Government’s plan to address the issue would take time to deliver and “to feed through to prices”.
[ Falling real incomes will trigger major slowdown in growth next year, OECD warnsOpens in new window ]
While measures such as the shared-equity scheme, the help-to-buy incentive and local authority-backed home loans were designed to support first-time buyers, it warned they had “the potential to increase price pressures in the short run in a supply-constrained market”.
It said that a recent study of the help-to-buy scheme had indicated that it was poorly targeted, while a similar scheme in the UK had proved ineffective particularly in areas such as London, where supply was an issue.
“Hence, stimulating demand further, given the existing supply-demand imbalances, should be carefully considered,” it said.
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The agency said the State’s housing crisis can be traced back to a “decade of underinvestment” after the 2008 property crash. While the population grew by 263,000 between 2009 and 2017, the housing stock grew by just 35,000 units.
“With persistent housing shortages, house prices have outpaced household income, worsening housing affordability, especially for low-income tenants and homebuyers around Dublin,” the OECD said, noting the number of dwellings per 1,000 inhabitants decreased from 436 in 2011 to 416 in 2019, against an average increase from 444 to 468 in the OECD.
The composition of the State’s housing stock is also insufficient to meet the increased demand for rental apartments, it said.
While the Central Bank’s macroprudential measures have helped to curb house price inflation in the owner-occupied sector since 2018, prices in the rental sector have continued to grow at levels well above those seen prior to the 2008 crisis.
A relatively high share of the population is now spending more than 40 per cent of their disposable income on private rents, the OECD found. A number of policies over the past decade, such as the ban on building bedsit accommodation, might have had “unintended consequences in terms of limiting rental supply”, it said.
It also claimed that rent controls, while providing short-term alleviation to sitting tenants, have imposed “price rigidities that may have a detrimental effect on the quality and quantity of supply”.
The agency described the Government’s Housing for All plan as “ambitious”, noting it aimed to deliver 300,000 new homes by 2030 while improving zoning, planning, land availability and provision of social housing. Nonetheless, the strategy will take time to deliver, it said.
The report also took aim at the State’s planning system, describing it as “complex and slow”, noting that housing developments can be subject to judicial review, further slowing supply.
Minister for Housing Darragh O’Brien is planning one of the biggest shake-ups of the planning system in decades in a bid to accelerate the delivery of new homes. Under the proposed legislation, residents’ associations would be barred from taking High Court actions against planning decisions while local authorities will be afforded greater powers to make compulsory purchase orders.
“The new planning system gives back the primary decision to the local level, which requires additional expertise and resources to make it effective and timely,” the OECD said.
