Government warned about shared-equity scheme prior to budget

Housing Agency notified department last September of UK study of inflationary impact

Minister for Housing Darragh O’Brien said the shared-equity scheme would support “hard-pressed first-time buyers to purchase homes in private developments”. Photograph Nick Bradshaw

Minister for Housing Darragh O’Brien said the shared-equity scheme would support “hard-pressed first-time buyers to purchase homes in private developments”. Photograph Nick Bradshaw

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The Government was warned that its new shared-equity loan scheme could end up inflating house prices ahead of the budget last year where the scheme was announced.

The State’s Housing Agency told the Department of Housing last September that a similar scheme in the UK had resulted in a 6 per cent increase in house prices in the greater London area.

The Government set aside €75 million in Budget 2021 for the scheme, which involves the State paying for up to 20 per cent of the cost of new homes in return for a stake in the property.

The initiative is designed to boost home ownership and is primarily aimed at middle-income earners struggling to secure a mortgage for homes at current market prices.

In an email, retrieved under the freedom-of-information legislation, the agency informed the department about a study assessing the efficacy of a similar scheme in the UK.

The study – carried out by researchers at the London School of Economics – found the scheme “led to a significant increase in prices for new-build units of roughly 6 per cent” in London while having “no appreciable effect on construction activity”, the agency said.

In the Welsh border area, where supply was more elastic, the study found the scheme had resulted in a noticeable pick-up in housing supply without inflating prices.

“In the areas around the English/Welsh border, where developable land is readily available, there was a significant effect on construction activity (about 8 per cent),” the agency said.

Affordable Housing Bill

The shared-equity scheme here is part of the Government’s new Affordable Housing Bill, which was approved by Cabinet on Tuesday.

Minister for Housing Darragh O’Brien said the scheme would support “hard-pressed first-time buyers to purchase homes in private developments”.

“The scheme will ensure that people paying high rents can instead use their hard-earned income to pay down a mortgage and own their own home much sooner,” he said.

Eligible homes will be subject to regional price caps based on house price data from the Central Statistics Office. Mr O’Brien also said there would be controls to prevent any inflationary effect. He has previously said the measure would be targeted, affecting about 4,000 potential buyers.

The Central Bank and the Economic and Social Research Institute have previously criticised the scheme, saying it could saddle potential participants with debt while stoking further price inflation.

The regulator said the scheme would operate by increasing the purchasing power of households but that the supply response to this type of increased demand has, in the past, been “sluggish”.

The Bill also includes a new cost-rental housing scheme, which is designed to deliver homes to be rented at 25 per cent below market values.

The Bill also provides for the extension of the part-five social housing obligation on developers, where developers set aside 10 per cent of their developments for social housing. The legislation increases this obligation to 20 per cent with developers having to supply 10 per cent social homes and 10 per cent affordable homes in any new housing development.

Part five now provides more than 20 per cent of the State’s social housing new builds.

However, some local authorities appear to be paying extremely high prices, particularly in areas of high demand, for what should be substantially discounted housing units.

The most high-profile example is the Cairn Homes development of the former RTÉ site at Donnybrook in Dublin 4. Cairn has agreed in principle a €30.2 million deal to sell 61 apartments to Dublin City Council for social housing as part of its part-five obligation, which values two-bedroom apartments at €521,377 and one-bed units at €472,797.