Housing initiative is only the first step
The cost-price housing plans and low interest-rate mortgage scheme recently announced by the Minister for Housing and Urban Renewal, Mr Robert Molloy, are intended to help low-income earners to buy a home.
It is a tried and tested device for increasing home ownership in other European countries with high levels of owner-occupation. Britain, Spain, Italy and Finland have had similar schemes since the early 1980s.
At the moment, the prime objective of Government housing policy is to increase the supply of new homes to meet demand. Figures for 1998, when a record-breaking 43,000 homes were built, show that numerical targets are being achieved.
A second objective is to slow the growth in house prices. There are some tentative indications that stability is gradually being restored in this area. Current house prices, however, far exceed the resources of moderate and low-income earners.
Recent statistics show that the average cost of a new home outside Dublin in December 1998 was £89,000. The average cost of a new home in the capital was £115,500. In contrast, the average industrial wage for 1998 was £16,000.
Today, families on average incomes will examine the new affordable housing plans with interest. They will hope to be one of the lucky 2,000 or so households to buy a cost-price home with a low-interest mortgage over the next two years.
Without doubt, there will be many more disappointed would-be homebuyers excluded from this scheme. It is to be expected that the Minister will face a greater demand for affordable homes from the public. He will have to consider a number of options if this demand is to be met.
One option is to modify existing financial supports for low and moderate-income buyers to purchase a home. For instance, a greater degree of flexibility could be introduced into the well-established shared-ownership scheme administered by local authorities.
At present, households opting for share-ownership are expected to raise funds to cover a minimum 40 per cent stake in the property they wish to buy. The local authority funds the balance. The individual then rents this equity share from the local authority in addition to repaying a mortgage.
The 40 per cent equity stake could be reduced to 25 per cent for low-income families with the opportunity of buying a greater share as their circumstances improved.
A second option, pioneered in Wales and due for implementation in England from April 1999, is that of Homebuy. This idea is very simple. The government (through the local authority) offers an interest-free equity loan of up to 30 per cent to a would-be home-buyer. The purchaser obtains a mortgage for the remaining 70 per cent value of the dwelling.
This is a variation on shared ownership, but without the rental costs. This idea merits some detailed consideration for families with earnings above the £20,000/ £50,000 threshold who are ineligible for the new low interest-rate home loan plan.
A third option that the Minister must seriously consider is that of increasing the availability of affordable homes. After all, new housing must be suitable for a mixture of incomes. This is not the case at present.
The average price of a house for first-time buyers requires two full-time incomes to fund the mortgage. There is a clear limit to the number of affordable homes urban authorities can provide from their own resources. Housing associations have not got sufficient capital reserves to compete with private developers in the purchase of building land.
This leaves the Minister with a clear course of action. He must compel private builders to provide 20 per cent (or more) affordable homes in all housing developments in specific regions.
A policy similar to this has been in operation in Britain for the last 10 years. Section 106 of the Town and Country Act, 1990, and a series of circulars on planning and affordable housing from the Department of the Environment ensure that new housing developments contain an element of affordable housing. This is generally set at 20 per cent of the total number of dwellings planned.
There are three ways in which developers can fulfil their obligations to provide affordable housing under this policy. One is to build cost-price houses on-site at the same time as houses for private sale. Alternatively, a housing association is invited to build affordable homes on a section of the site.
It is possible for a builder to provide another site, free of charge, to the council to enable the provision of cost-price homes. In addition, a local authority can accept financial compensation from a developer in lieu of building affordable housing.
Each of the three measures are implemented to varying degrees by urban councils in Britain. The device has proved very successful in the provision of affordable housing and in the regeneration of urban communities.
Indeed, many local authorities in urban areas in Britain have become very sophisticated in their approach to increasing and improving the stock of affordable housing.
In the more progressive of these developments, a variety of accommodation options are available throughout an estate in order to facilitate a social mix of families. Private homeowners live alongside assisted homeowners and sometime social renters. A major objective of this housing policy is to avoid concentrations of deprivation and change the poor image of social housing.
A pilot project that encourages builders to incorporate 20 per cent of a proposed residential development for affordable housing is currently under way in the Docklands are of Dublin's inner city.
This initiative needs urgently to be extended to all sites in the Dublin region and to specific sites in other urban areas in the rest of the State. It offers a realistic way of rapidly increasing the supply of affordable housing.
The assistance to home-buyers announced by the Minister recently will not solve all housing issues. Indeed, some fundamental questions remain to be addressed. But, as the debate on housing policy continues, there is scope for initiatives that tackle issues of affordability and the supply of moderately-priced housing. The latest plan, one hopes, is the first step in this direction.
Yvonne Galligan is research fellow at the Policy Institute, TCD