Property Investor

The collapse in prices has left the affordable housing scheme in a mess, writes JACK FAGAN

WITH THE industry holding its breath to see what kind of formula NAMA will come up with to deal with toxic property loans and the vast number of unsold homes overhanging the market, a few unpalatable repercussions are beginning to emerge.

Firstly, many houses built in obscure villages and out-of-the-way towns, mainly in the midlands, could lie idle for years and may eventually be demolished. With housing values in cities and the main towns on the floor, there is unlikely to be any appetite for commuting long distances to homes just because they can be bought for a little less.

Eastern European immigrants, who didn’t mind living in remote towns to avail of low rents, are unlikely to be returning in the foreseeable future because of the absence of work opportunities.

The unsold stock of new homes (and those partly completed) is probably larger than most admit and could take years to clear. The overall figure includes just over 3,000 homes bought by local authorities under the affordable housing scheme and these are now difficult to shift because their prices are largely the same as the open market. Job insecurity and pay cuts have undermined the entire new homes sector.

While developers drop prices to clear unsold stock and keep the banks on side, local authorities have their hands tied because, once they sell homes below what they paid for them, the taxpayer will again have to pick up the tab.

In general, affordable homes have been selling for about 20 per cent less than similar units in the open market; in one case two-beds which were fetching €360,000 when the scheme was launched could be had under the affordable scheme for €220,000. The collapse in prices has eroded the difference between the two.

In some cases where the price differential has disappeared local authorities are dropping “claw-back” arrangements under which owners have to pay back a percentage of the discount they receive if they sell their house within 20 years. But even that is not enough to generate sales, particularly in Dublin where the four local authorities have around 1,200 affordable homes on their books and few takers for them.

With €100m tied up in unsold stock, local authorities in the Dublin area will no longer be accepting offers of affordable homes from developers keen to find a buyer at a reasonable price.

For the local authorities there are risks of having to manage a substantial stock of unoccupied homes. Vandalism is as rife in many of our villages and towns as in Dublin. An attempt at diverting affordable homes into the social housing sector as a short term solution – and to ensure the units are secure – may undermine the affordable programme and increase the cost of providing social housing in the future.

Local authorities have many good qualities but these do not include the marketing skills necessary to sell affordable homes in a dormant market. Up to now those opting for these units had to provide comprehensive details, such as earnings (the income must be below €58,000 for a single applicant and €75,000 for joint applicants to qualify) and other financial information like loan approval and savings, family circumstances and employment status before they were allocated the appropriate number of points.

Depending on their position on the waiting list, they were then invited to view the type of home considered most suitable to them.

This method of selling does not work any more and, with local authorities feeling the pain of paying expensive bridging loans, it is time to call in the new homes estate agents to mount a proper marketing campaign to sell the 3,000 completed homes. The dangers of doing nothing and leaving the unoccupied houses as they are may be tempting fate . . . and the gurriers.

Anyone interested in these homes should be allowed view them before filling in any forms. On second thoughts, why not sell them on a first come, first served basis to clear the decks.

To be fair to the Affordable Homes Partnership, it has achieved a lot in just over three years and could not have foreseen that the new homes market was heading for meltdown.