Q&A: What are the key details of the Government’s affordable housing plan?

Q: What is the situation with house prices?
A: The latest report on the average sale price of houses by property website daft.ie, published last month, noted that despite Covid-19 prices actually increased during 2020, rising €20,000 to a national average of €275,000. The report, which covered the first three months of 2021, showed the average asking price in Dublin was touching on €400,000.

Successive lockdowns have suppressed supply, but demand has remained high.

Q: What is the Government response?
A: The Affordable Housing Bill 2021 approved by Cabinet this week aims to provide more housing, but the final number has not been specified. However, the controversial shared equity scheme, which forms part of the Bill, aims to provide 6,000 affordable homes over three years, approximately 6 per cent of housing need.

Q What is in the Bill?
A: It has four parts. There is a direct scheme of affordable homes built by the State. Essentially it will encourage local authorities to build affordable (as opposed to social) homes on its own lands – at a lower cost than if it they were built on private land. One such scheme is already under way, of 50 homes in Boherboy in Cork. But many more local authorities would need to begin work almost immediately if this aspect of the proposed legislation is to work.

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The next part of the Bill will introduce a scheme for delivering cost-rental homes. The idea behind this is that the tenants pay rent for the cost only – that is, of building the home, managing it and maintaining it. The Minister envisages that the first such scheme will be on-stream later this year, with rent at 25 per cent below market value.

This will allow tenants to hold long-term tenancies of homes at prices that are lower than market rents. If these homes are built at scale, they could impact on the market by lowering the prices.

The Opposition parties support the idea of cost-rental but have criticised a recent speech by the Minister for Housing, Darragh O’Brien, in which he said a “for profit” element could be introduced.

The third component of the Bill is a change to Part V of the Planning and Development Act. It will require that 10 per cent of new developments be ringfenced for affordable housing as well as the existing 10 per cent for social housing.

Q: So why the controversy?
A: The last or fourth part of the Bill, shared equity, has drawn most of the criticism. First-time buyers will cede some of the equity in the home to the State to make it affordable. The maximum equity the State can take is 20 per cent. However, first-time buyers will also be able to avail of the existing Help to Buy tax break, which is worth 10 per cent of the price up to €30,000. So, on a €400,000 home, the two schemes would result in a mortgage of €290,000.

Regional price caps have also been announced: €225,000 for houses in some rural counties, but €450,000 in Dublin and Dún Laoghaire (and €500,000 for apartments there). The Minister said the prices are based on median prices in the regions, but the Opposition has claimed that half a million euro is not affordable in any circumstances.

The equity plan has drawn fierce criticism. The Minister has said there will be a zero interest charge on the equity for the first five years, and 1.75 per cent between years six and 15. But the critics have said the equity charges will be like a double mortgage and the scheme will drive prices up. The Central Bank, the ESRI and the Housing Agency have all come to similar views, citing studies that showed 6 per cent inflation following similar schemes in London. But, citing different reports, the Minister has claimed it will result in a 14 per cent increase in supply with only 1 per cent inflation.