The failure to include second hand houses in the scheme means existing houses are made irrelevant
Announced by Minister Michael Noonan today, the new help-to-buy scheme for first-time buyers will provide a rebate of income tax paid over the previous four tax years up to a maximum of 5 per cent of the purchase price of a new home that is valued at €400,000 or less.
Pro rata rates will apply to lower priced houses and a full rebate calculated on €400,000 will also apply to houses in excess of that and up to €600,000. No rebate will be paid on house purchases in excess of €600,000. Essentially, it could mean as much as a tax rebate of up to €20,000 towards a deposit for a first time buyer.
However, there are a number of conditions that are attached to the scheme that call into question how much it will really address the private housing shortage.
First of all, the scheme will only apply to new house builds - second hand houses are excluded. There were 440,000 new homes built between 2001 and 2011, with over 90,000 of these in Dublin and in excess of 20,000 in Kildare and Meath.
Secondly, it also fails to address the issue of countless families who moved into starter homes in the boom building years of the Noughties and now need to upsize.
Thirdly, it's very difficult to see how this scheme will materially help those in their mid-twenties as many will have been in college until their early twenties and consequently, they will be unlikely to have paid sufficient tax over the previous four years to fully benefit.
On one hand, the Government talks about bringing home some 70,000 of our emigrants, yet those who have been away will in most cases have paid no tax in Ireland in the past four years so this measure will be of no benefit to them.
Can it solve our housing crisis?
Even for those who will qualify for the scheme, the supply of new houses is not going to be remotely close to the demand, which will potentially drive up the price - something we all saw during the boom.
In the first half of 2016, the total planning permissions granted for new houses nationally was just 4,874. This comprised of 2,906 multi-development houses (i.e. estates) and 1,968 one-off houses.
Just over a quarter of all dwelling planning permissions in the second quarter 2016 were in Dublin, Kildare and Meath.
The scheme will still require first-time applicants to find a deposit of 10% of the purchase price up to €220,000 and 20% on the excess over €220,000. That means that for a €400,000 house, it would require a total deposit of €58,000 but there is potential for that to be reduced by up to €20,000.
The €20,000 grant also applies to houses up to €600,000. However, if a first-time buyer can afford a house of that price, you could argue over whether they need the €20,000 or not.
The failure to include second hand houses in the scheme means all 1.6 million existing houses are irrelevant within the context of this budget. People wanting to downsize because their homes are now too big for their needs are still in the same position as they were before today because the smaller houses that they desire will not be available.
This measure will have little to no impact on the rental market, which is suffering from serious under supply.
Therefore, if you exclude the one-off houses built for first-time buyers, which largely will be on family land, it is difficult to see more that 4,000 houses being available for the general population.
As a headline measure this sounds good until you examine the detail when it becomes apparent that it is more of the smoke and mirrors policy that epitomises this Government.