Dáil Éireann debate -
Tuesday, 12 May 1998

Vol. 490 No. 7

Adjournment Debate. - House Prices.

Mr. Rabbitte

I thank you, a Cheann Comhairle, for permitting me to raise this matter of considerable public importance. This morning's newspapers report the decision of the High Court to rule against a young couple from my constituency who believed that they had, last October, entered into a valid contract to purchase a house to be built in the Tallaght area for £129,000, only to find four months later that the price had been increased to £165,000 by the builder. That is an increase of £36,000 or 28 per cent. The increase in the house price building index for the year to December 1997 was 3.8 per cent. Building materials are substantially sourced in the domestic economy where the latest inflation figure is 2.1 per cent. Labour costs under Partnership 2000 for the four months in question were just in excess of 1 per cent.

Mr. Justice McCracken said he had "very considerable sympathy" for the plight of the young couple but because of the manner in which the sales procedure is now deliberately stipulated by the builder, no contract existed. He went on to remark that "this is happening a great deal" and Members know that the learned judge is correct. I know from constituency experience that this practice is not restricted to this house or builder.

It blatantly exploits the current market buoyancy to the detriment of young couples who have struggled to the limit of their means to buy the house of their dreams in good faith only to belatedly discover that no contract exists.

In normal contract law, if I offer to sell my house for a specified consideration and an individual accepts that offer and further pays a deposit, then a contract exists that normally is capable of being enforced in the courts. However, the current boom has allowed the industry and its expert advisers to devise sales procedures that — although designed to lure young home seekers into believing they have made a valid purchase — expressly provide in writing that a contract only exists when legal documents are exchanged. Although builders have no difficulty about accepting deposits, called "booking fees", no advantage is necessarily conferred on the purchaser. In a great many cases young couples believe they have actually entered into a valid contract and that the booking fee constitutes part performance of that contract.

There is nothing in the package of measures announced by Minister for the Environment and Local Government, Deputy Dempsey, following the publication of the Bacon report that addresses this practice widely engaged in by the industry. Government would not tolerate blatant profiteering in other areas of commercial life, yet housing is a basic human need and, consequently, there is an obligation on the Government to stop anti-social profiteering. House prices have already spiralled out of the reach of workers on average industrial pay. Finding themselves gazumped in these circumstances is especially cruel and places the victims of this practice at a further disadvantage in that prices have continued to rise in the interim.

I call on the Minister of State to intervene by outlawing the sales procedures designed to circumvent normal contract law and to have examined as a matter of urgency whether in certain circumstances competition law might be invoked to protect the purchasers. The Minister of State will agree that a 28 per cent increase in four months cannot be justified on any rational argument. If he refuses to act, builders now have the green light from the courts to hold out the prospect of home ownership to young couples and then snatch it away if higher profits are on offer.

Mr. Molloy

I have press reports on the High Court action referred to, to the effect that a couple agreed last October to buy a new house "off the plans" for £129,000 and were told last February by the builder that the price had risen to £165,000 due in part apparently to changes in exchange rates, a claim I find unconvincing. The report indicated there was no signed contract, only a receipt for a £2,000 booking deposit. It was apparently stipulated that the deposit was received on behalf of the vendor as a sign of intent only, without obligation on either party until such time as a formal contract was exchanged between vendor and purchaser.

Aside from the legal issues which have been determined by the court, this type of situation, where prospective house buyers pay a booking deposit, albeit subject to subsequent exchange of contract, and a few months later find themselves either having to pay a much higher price than originally quoted or else abandon their plans, is totally unsatisfactory and undesirable. The recent Bacon report on house prices referred to a number of market practices which were, at the very least, not in the best interests of consumers. These include the practice of phased release of new developments — where this approach is used to ratchet-up prices — the return of booking deposits and subsequent gazumping of prices and instances of excessive stage payments. The consultants stressed that it is not considered that such practices are widespread but where they occur it was to the detriment of consumers.

It is clear that in this type of situation the prospective purchaser is at a distinct disadvantage. The seller is, in a rising housing market, likely to be able to find an alternative buyer without difficulty and at the higher price. However, the prospective buyer who, having paid a deposit has geared his or her plans and finances accordingly, is likely to be the loser. If the booking deposit system is to continue to operate it should do so in an even handed manner whereby, other things being equal and having regard to the valid interests of both parties, the transaction should proceed on the terms initially envisaged. A situation should not arise whereby the prospective purchaser is effectively prevented from proceeding because the house price has increased unduly and without reasonable cause.

The most effective way to prevent the occurrence of such problems is to remove the conditions that allow them to happen. Bacon considered that, if the market was not in disequilibrium in the first instance, it would be very difficult for builders to sustain such practices. The package of measures announced in the Government's "Action on House Prices" is designed to dampen house price escalation, remove overheating and distortions in the housing market and ensure a balanced and orderly market. As a result, the scope for the sort of practices in question should be greatly diminished. Regarding specific action in relation to gazumping, the consultants' report suggested that the professional representative body of home builders could play a positive role and that the adoption by builders of a written recommended code of best practice would be a beneficial step. The consultants went on to suggest that, if it was found that such a code of practice could not be implemented effectively on a voluntary basis by the professional representative body of home builders, consideration should be given to widening the statutory powers of the Office of the Director Consumer Affairs. Such an approach would also involve consideration by the Minister for Public Enterprise as a consumer protection issue. The Minister for Justice, Equality and Law Reform would also have an interest in the context of any possible statutory provisions from the point of view of the implications in relation to contract law.

I hope, however, the voluntary approach would prove to be achievable and effective and I would like to use this opportunity to exhort all concerned to co-operate in that regard. In particular, I encourage the house builders representative organisation to give a positive lead in the development of voluntary arrangements and call on individual builders and indeed vendors generally, to act responsibly so that we do not see a recurrence of the sort of situation to which I have referred.

I will raise this issue with the Irish Home Builders Association this week.