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Dáil Éireann debate -
Tuesday, 6 Oct 1998

Vol. 494 No. 4

Private Members' Business. - Home Purchasers (Anti-Gazumping) Bill, 1998: Second Stage.

Mr. Hayes

I move: "That the Bill be now read a Second Time".

I wish to share my time with Deputies Ring and Perry.

Is that agreed? Agreed.

Mr. Hayes

The most pressing matter facing society is the crisis in the housing market. Despite the Government's response, as set out in the Finance (No. 2) Bill introduced in May, the problem is steadily getting worse. It is having a devastating effect on the ability of the State to provide decent and affordable accommodation. Given the ever increasing scale of house prices and the chronic shortage of social housing the Government must think again and devise a more comprehensive response. Its paper, Action on House Prices, published earlier this year is out of date. The pathetic outcome of the Celtic tiger is that an entire generation of families cannot satisfy one of the most basic aspirations, the aspiration to purchase a home.

My concern is shared by all Members. Politicians at national and local level have to deal with the effects of the crisis in their day to day contact with the public. Unless dramatic action is taken to provide affordable housing options for those on average incomes the foundations of social partnership and wage constraint which have led to economic success will be threatened. The people who left this country ten years ago will not return if they cannot find a home. The lack of a skilled and mobile workforce will undermine the prosperity enjoyed in recent times.

No one underestimates the scale of the problem. If we fail to address it with singleminded determination this House will be seen as an irrelevant talk shop. It is a political problem and must be seen as such. This Bill would tip the balance in favour of greater protection for home purchasers. We recognise fully that it is draconian but the measures it contains are required in an overheated market of which the practice of gazumping has become a feature. The vast majority believe it is wrong that a young couple attempting to purchase a new home can have their dream shattered as a result of malpractice in the construction industry.

When I launched my proposals I asked a simple question — when is an agreement an agreement in the property market. The increase in the number of cases involving gazumping before the courts points to a cynical and flagrant abuse of contract law. Some shocking cases have come to the public's attention. The Judiciary has highlighted the lack of a legal remedy. While it is accepted that gazumping is wrong from a moral and ethical perspective, it is the responsibility of the Oireachtas to ensure it is considered wrong from a legal perspective. This Bill would make it illegal.

As a result of hyper-inflation in the housing market, house prices in Dublin have increased by 103 per cent in the past four and a half years. In 1993 a new home in Dublin cost £60,000. At the end of the second quarter this year it cost a staggering £122,000. The average increase in the rest of the country was 73 per cent. The increase in secondhand house prices in the same period was also unprecedented and the trend is continuing as evidenced by the most recent figures in the housing statistics bulletin published by the Department of the Environment and Local Government in September. Despite the Government's response to the Bacon report prices increased by an amazing 14 per cent in the second quarter of this year and with the expected reduction in interest rates as a result of the changeover to the euro it is likely they will continue to increase.

It is within this climate of hyper-inflation that potential purchasers must compete with each other. Many first time buyers require financial assistance from their parents to enter the marketplace. Two incomes are required. A single person on the average industrial wage would have to devote 60 per cent of his or her disposable income — in excess of £13,000 — to service a mortgage, assuming he or she can pay the 10 per cent deposit. The effects on young families have yet to be properly analysed. Because many couples have borrowed beyond their income capacity problems will emerge in relation to child care and their ability to service excessive mortgages should interest rates increase dramatically.

The difficulties encountered in raising huge amounts of capital to purchase a new home can pale into insignificance when compared to the problems experienced in closing a sale. There is anecdotal evidence that the practice of gazumping has become a feature of the housing market. The cases which have come to the public's attention and which represent but a fraction of the total highlight the difficulties which can be encountered. This legislation would limit the period in which the contract has to be agreed between the vendor and the purchaser. Frequently the vendor will decide not to sign the contract despite the payment of a booking deposit. This time provides the option of attempting to sell the property at a higher price to another purchaser. Despite repeated efforts on the part of purchasers, through their solicitor, to close the sale of the property, the time lag provides the vendor with the opportunity to hike up the price following more substantial offers from other potential purchasers. It is in this climate of hyper-inflation, which I described earlier, that this problem has become commonplace and needs to be urgently addressed.

A purchaser waiting over three months to close the sale with a vendor is obviously unable to compete for a higher price for such a property three months from giving the vendor a booking deposit. Most people believe this situation to be intolerable and expect the Oireachtas to show some leadership on the issue.

I am aware that in such an overheated market the problem of gazumping is compounded but we should call a spade a spade and admit that the hyper-inflation in the housing market will not go away. The current conditions of the housing market require that strong legislative and consumer protection must be in place for purchasers and vendors.

Buying a house is the most important financial decision in anyone's lifetime. That decision needs to be underpinned by a code of practice in which vendors and purchasers know and understand their rights and obligations. In almost all the cases which have come before the courts, it is virtually impossible to get justice for the injured party. It is time to impose the ultimate sanction on persons who engage in the practice of gazumping. Through the introduction of this legislation, which makes the practice of gazumping a criminal offence and allows the courts to grant compensation to injured parties, the Dáil will send a strong signal to both purchasers and vendors that in the context of the current crisis in the housing market, the practice of gazumping will not be tolerated.

The purpose of the Bill before the House is to prevent vendors of residential property, who have agreed to sell a property at a certain price and who have received a booking deposit, selling it to another party at an increased price within an unreasonably short time after receipt of a booking deposit. Fine Gael proposes to make the practice of gazumping a criminal offence punishable by a fine not greater than £5,000 for the first offence and by imprisonment for a term not exceeding 12 months for a second or subsequent offence.

A feature of this legislation is the power given to the courts to award compensation to a gazumped purchaser of not more than ten times the booking deposit or £10,000, whichever is the greater. The Bill places a duty on vendors to deliver to purchasers a written contract within 14 days of the receipt of a booking deposit.

I will briefly outline each section of the legislation. Section 1 is the definition section. The Minister charged with responsibility for making regulations is the Minister for Justice, Equality and Law Reform. The section also outlines the precise meaning of "vendor" and "purchaser". It is important to point out that the legislation covers all residential property, encompassing both new and second-hand property.

Section 2 requires the vendor to furnish a written contract, with all relevant documentation connected to such a sale, to the purchaser within 14 days of the payment of a booking deposit. We propose that the Minister would prescribe the precise documentation to be furnished in the contract. Section 3 provides that the vendor shall not enter into any other agreement to sell the property within 14 days of the purchaser receiving the documentation as specified in section 2. If such an agreement is established it shall be null and void.

Section 4 provides that if the purchaser does not sign the contract and return it with the balance of a 10 per cent deposit to the vendor within 14 days of receiving it, the vendor may, after a period of 14 days, resell the property provided the vendor first returns the deposit to the purchaser. Section 5 provides that if the purchaser signs the contract and returns it with the balance of the deposit to the vendor within the period of 14 days, the vendor must sign the contract within seven days of receiving it and if the vendor fails to do so the purchaser may apply to the Circuit or High Court for an order compelling the vendor to do so.

Section 6 gives jurisdiction to the Circuit Court and the High Court but, where the rateable valuation of the property exceeds £500 and the proceedings have been commenced in the Circuit Court, they may be transferred to the High Court on the request of any interested party.

Section 7 makes it an offence for a vendor to fail to comply with sections 2 or 5 and provides that he or she shall be liable on summary conviction to a fine not exceeding £5,000 and, upon a second or subsequent conviction, to a term of imprisonment not exceeding 12 months. This section also provides for the payment of compensation to a purchaser where a vendor has been convicted of an offence under the Bill. Section 8 provides that the form of contract to be delivered by the vendor under section 2 shall be in the current Law Society's form, or in such other form as the Minister may prescribe, and shall give the purchaser good marketable title to the property.

Section 9 empowers the Minister to make regulations for the effective implementation of the Bill. Section 10 provides the commencement date — 28 days after the date of the Bill's enactment. Section 11 contains the short Title of the Bill.

Central to the effective implementation of the Bill are the requirements outlined in sections 2 and 3 of the proposed legislation. Under section 2, where a vendor receives a booking deposit from a purchaser, that vendor shall, within 14 days of the payment, deliver to the purchaser a written contract. In effect, this section means that the documentation surrounding the proposed sale of a property would have to be assembled at or around the time when the vendor would seek to sell the property. It is important to highlight that where gazumping has occurred to date in the housing market, it related to the length of time in which the vendor had either failed to furnish a contract or had failed to sign the contract.

By limiting the time involved for the acceptance of the contract and by making it illegal for a vendor to enter into another agreement with another purchaser, the practice of gazumping would disappear overnight. I note that in countries such as Holland, Sweden, Denmark, France and Portugal it takes an average of four to six weeks to complete house purchases. If a provision was provided in law for the sale of a property along the lines we suggest in this legislation the length of time required to transact the property would, by definition, have to reduce from the current unacceptable duration of time.

Section 4 gives protection to the vendor. It provides that, where a purchaser fails to sign the contract and furnish 10 per cent of the purchasing price of the property within two weeks of receiving a contract, the vendor shall be at liberty to resell the property to another purchaser. Under our proposal the total length of time required for a contract to be signed by both parties would be 34 days — 14 days to deliver a contract to the purchaser on receipt of a booking deposit, another 14 days for the purchaser to agree the contract with the vendor and seven days for the vendor to sign the contract.

The proposed five weeks timeframe would obviously lead to changes within conveyancing practice. An outcome of this legislation, however, would be the gathering together of a greater number of documents surrounding the sale of such property at a much earlier time. By limiting the time involved, the legislation offers a guarantee to both purchasers and vendors that the sale will be completed without undue delay.

The real life stories behind the cases of gazumping need to be expressed in the context of this debate. One such story, involving the case of Mr. Conor Hughes, was recently articulated in the November issue of Consumer Choice magazine. In 1996, Mr. Hughes experienced the inadequacies of the law in this area at first hand. I quote directly from the Consumer Choice magazine article in which Mr. Hughes stated:

I made an offer on a house after viewing it twice. We agreed on a price, paid a deposit and received a letter of confirmation.

Mr. Hughes then put his own house up for sale and soon found a buyer, but his plans were thwarted when his solicitor discovered problems with the registration of land belonging to the property he wanted to buy and the deal fell through. Mr. Hughes said: "I think there should be a legal obligation on sellers, auctioneers and solicitors to ensure that the property's legal documents are in order before it is put on the market." Mr. Hughes did not give up and got a second opinion on the case. Another solicitor said the sale could go ahead and Mr. Hughes drew down his mortgage, organised his insurance and called the buyer of his own home who agreed to go ahead with the sale despite the delay. However, on the day he was to sign the contract agreed verbally, the seller demanded a further £17,000. Mr. Hughes refused and the sale fell through once again. Last November Mr. Hughes said:

The consumer has no protection in these circumstances. The seller was perhaps within his rights, but should he be allowed to get away with it?

The fact is that sellers of property will continue to get away with it until more stringent laws are put in place to protect house purchasers. Mr. Hughes's case is typical of thousands of others in the housing market. It would be unfair not to recognise that for the vast majority of people in the conveyancing, auctioneering and construction professions, the practice of gazumping, carried out by a small group, is a deep annoyance and embarrassment.

I recognise there is support for my Bill from the Institute of Professional Auctioneers and Valuers. In a statement of support issued on 23 June the institute said:

The legal process of signing sale of house contracts should be speeded up as part of an overall strategy to end the practice of gazumping . one of the most immediate issues requiring Government attention is why it takes so long to produce final contracts once the deal has been agreed.

I welcome a recent call from the Irish Auctioneers and Valuers Institute to tackle gazumping from an alternative legislative route. Its proposal, which was recently submitted to Government, involves changing the law concerning contracts for house sales by private treaty to prevent gazumping. The IAVI argues that its proposal would have the effect of giving the purchaser a two week option once the private treaty is issued. Private treaties represent the majority of contracts in the transaction of new and second-hand property. Provided a buyer executes the contract without changes and returns within the two week period, the contract would be binding on both purchasers and vendors. My concern with this proposal is that it fails to address gazumping cases prior to the issuing of contracts, a problem highlighted in some cases where a vendor failed to issue a written contract to the purchaser. I welcome the two week time limit proposed by the IAVI.

The Minister of State at the Department of the Environment and Local Government, Deputy Molloy, told the annual convention of the Irish House Builders Association last May that the house building industry had a responsibility to self-regulate its own industry. He said: "If that is not seen to work in the interests of consumers then other options have to be considered." I am interested in knowing the nature of such options being considered by the Minister of State and the Government. My party's view is that voluntary codes of practice will not achieve their stated objectives, and this view is shared by the Director of Consumer Affairs, Mr. Fagan, who said that the Irish House Builders Association "really has no form of enforcing discipline." He suggested stronger measures may be necessary, including statutory penalties for builders who cannot justify a price increase made after making a deposit.

There is now a consensus in the gazumping debate on providing a legislative response to this problem. That response must have clear penalties for vendors who engage in such practices. Put bluntly, the Government's response to the problem, as seen in its proposal for a voluntary code of practice, will not stamp out the existence of gazumping in the Irish housing market.

I hope the Government changes its position on this issue during this debate. Fine Gael does not claim to have all the answers to this problem, but the Home Purchasers (Anti-Gazumping) Bill, with appropriate amendment on Committee Stage if the House thinks it necessary, provides the most obvious formula to make the practice of gazumping unlawful. I commend the Bill to the House.

I compliment Deputy Hayes on this Bill and on his work since being appointed junior spokesman on housing. I hope the Government accepts this Bill as a step in the right direction. If changes on Committee Stage are necessary, this side of the House would be agreeable to that, as Deputy Hayes said.

I bought a site in Westport town in 1977, when I was a young man and recently married. The cost was to be £1,100.

Deputy Ring is still a young man.

I thank Deputy Broughan. A businessman in Westport owned the site and sold it on to an Englishman within a week, though I had agreed the sale of the site. I had planning permission and was ready to start my house. The businessman rang me on a Friday evening to tell me that he would not be going ahead with the sale of the site as he had sold it to an Englishman, Mr. Stevenson. He told me to contact Mr. Stevenson as he might sell the site to me. I met Mr. Stevenson the following Tuesday and he told me he would sell the site for £2,300, which was a lot of money in 1977. It was where I lived, I had the plans for my house ready and my wife wanted to live there. I had to make a decision, and I bought the site for £2,300. However, I had to put off building the house for about ten months because I could not afford to start it. I never forgave that man in Westport nor the Englishman for buying the site. If I had the money at the time I would have bought the whole area. I am still there 20 years later while the Englishman is gone, though he made some money before leaving, as well as causing problems that had to be solved by the local community.

Deputy Hayes pointed out that we have a serious housing crisis. When a young man and woman get married, the first thing they want is to buy a house or site. I speak with two hats: as an auctioneer and as a politician. Any politician worth his salt who deals with people on a regular basis is told that housing is the biggest problem people are now facing. Some 60 people attended my clinic in Westport yesterday, and 30 per cent of them were looking for council houses. Of that number, 25 per cent would buy their own sites or houses if they had the opportunity. However, house and site prices are out of their reach and they are dependent on the local authority.

I would like to see a situation where, if I were selling Deputy Hayes's house, I could give him a valuation for his house and if he were satisfied with that valuation the price could be put in a brochure. The person who reaches that price first should be the owner of the house. However, people ask auctioneers to sell their houses and when given a valuation they say: "We will talk about this at a later stage. See what offers come in." The offers come in and they increase the price of the house. Auctioneers are expected to obtain the best price for the people on whose behalf they are selling the house. Many people have come to my auction business with their finance arranged with the banks and ready to buy a house. I have been delighted on many occasions to say I could sell them a house only for the seller to ask for £10,000 more the following day. That is not on and we in this Parliament should protect the consumer. It is wrong for builders and other individuals who, when the valuation is given to them, believe there is more to be had. It is very unfair on young couples and on society in general.

Something must be done to allow more people access to the housing market. Since the Government came into office, it has done nothing except make the rich richer and the middle class and poor poorer. Whatever chance people had of buying a house three or four years ago, they have had no chance with the past three or four budgets. I speak against the Government of which my party was a member when I say that. There was a pilot scheme in Westport which was the greatest disaster ever in the town. Young couples born and reared in Westport must now live elsewhere while people from Cork, Dublin and New York live in the town and own three or four houses. All the while, the poor locals have no houses and the situation has made property more expensive.

A few steps can be taken to solve the problem. The ludicrous first time buyer's grant of £3,000 should be raised to at least £10,000 to keep pace with the price of houses and sites. There should be a grant of £10,000 for old houses in rural areas to try to make people move to such places. The condition would be that they would live in the house for ten years. Local authority housing should be examined. People move into council houses, move out after two years and sell them for a large profit. I grew up in a local authority house and am proud of that. People who buy local authority houses should live in them for ten years at least. If they sell them, they should sell them back to local authorities for the price plus the rate of inflation for the few years they lived in them rather than to someone else. Normally they are sold on to investors who rent them out. That is wrong.

There is now a ridiculous situation stemming from a decision taken by the then Minister for the Environment, Pádraig Flynn, to abolish grants for second hand houses whereby there is no grant for young couples to buy a second hand house or for the repair of old houses. It is time reconstruction grants were reintroduced for middle and low income earners, rather than millionaires, doctors and solicitors, who might have bought a property ten years ago and who now need new windows, doors or roofs.

Another problem which has arisen in recent years because of the Department of the Environment and Local Government and do-gooders such as An Taisce is that people object to construction in rural areas.

On the situation with puraflow systems, the Minister of State should introduce a scheme whereby a person granted planning permission and who must install a puraflow system, which costs £6,000 to £7,000, should receive a grant of £2,000 to £3,000 to assist them.

This Bill, which attempts to stamp out gazumping in the construction industry whereby builders refuse to sign contracts while they wait for higher offers from home purchasers, is overdue and I congratulate Deputy Hayes for bringing it before the House. It should be illegal for a vendor to take an offer on a property after accepting an earlier offer from a purchaser. It is outrageous for such a situation to occur although it is currently the case.

There are no safeguards to protect young couples who find that builders refuse to sign binding contracts while they wait for higher offers from elsewhere. If one enters into a simple transaction to buy a television, there are commitments of sale. It is a matter of concern that basic consumer protection should be absent from the most important financial decision most people will make in their lifetimes. By making it illegal for the vendor to enter into a further agreement with another purchaser when a booking deposit has already been paid, the practice of gazumping would disappear almost instantly. I congratulate Deputy Hayes on introducing the Bill at this stage because the time for it is now.

Some people cannot buy houses because builders, developers and bankers are making huge profits on house prices. Why is Ireland the only country in Europe not to bring consumer protection into the housing market? The claims by the Government that a voluntary code of practice will deal with the problem is laughable because it will never happen. It needs regulations, rules and law. It is unreal that people are paying up to £100,000 for a three bedroom house with no regulation governing such a transaction. Every possible retail service is legislated for. Even if the label listing the ingredients of a cake sold in a supermarket is not properly attached to the top of it, the retailer and the manufacturer will be prosecuted.

Last week in Dublin, prices for certain apartments rose by £10,000 during a lunch break. This is unbelievable. The great fear is that house price inflation represents a threat not only to the building industry but also to vital continuing economic growth. The Minister said the construction industry has the potential for self-regulation. It has had the opportunity for years and has repeatedly abused it. The time has come for the Minister to use the power available to him to make regulations. The code of practice which he believes will develop will not be implemented on a voluntary basis. The Minister for Enterprise, Trade and Employment should consider widening the powers of the Office of the Director of Consumer Affairs. The Minister for Justice, Equality and Law Reform also has an important function in enforcing contract law in this area. It is unbelievable that a deposit can be placed on a property and yet it is still for sale.

The role of banks must be questioned because they are competing with each other to dish out money to young couples. Any person selling a property has a nominated banker and can nominate five or six financial institutions which will give people loans of three to four times their gross salary. It is wrong that children will be paying for their parents' houses in future.

The cost of building a house today is £40 per square foot. How can builders justify charging £150 per square foot? Is that profit being taxed? In my business there is a cost price and a recommended retail price beyond which one cannot do business. Apparently in this industry, anyone can do business if the money is made available. The most frightening aspect is that, according to the Consumers' Association of Ireland, few home buyers whose deals have fallen through have gone to court because they believe there is no sympathy for them there. They are dealing with sleazy professionals with plenty of money who can afford top barristers. If people resorted to the courts, they would wind up with £2,000 of a legal bill and no house. There should be statutory penalties for builders who cannot justify a price increase.

The housing problem is one of the most serious crises in the past 20 years and it is getting worse. The purpose of the Bacon report was to push out investors to allow in first time buyers. That has not happened. First time buyers cannot enter the market. Regulations must be introduced ensuring the purchaser has an entitlement when a deal is made. Business is about trust and that has gone. The Minister should now accept Deputy Hayes's timely Bill which is a long overdue measure in this area. The responsibility now rests with the Minister.

The issues involved in this debate range across my area of responsibility and that of the Minister for Justice, Equality and Law Reform, Deputy O'Donoghue, with whom I propose to share my time.

Is that agreed? Agreed.

Sections 1 and 8 of the Bill acknowledge the primary role of the Minister for Justice, Equality and Law Reform in regard to contract law. As Minister of State with responsibility for housing and urban renewal I have an interest in the subject matter of the Bill and its implications for house buyers. In the main I will be addressing the housing policy aspects.

The basic issues to be addressed when considering this Bill are its implications for various areas of law that come within the remit of the Minister for Justice, Equality and Law Reform and its practical implications for the process of property sales and conveyancing. Therefore, I will only briefly refer to these legal difficulties and my colleague will deal with them in greater detail. For the reasons we will outline, the Government will not be accepting this Bill.

I wish to emphasise the Government's concern regarding recent reports of gazumping. This practice has not been a traditional feature of the housing market and we would all agree it is not in the best interest of anyone involved in the housing market. It is unacceptable to the Government to have a situation whereby prospective house buyers pay a booking deposit, albeit subject to subsequent exchange of contract, and a few months or even weeks later find themselves faced with a demand for a higher price than originally quoted, or are forced to abandon their plans.

The report on house prices by Peter Bacon & Associates, economic consultants, referred to a number of market practices which were considered to be, at least, not in the best interest of consumers. These include the 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 staged payments. The consultants stressed that it was not considered that such practices were widespread but that the impression was that they were increasing and where they occur it is to the detriment of consumers.

As Deputies will be aware, gazumping arises where there is an understanding to sell a property to one party at an agreed price, but subsequently the vendor accepts a higher offer from another party prior to the completion of legal formalities with the original prospective purchaser. The practice is invariably associated with a strong or overheating property market. Such conditions have been a feature of the Irish housing market over the past few years and were evident before this Government took office.

The provision of affordable housing is a priority for this Government. This year we will achieve an all time record level of new house building. In terms of Government investment in housing we are providing more than £437 million in the public capital programme, an increase of 26 per cent on the amount made available by the rainbow coalition last year.

A prospective purchaser having paid a booking deposit to an estate agent may mistakenly believe that he or she has acquired an entitlement to purchase the property at an agreed price. However, a booking deposit is paid before a formal contract is entered into and there is no obligation on either vendor or purchaser to conclude the sale or to do so at a particular price. In a rising market, the vendor is in a strong position since there is likely to be little difficulty in finding another buyer. On the other hand, the purchaser is in a weaker position, having paid a deposit and geared his or her plans and finances to purchase the particular property. The booking deposit system, which has generally served both buyers and sellers quite well, needs to operate in an evenhanded manner. In this regard, transactions should proceed on the terms initially envisaged. Unless there are major extenuating circumstances, a situation should not arise whereby the house price is increased after payment of the booking deposit.

However, the Bill now before the House does not provide a solution to the problem of gazumping. The basic approach in the Bill is seriously defective from a legal standpoint and is not capable of being amended to provide a sensible solution because of the extent of constitutional and practical difficulties with the Bill. Not only would this Bill fail in its stated objective of dealing with problems of gazumping, it would be likely to create difficulties, confusion and uncertainty in the process of selling a residential property. I am conscious not only of the legal advice but also of concerns expressed to my Department by mortgage lending and auctioneering interests and the Director of Consumer Affairs. Let me cite some examples of the difficulties involved.

One practical problem with the Bill is its possible adverse impact on the interdependent buyer and seller chain where a house buyer is simultaneously selling an existing property. The rigid timescales in the Bill would have undesirable consequences in this regard. It takes no account of factors such as delays due to investigation of title, the assessment of value and physical condition and application for mortgage approval which can lead to delays in property transactions. It can often be in a buyer's interest to have a degree of breathing space in closing a deal where they are trying to sell their existing house. If this breathing space is artificially constrained there would be considerable practical difficulties for buyers in entering into commitments and consequent disruption to the chain of transactions in the market.

Under present circumstances, buyers, sellers and their solicitors can come to mutually acceptable arrangements with regard to the timing of the various transactions involved. This Bill would tie everyone's hands to the extent that no flexibility would be available in regard to the timing of the sale of houses.

I am very concerned that the proposers of the Bill may not have taken due account of its possible implications for other legislation. In particular, it does not appear to take due cognisance of the long-standing legal requirement, going back for several hundred years, that a contract for the sale of land, which, of course, includes a house, must be evidenced in writing in order to be enforceable. The possible implications on family law protection legislation are neither recognised nor addressed by this Bill. Therefore, the Bill is deeply flawed for reasons that my colleague will go into in greater detail.

Apart from the defects in this Bill, it is likely that any similar legislative approach which sought to place restrictions on someone's rights to sell their property as they see fit, would have to address profound constitutional and legal issues in the area of property rights. However, I do not want to totally exclude the possibility of there being scope for action in the legislative area. In view of the complexity of the legal issues in the areas of contract law, conveyancing etc., and the need to consider possible implications very carefully, the scope for any possible legislative approach to this matter is something that might be referred to the Law Reform Commission.

There are clearly considerable doubts about the appropriateness of approaching the issue of gazumping by means of legislative restrictions or sanctions and it is not an approach which can be entered into without careful legal research and consideration. Rather than attempting a quick fix legislative approach which could create more problems than it solves, the approach favoured by the Government is to pursue practical measures which will help to improve the situation in the short term, while arranging to have the possibility of any appropriate legal response carefully and thoroughly examined.

The consultants on the house price study recommended a written voluntary code of practice as the most effective means of limiting undesirable practices such as gazumping by some house builders and suggested that the professional representative body of home builders could play a positive role through the introduction of such a code. Following the publication of the Bacon report and the launch of the Government's Action on House Prices, I raised the question of formulating a code of practice to deal with undesirable market practices with the Irish Home Builders Association. I am glad the response of the association has been very positive. It has assured me that it has made considerable progress on the draft code of practice in regard to the problems of gazumping and excessive stage payments.

I understand the association will propose a code of practice which enshrines the principle that where a booking deposit is made for the purchase of a house at a particular price, the transaction should proceed to conclusion, subject to appropriate conditions and requirements being satisfied. While the association's proposals will have to be carefully considered when finalised, I hope we will arrive at a successful conclusion and I will continue to press for finalisation of the code of practice as soon as possible.

I understand there might be some concern as to the likely effectiveness of a voluntary code. However, I point to the success of the Home-Bond new house guarantee scheme as an excellent example of how voluntary self-regulation can and does work effectively in the house building industry, with considerable benefit to the consumer. The code of practice approach is that favoured by the Director of Consumer Affairs and also by the Law Society.

Having recommended the adoption of a code of practice as the preferred option to address the gazumping issue, the consultants suggested 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 of Consumer Affairs in this area. This is a legislative option which remains open to the Government should the voluntary code of practice not produce the desired result.

In addressing this Bill, I have necessarily concentrated on the practical implications for the housing market and also the specific course of action which is being taken by the Government to address the gazumping issue.

However, it is important to recognise there is a general housing market dimension to this whole question. The most fundamental safeguard against the occurrence of problems such as gazumping lies in addressing the market conditions that allow them to happen. Gazumping is a symptom of an overheated market. As the consultants pointed out, if the market was not overheated in the first instance, it would be very difficult to make such practices effective.

The Government responded quickly and decisively to the Bacon report on house prices with a comprehensive package of measures announced in its Action on House Prices published on 23 April 1998. The package involved a three-pronged approach to increase the potential supply of housing, address factors causing overheating or distortions in the market, and improve the position of prospective first time buyers. The full effect of some of the measures, particularly those designed to promote housing supply, will be seen only in the medium term. Positive effects have already been reported by market sources, including signs of some easing of house prices, first time buyers reclaiming the starter home market, which had been increasingly dominated by investors, and an increase in the number of second hand houses coming on the market as a result of stamp duty reductions. Housing output in 1998 is set to exceed last year's record level. The Government's approach, therefore, is to pursue the course of action recommended in the Bacon report and accepted by the Government in Action on House Prices, while at the same time, keeping the option of a properly thought out and effective legislative response as a back up if the voluntary code of practice fails to deliver the goods.

Deputy Hayes stated incorrectly that the Irish Auctioneers and Valuers Institute supported the Fine Gael Bill.

Mr. Hayes

I did not say that.

That is what I understood the Deputy to say. Certainly it does not support the Fine Gael legislation.

Mr. Hayes

It supports legislation which the Minister does not support. The Minister should read the letters a little more closely.

The IAVI responded negatively to the Bill recently produced by Fine Gael because it centred on the taking of initial or booking deposits. We recognised that this proposed solution was impractical as it could easily be circumvented. It is not essential to take such deposits to effect a sale of any property. If the Fine Gael Bill were adopted, such deposits would cease to be taken, thus nullifying its intended effect. That is only part of the opinion of the Irish Auctioneers and Valuers Institute about the Bill.

Mr. Hayes

A little more thinking is required by the Minister.

Also the Director of Consumer Affairs has expressed serious reservations about the effects of the Bill and the lack of research into the effects it would have on other legislation. It would add major confusion in the housing market. A synopsis of his views, from a letter he sent us dated 5 October is that the implications of any proposal in this area would have to be properly researched to avoid house purchasers ending up more confused than ever, as would have happened if the Fine Gael Bill were adopted. The comprehensive actions taken by the Government to deal with the housing crisis are unprecedented in their scale and contrast starkly with the inaction of our predecessors.

Yes, they are unprecedented.

Housing issues are a Government priority and I am confident our actions will restore a better balance between supply and demand, thus dealing effectively with the increased overheating in the housing market which the previous Government largely ignored. This Bill, while good for publicity, is fundamentally defective.

Mr. Hayes

Stalinist propaganda.

The Minister hates the truth.

Far from what is claimed by its sponsors, it would only make matters worse for anyone trying to buy or sell a house.

Fianna Fáil will have to look after the builders. It will hand over more money to look after them.

Therefore, the Bill is being opposed by the Government and the Irish Auctioneers and Valuers Institute of which the Deputy, as an auctioneer, is a member.

My colleague, the Minister of State, Deputy Molloy, has already outlined some of the reasons the Government opposes the Bill. However, there are some additional matters on which I will concentrate.

I acknowledge that the issue which Deputy Hayes has sought to highlight in bringing forward this Bill is one which gives rise, and rightly so, to deep-seated feelings of anger and frustration when encountered by those who are seeking to buy a house. This is the case regardless of whether the people involved are first time buyers or already have a foot on the home-owning ladder. Acquiring a house or moving house is generally regarded as one of the most stressful experiences we are likely to have during our lifetimes. Therefore, it seems unfair and unjust that the normal stress associated with the experience should be magnified by bad behaviour on the part of those who take advantage of a rising market to maximise the profit which will accrue to them from the transaction.

However, we cannot always punish bad behaviour by the use of criminal sanctions. Furthermore, while most right-minded people will naturally abhor the greed and selfishness which can characterise the practice we commonly refer to as gazumping, we must be careful that any proposed remedy is proportionate and does not add further to some of the inequities which may be in the housing market.

It may be useful if I outline, briefly, some aspects of contract and conveyancing law which have a bearing on the Bill. In part, this is because one of the problems which the Bill presents is that it tends to confuse and conflate several aspects of the conveyancing process and this makes it difficult to talk, in a meaningful way, about some of its central elements.

Contracts for the sale of land are part of a process which puts them in a different category to other contracts. The process is quite complex and this reflects the vitally important nature of the transaction at issue. Of crucial importance is the need to ensure that a purchaser gets good title to the property which he or she has contracted to buy. Otherwise he or she may find that the asset on which he or she has expended a large sum of money is difficult, if not impossible, to sell on at a later stage.

When a person engages in the purchase of property, there are a number of legal steps he or she must follow. To put it at its simplest, there is the stage before any binding contract is made, there is the conclusion of the formalities necessary to make a binding contract for the sale of the property in question and, finally, there is the conveyance of that property which ultimately sees the title in the property pass from the vendor to the purchaser. In a normal transaction it would not be unusual for a period of at least six weeks to elapse between the date the contract for sale has become binding on the vendor and purchaser and the closing date for the transaction. While pre-contract inquiries are becoming more usual, matters of detail, especially those which pertain to title, may have to be sorted out during this intervening period.

Under our law, contracts for the sale of land, if they are to be enforceable by action, must be evidenced in writing. Most often, this will take the form of a full written contract but an oral agreement, supplemented by a written note or memorandum, can, in certain circumstances, be sufficient. The remedy which has evolved to deal with the situation where an aggrieved party wishes to enforce a contract for the sale of land is the action for specific performance, whereby a court, at the behest of one party, will order the other party to carry out the contract strictly according to its terms.

In certain circumstances, the doctrine of part performance may apply so that an oral agreement for the sale of land may be enforced, despite the absence of written evidence. This does not mean there was no contract to begin with. Rather, what is being pleaded is that there is an oral contract which the other party, for whatever reason, is refusing to honour. Case law provides us with clear examples of where part performance might be relevant. One such example would be where the alleged vendor has vacated the property and the alleged purchaser has taken possession. Another would be where expenditure has been incurred in making alterations or improvements to the property which is the subject of the alleged agreement.

One thing we must be clear about is that this Bill is attempting to deal with the situation where there is absolutely no contract between the parties. The payment of a deposit on entering into a contact for the sale of land is usually regarded as an essential element of the transaction but is not to be confused with a booking deposit paid before the contract for sale is entered into which has no legal standing whatsoever. As the legislation stands a fundamental principle of conveyancing law is that a booking deposit gives the purchaser no interest in the property to which the deposit relates. Contrary to what the Bill suggests, payment of such a deposit does not constitute a preliminary agreement between vendor and purchaser and payment of it does not in any way commit the parties to a contract. If we are to depart from that fundamental principle it is essential that we carefully consider the implications.

The freedom to negotiate is an essential part of the contractual relationship. The Bill would attach rights to the payment of a booking deposit which do not currently exist and which would result in a curtailment of the vendor's freedom to sell a property to whomsoever he or she wishes. The Deputy may well have considered the constitutional parameters within which he sought to frame the Bill, but I wonder if the property right guarantees contained in the Constitution have been taken into account as fully as they might be.

Under Article 40.3.2 of the Constitution the State is bound to protect the property rights of every citizen from unjust attack and in the case of injustice done to vindicate those rights.

What about those with no property?

Article 43 is concerned exclusively with private property matters and it is quite clear that the general right to transfer property guaranteed by Article 43.1.2 of the Constitution encompasses a guaranteed right to transfer specific items of property such as a house or a plot of land. The Bill would interfere with those rights. While only the courts can state categorically whether the interference is unconstitutional, the advice available to me is that at the least there are serious risks of unconstitutionality attaching to the Deputy's proposal. We must be cautious about attaching conditions to the exercise of a particular right in relation to property which might reasonably be viewed as oppressive. However tempting it might be, statutory intervention which restricts the free operation of the market in a way which might be considered unjust cannot be upheld no matter how worthy the intentions might be of those who propose that intervention.

I have considerable sympathy for those on the other side of the House who seek to advance the legislative process by putting forward Bills on matters where they feel there is a need for reform and I accept their task is a difficult one. However, in this case the Bill is not only short on certain drafting matters but there are problems both of principle and practice in the approach it takes.

The Long Title refers to the fact that the Bill is directed towards preventing vendors from unreasonably increasing the sale prices of residential properties. This implies that there may be circumstances where some increase is reasonable but no attempt is made to define when this might be. The Bill also makes little allowance for the fact that there can be legitimate reasons vendors and purchasers have to withdraw from property transactions. There can be changes in family circumstances, for example, which make a contemplated sale no longer possible. There can also be changes in financial circumstances which have the same effect.

While contracts for the sale of land may form a special class of contract, they are also subject to the general principles which govern the law of contract. For example, there must be an offer and an acceptance. There must also be a consideration and an intention to create legal relations. Furthermore, a party who is forced into a contract against his or her will may, if they successfully plea duress, have that contract declared void. The Bill cuts across many of these fundamental principles and causes me to question whether the Deputy has seriously thought through the full implications of his proposal.

It is a legacy of our legal history that transactions involving the sale of land are complicated. The Bill prescribes certain timescales which it imposes regardless of circumstances. It presupposes an ideal world where problems with loan finance, title and planning, to take but a few examples, simply do not exist. Not only does it constrain vendors which is its ostensible purpose, but it imposes equal constraints upon purchasers. The purchase of a house is one of the most important transactions an individual is likely to engage in during his or her lifetime. It is not unreasonable that the transaction should be given as much time as it needs and it is a downside of the Bill that it could draw individuals prematurely into binding contracts on which they are then compelled to follow through.

The Bill would impose criminal sanctions for breach of its provisions. Leaving aside any constitutional difficulties to which such a proposal may give rise, I have strong doubts as to whether this is an appropriate way to proceed. We may be talking about conduct which is less than honourable but we are not talking about fraud. I question the appropriateness of criminal sanctions in this context. We may not condone the actions which the Bill seeks to prevent but the relationship between the action and the sanction must be a reasonable one and the Bill simply does not contain the necessary element of reasonableness and balance.

The Bill assumes that the existing practice of booking deposits will continue and uses the peg of such deposits upon which to hang the full weight of its proposals. I will say no more than that such confidence might prove to be misplaced.

The Bill also distinguishes between residential and other kinds of property so that a different regime would apply in the case of the former, one which would be ostensibly at least more favourable to the would be purchaser. Without being categoric on the issue I wonder whether this distinction is justifiable in all cases.

Finally and perhaps not surprisingly given the current market, the Bill focuses on the problem of gazumping where the vendor takes advantage of a rising market to sell at a higher price to another buyer than the one he or she was originally in negotiation with. However, when the trend is in the opposite direction it is the vendor who is in the vulnerable position. If we are to be even handed we must condemn unscrupulous purchasers just as much as unscrupulous vendors, although I am the first to admit that it is the unfortunate purchaser who stands to lose at present. Legislation which fails to balance the scales and take the broader picture into account runs the risk of being seen as inequitable.

I do not think we can use the law to force individuals to sell property against their will. If there is a contract the law will enforce it, but where there is no contract there is a question to be answered as to whether we can deem one to exist and then criminalise the party who refuses to be bound by this statutory deeming.

I cannot pretend that an easy legislative solution to this matter is possible. The circumstances attendant upon the formation of individual contracts for the sale of land can be very varied and there are limits to the extent to which it may be possible to regulate behaviour in this area by way of legislation. There are also boundaries to the extent to which a Government can interfere in regulating the market and we have to be cautious in dealing with one very specific problem lest we give rise to even greater attendant problems.

The Bill is very deeply flawed. It has a number of legal infirmities and is unworkable in practice. While I am reluctant to criticise the Deputy too much, I suspect he is less concerned with reform of conveyancing law than with presenting an opportunistic Bill which merely offers the semblance of a solution to the minority of purchasers who have found themselves in a gazumping situation. The Government is tackling the housing issue in a way which is coherent and structured. We are concerned to devise real solutions which can work and which will yield long lasting dividends.

For the reasons I have mentioned and those previously mentioned by the Minister of State at the Department of the Environment and Local Government, Deputy Molloy, the Government must reject the approach contained in this Bill.

I wish to share time with Deputy Seán Ryan.

Is that agreed? Agreed.

I welcome the opportunity to speak on this timely and thoughtful Bill introduced by Deputy Hayes. The Bill is an attempt to respond to one of the most irritating and frustrating aspects of the current housing crisis. Deputy Hayes has tried to address the outrageous behaviour of builders and developers recently highlighted by the press.

The Fianna Fáil/Progressive Democrat Government is presiding over a disastrous housing situation. In recent months, it has hidden behind the skirts of the Bacon report. Government members are clearly afraid to take on their own friends in the construction industry and face up to the harsh realities which tens of thousands of young men and women are facing. Tonight we are witnessing the Government's wilful opposition to reasonable legislation. The Labour Party will table amendments to the Bill on Committee Stage but its central thesis in attempting to deal with an outrageous situation deserves praise.

In the four Dublin county council areas we have the appalling vista of 12,000 or 13,000 families waiting for housing with up to £100 million being spent by the Eastern Health Board to secure private rented accommodation for people, not all of whom are on the housing list. Different housing systems operate throughout the country and people require more and more housing points to qualify for the limited amount of housing available. This Government seems to be living in cloud cuckooland in regard to the desperate situation which pertains throughout the country and it will be severely punished for that in the upcoming by-election in Cork and, indeed, in the next general election.

In regard to the shared ownership system, people on incomes of less than £15,000 are faced with the prospect of repaying £80 to £100 per week or up to £450 per month on a mortgage for a 40 to 60 per cent share of a house in the Dublin region. House price inflation has effectively condemned many thousands of young people to the prospect that they will never be able to own property in spite of the Minister's concern about protecting people's property rights.

The crisis is acute in the Dublin city area; this year the city administration, which is responsible for one seventh of the people in the country, received the princely allocation of 230 houses. The Minister of State with responsibility for housing cut the housing allocation figure this year and Dublin Corporation was only able to purchase 70 houses. In my constituency, which encompasses a huge area of the city, no houses have been purchased in the past four or five months. The situation is even worse in the Fingal County Council area as my colleague, Deputy Ryan, will detail. In my own area of Fingal, dozens of local families face a desperate housing problem.

I would like to see the Minister exercising control on the auctioneering profession, builders and developers. Those professions have, to a great degree, played a key role in gazumping the market. It is extraordinary that Deputy Ring, a member of the auctioneering profession, admitted it had played a big part in fanning the flames of the housing market. I noticed a dramatic rise in house prices when a prominent south side auctioneering firm opened on the north side of the city. Prices seemed to suddenly jump by £10,000 to £15,000; that certainly sucks the marrow from the bone of people on very low incomes. Of course the auctioneering profession is totally unregulated. Why does the Minister not introduce a Bill to regulate the profession? Anybody can become an auctioneer if they have £10,000. The Minister has a responsibility to the young families of Ireland to regulate the profession.

Why did the previous Government, of which the Labour Party was a member, not introduce such measures?

I introduced three Bills to bring some fairness into this economy but they were thrown out by the Government. People are making up to 200 per cent profit in the housing market but the Minister is not prepared to examine the issue.

We are witnessing a rezoning frenzy in north and south-west Dublin at the moment with the Flood tribunal due to meet in the near future. Local government in Ireland has very little real power yet it has been granted the important power to rezone land. It is little wonder that some politicians were allegedly corrupted in the process. The healthy relationship which existed between the construction industry and elected representatives in the past is being corrupted.

The Estimates will be published in a few weeks' time in the lead up to the budget and the escalation of house prices and the terrible problems that presents for people on low incomes must be addressed. The Government is on target to have at least £700 million in budget surplus and should come up with some proposals to increase the supply of housing. Money for the private rented sector in the health board area could be reallocated towards the expansion of the housing supply in the Dublin area.

Last week, I asked the Minister for Environment and Local Government if he was prepared to admit the division of Dublin into four county council areas was a failure. The Minister should consider having a single housing authority and list for Dublin which would be overseen by the city manager. Perhaps there could be close involvement with Meath, Kildare and Wicklow County Councils. We need to look at regional spatial development solutions. So far this Minister has walked away from that. We need to have restoration of power at local level.

One of my colleagues referred to over-lending by financial institutions. On a day when our biggest building society has become a privatised company and we are left with only one or two large mutual societies, societies which were founded primarily to help couples on lower incomes, the Minister for Finance, Deputy McCreevy, might examine that matter in greater detail and come up with ideas. Demographic factors have fuelled this, particularly in the Dublin region, with a massive return of skilled Irish people and the recent influx of people from other countries. A number of other areas might be looked at in closer detail, and we will certainly do that in Committee.

I commend Deputy Hayes and his party for bringing the Bill before the House.

I welcome the opportunity to speak on this Bill. Notwithstanding our reservations about certain aspects of it, the Labour Party will be fully supporting this Bill tomorrow night. I compliment Deputy Hayes. In the Seanad I introduced a Bill on development and unfinished estates and so on which was rejected by the Government. Here is yet another Bill dealing with developers and housing to which the Government is saying no and on which it is not prepared to take decisive action.

Coming from the constituency of North Dublin, I am acutely aware of the need to protect consumers during the whole process of house purchasing. The current housing shortage, particularly in the urban centres of Dublin, Cork and Galway, is putting enormous pressure on people who are house hunting. The problem should not be made infinitely worse. What we need is Government action.

On the question of gazumping, the Minister gave the impression that this was something new. Nothing could be further from the truth. Four years ago in my constituency couples seeking to take the first step up the ladder and buy a house of their own found that over a weekend the cost of the house had increased by £2,000; by the following weekend it had increased by £5,000 from the original price and, within a fortnight, on the same housing estate, the cost had gone up by £12,000. That is a disgrace.

It is nothing short of scandalous that it should take a Private Members' Bill to persuade the Minister with responsibility for housing to come into this House to make a contribution. If this was a caring Government, if it was concerned about the basic needs of ordinary people, it would acknowledge that there is a housing shortage, a housing emergency, and respond in a positive way. Both Ministers who contributed tonight gave a despicable response to the emergency in the housing market. The average cost of a house in the Dublin area in 1995 was £70,000. The cost of the site, labour and materials was £50,000. Today the cost of a house in Dublin is £120,000, but the cost of the land, labour and materials is £55,000. The difference is the profit. Most of this problem is caused by greed.

Hear, hear.

It is greed on the part of builders who are currently doing exceptionally well. The Minister referred in glowing terms to the home bond system. I have dealt, as have others here, with people who are paying £200 a week to try to get a home of their own and whose houses are left unfinished. This is a disgrace at a time when builders are making huge profits.

We spoke earlier about the Minister's response to the housing emergency. The Bacon report was going to solve the whole problem. It is not much consolation to first time house buyers to be told that, notwithstanding the Bacon report, the increase in the cost of housing since 1 January this year is 20 per cent, and the Minister is taking credit for that. This is a scandal.

Regarding local authority housing, currently there are nearly 40,000 people on housing lists throughout the length and breadth of the country. This afternoon a constituent appealed to me to come and see where she and her partner and three children were living. They had a mobile home with condensation dripping from the ceiling, the bed clothes were saturated, there was fungus around the walls and water dripping down them. This is Ireland of the Celtic tiger economy but this is one area about which we do not hear from the Taoiseach. Ministers should stand up and be counted on this issue.

How long was she in the mobile home? Was she there before 26 June last year.

On the basis of the Minister's performance last year in my county alone there were 75 house starts to deal with a housing list of 1,600 people. This Government and the Minister for Finance are flush with money. There are major decisions to be taken. The finances must be provided to enable houses to be built for ordinary people.

As it is 8.30 p.m. the Adjournment must be moved.

It is not coincidental that the last time there was a housing emergency the Progressive Democrats and Fianna Fáil were in Government.

Debate adjourned.