Vol. 560 No. 3
116 Mr. Gilmore asked the Minister for the Environment and Local Government the increase in the cost of a new house and a second-hand house for 2002; the expected increase for 2003; his plans for measures to make housing more affordable; and if he will make a statement on the matter. [2368/03]
My Department's most recent house price data extends to the first nine months of 2002 and indicates house price inflation of 3.1% and 6.6% for new houses in Dublin and nationwide, respectively, and 8% and 7.9% for second-hand houses in Dublin and nationwide, when compared to the same period in 2001. Further information on average house prices is provided in my Department's Quarterly Housing Statistics Bulletin, copies of which are available in the Oireachtas Library. While my Department does not publish house price forecasts, projections from a number of market sources envisage a low rate of house price increases for 2003.
The substantial increases in housing supply in recent years are of critical importance in improving affordability and moderating house price increases. The year 2002 was the eighth consecutive year of record output levels, with an estimated 57,000 houses completed and an anticipated 30% increase in housing output in the Dublin area. Average year on year house price increases have been reduced from a peak of about 40% per annum in 1998 to more moderate levels currently. By continuing to support increased housing supply, the Government will maintain its efforts to ensure moderating price increases into the future.
Does the Minister agree with the assessments of a number of estate agents and building societies, which published data in the early part of this year, that there was a substantial increase in house prices in the last quarter of 2002 and that the year on year increase in house prices – 2002 as against 2001 – is approximately 12% for the average house? If supply is increasing, as the Minister of State keeps reminding us is the answer, why are house prices also increasing? Does the Minister accept that decisions made by the Government, including budgetary decisions which have increased the level of investor activity in the housing market, are leading to the continued rise in house prices and to the situation where 50% of young couples in urban areas cannot afford to buy a home of their own? Is it time for the Government to change its housing policy?
I disagree with the Deputy. There is a sense of fairness to the thrust of his questions and there is a level of frustration. However, over the past ten years when our problems began, the level of housing output was exceptionally low. I suppose we were coming out of a bad economic frame in the 1980s. We got exceptional growth through the 1990s and all Governments have tried to respond to that. In addition there was huge growth in employment, a huge decrease in unemployment and a young population. I do not offer them as excuses but as the reality we are trying to deal with.
It was clear by the end of the 1990s – my colleague, the Minister of State is right – that the supply was way behind the demand. When that happens, prices are driven forward. It is clear from the figures that house price inflation, 40% in 1998 and into 1999, dropped substantially. There is a number of reports, to which the Deputy referred, on what happened at the end of last year. I understand those figures will be available at the end of March and they will probably indicate some pressure emerging. However, it is clear that we must continue to ensure supply. I am endeavouring to deal with that in conjunction with the social partners.
We need to achieve a huge increase in the social and affordable housing bracket. I believe that will begin to emerge during this year and over the next few years through the mechanisms under Part V, the 20% provision and other mechanisms. As I said previously in the House, we should look at the mortgage timeframe as a whole life mortgage. There are successful examples on the Continent in that regard. I have had preliminary discussions with people in the general financial institutions as to how this might work and I believe it is feasible in conjunction with the Housing Finance Agency and the National Development Finance Agency. We have increased supply to a very high level which is probably well ahead of anything taking place elsewhere in the world, certainly in Europe. We must continue to drive that situation forward, increase the mix and continue to achieve supply. The present average number, at 57,000, is at the level we need to maintain over the next ten years. We need to improve the affordability mix within that.
In a country with such a low density of population and such huge tracts of undeveloped land, is it not a signal of failure that financial institutions are enticing parents back into the mortgage trap to bail out their children who cannot afford a house in Ireland in 2003? Does the Minister admit that is a signal of failure of Government housing policy over several years?
I presume whole life mortgages were not in the Minister's election manifesto nine months ago. Arising from Deputy Gilmore's question and given the inordinate price increases, particularly within the greater Dublin area, will the Minister consider taking steps to break up the cartel of land owners who effectively control the price of building land in that area and are significant contributors to Fianna Fáil coffers?
This is a difficult subject to deal with in the context of Question Time. I put it to the Minister that while supply has increased and that is welcome, a new demand for housing has been generated from investors. Depending on which set of figures one takes – that of the local authorities' housing strategies which indicates that 40% to 50% of newly formed households are being priced out of the market or that used in advertisements by at least one building society which puts it as high as 70% – is there not a real problem which the increased supply has not addressed, namely, affordability? Has the Minister plans, either through this House or otherwise, to put on record a revision of Government policy to address the issue of affordability? It is poor comfort to anybody who cannot afford to buy a house that more houses are being built.
Any financial institution can think up its own marketing tools and strategies to attract people into the market. There are different views on the marketing initiative to which the Deputy referred and it is not for me to comment on that. The present housing situation is certainly not an indication of failure. Various policies and initiatives have been developed over many years by the private sector. In relation to Deputy Allen's reference to land cartels, anything of that nature operating in the marketplace would be a serious worry. I believe we have reached a position on two matters. First, we have capacity in the marketplace which is delivering at a level we need to equal demand. Second, incomes have also reached capacity.
The huge changes in the tax regime in the last few years have resulted in very substantial increases in net incomes. Overall gross incomes have also risen very substantially. That trend will no longer apply, certainly for the next few years. Irrespective of investors, cartels, developers or whatever, we have reached those positions. Any product can only be sustained on the basis that the market can afford it. I believe the market is at its absolute maximum and that is where I want to keep supply. I cannot see how prices will continue to rise beyond that.
I wish to refer to one further point and I agree with Deputy Gilmore on the limitations of Question Time in this regard. In relation to investor demand, there are choices we have to make as a society. We can choose to allow people who have money to look at the range of options available, be that to invest in Barclays Bank shares or wherever they wish to invest in the UK. That is a bad use of resources for this country. Instead of focusing on stocks and shares in this State, we took the view that we needed product, especially in terms of additional property, even in the rented sector. Affordability is the key issue and, in my view, the control of affordability lies in equating supply to demand.
