Seanad Éireann debate -
Wednesday, 20 Nov 2002

Vol. 170 No. 14

Housing Grants: Motion.

Mr. McDowell

I move:

That Seanad Éireann condemns the decision of this Government to abolish the first-time buyer's grant, in the light of the crisis in housing affordability and the continuing increase in housing waiting lists, and supports the call by the Irish Congress of Trade Unions to restore the grant forthwith.

The elimination of the grant is first and foremost a devastating blow to the aspirations, still held dear by so many people, of owning their own house. It means that thousands of people who had thought they were in a position to buy a house will either not be able to do so for the foreseeable future or, in some extreme cases, may not be able to do so at all. In doing what it did, in the way it did it, the Government has sent out a clear and unequivocal message to first-time buyers, particularly young people, that they are on their own and it does not care.

The way in which this was defended by the Minister for Finance has particularly stuck in the craw of so many people who were depending on this grant. To say as he did, so casually, that it is only €4,000 anyway, it does not amount to a great deal and was all being pocketed by the builder, demonstrates an insensitivity to the needs of young people which, unfortunately, is typical of him. The fact is that €4,000 is a great deal of money if you do not have a deposit. It is possible that over a period of 20 or 25 years it may add to the price of the house. However, 20 or 25 years is a very long period if your primary concern is with the here and now. It was the here and now which was of primary importance to most people looking to put together the €15,000 or €20,000 that most of them need for a deposit. In that context the €4,000 was extremely important.

The Government has argued that because the grant came a few months later it was not actually part of the deposit. That flies in the face of reality. Very many people, not all by any means, trying to put together a deposit borrowed the €4,000 from friends or family or, in some cases, from lending institutions. I am aware of cases where builders agreed to forgo, for a few months, the amount of the grant and took it on assignment when the money came through from the Department of the Environment and Local Government. It was a very necessary part of the €20,000, approximately, that people needed to buy the cheapest houses available.

The Government has also argued that the grant was introduced as a support for industry and is not needed any longer. To some extent it is right. In the '60s and '70s construction was largely stagnant and the impetus behind the grant, which was introduced by members of Fianna Fáil at the time was to support the building industry and their friends in the construction sector, as they tended to do. It was effective in this. However, over time the grant has become a support for individual purchasers, not for the industry. We must acknowledge this central fact in any debate about the issue.

It has also been argued that the grant discriminates between different types of first-time buyers because it only applied to first-time buyers of new houses. I have been making that point, as have others in Opposition, for some years. It has been clear for some time that the industry itself did not need support and the people who did were particular types of purchasers, specifically first-time buyers. I have always argued that first-time buyers of second-hand houses were equally entitled to the grant and that the exemption from stamp duty, which applies to first-time buyers of new houses, should also be applied in respect of second-hand houses. It is the purchaser we should seek to support, not the industry.

For a number of years the industry has clearly not needed our support – at least, it should not have needed it. When I did leaving certificate economics, back in the 1970s, I was taught that these matters depended upon supply and demand; if the demand was there for something the industry would supply it. However, for the past three, four or five years there has been a huge demand for houses in every sector and the industry has been incapable of or unwilling to supply it. This is the core of the issue. My party and I believe that the industry and the sector have been manipulated deliberately by builders to ensure that supply does not meet demand. That in turn feeds, deliberately and directly, into the super-normal profits which many in the industry have enjoyed in recent years.

The question arises of what the Government's response to this. The Government commissioned a report from Dr. Peter Bacon some years ago. He suggested that it was necessary, in the first instance and at least as a temporary measure, to take investors out of the market, or at least to reverse some of the advantages which they enjoyed. In recent years, the Labour Party supported various measures recommended by Dr. Bacon, such as the abolition of interest relief on borrowings, which was subsequently reversed by the Government. We were in favour of Dr. Bacon's suggestions in relation to capital gains tax and development land, which were ignored by the Government.

I have no problem with people who invest in property, for example those who buy houses as an investment for their retirement, as long as they behave as good landlords. The regulations and standards that have been put in place must be upheld. We need a healthy and vibrant rental sector, but the Irish sector is very small by comparison with European norms.

We must ensure that first-time buyers are not priced out of the market. The first-time buyer's grant was a paltry but important measure which attempted to redress the balance. The Government's decision to abolish the grant has ensured that the balance we were trying to strike has been undone. Investors, who were already enjoying significant benefits, are now enjoying greater benefits still. In the past, houses in new estates in counties Meath and Kildare were bought off the plans by investors, meaning that young couples with hard-earned deposits found that 80% or 90% of the houses had been sold when they tried to purchase one. I do not doubt that we will soon return to such a situation.

Few issues demonstrate the failures of this Government and its immediate predecessor more than housing. The Minister of State, Deputy Noel Ahern, knows as well as I do that it is simply not possible for young people in the part of Dublin we come from to buy houses there when they leave the family home. If two young people are not earning in excess of €50,000 between them, they will not be able to afford the vast majority of houses in the north-east of the city, including the constituency I used to represent in the other House. In such circumstances, young people are obliged to go to counties Meath, Kildare or Westmeath, or further afield, for a few years at least.

What is the Government's policy on housing? The measures recommended by Dr. Bacon were ignored or overturned. The tax on speculation was overturned before it came into existence. Journalists have speculated that part 5 may be revisited. What is the Government's policy in relation to this area? I recall that the Minister of State is on record as supporting part 5, yet we read reports, which have not been contradicted, that the part 5 provisions are to be revisited and may be overturned.

What is the Government's policy in relation to development land? Does the Government acknowledge that something needs to be done about development land? The only known Government policy in this area was when, contrary to all recommendations, it reduced the level of capital gains tax on development land from 40% to 20% to encourage speculation rather than do the opposite.

The Labour Party has put down this motion to voice its view, as well as to give Government Senators, whether they are members of Fianna Fáil or the Progressive Democrats, an opportunity to express their thoughts on this matter. Anybody who has listened to the radio during the last week will have heard many backbench Fianna Fáil Deputies saying that the proposal to abolish the first-time buyer's grant is appalling and awful. Five minutes after they said they were personally opposed to the idea, they made clear that they will vote with the Government nevertheless. I have personal experience of voting against a Government as a Government backbencher and Fianna Fáil Deputies have done likewise in the past. It is possible not to support the Government when one is a representative of a Government party; there is life after doing so, just about. It is possible to hold a conviction strongly enough to give it due expression by opposing it in the lobbies of the Oireachtas. I hope some Government Senators will have sufficient strength of conviction to vote with the Opposition tonight, rather than simply voicing their hostility to the measure in front of the electorate. Government backbenchers have to put up or shut up as regards the first-time buyer's grant.

The abolition of the grant will directly affect thousands of people. Many similarly damaging measures are contained in the fine print of the Estimates, as published last week, and we will have opportunities to discuss such matters in the coming months. The question for this evening in this House and the other House is whether Government Senators and Deputies are willing to stand over the measures introduced by the Minister for Finance, Deputy McCreevy, and the way in which they were introduced.

Ms O'Meara

It is with great pleasure that I second this motion on behalf of the Labour Party. As Senator McDowell has outlined, this motion has been put down tonight because the decision, announced less than a week ago, that the first-time buyer's grant is to be abolished has proven to be one of the more controversial and contentious of this Government's proposals. The decision is one of a long list of despicable actions, including the cut in medical card eligibility and the capping of rent allowances, which will affect social welfare recipients and those on low wages, and the reintroduction of fees for third level education. I imagine that some of the hidden elements of the Estimates and the proposals to be announced in the forthcoming budget will lead to similar despair. I appeal to the Government to reverse its decision to abolish the first-time buyer's grant, as it is not too late to do so. Perhaps the Government will start to listen to its backbenchers.

One of the reasons this proposal has been met with such an outcry is that those affected by it are people who had such high expectations of a share in the economic boom. On this side of the House, we believe the State has a fundamental duty to ensure the basic right to housing of all its citizens is met. This means that housing should be both available and affordable.

When the history of the period of economic success is written, it will show that the Government failed to perform its duties in the housing sector. In recent years, we have seen that benefits have been consistently loaded in favour of investors and away from those who need them most – first-time buyers and those struggling to enter the housing market.

The price of housing has been allowed to escalate and social housing has not been provided, as evidenced by the increasing numbers of people on local authority housing lists. The increase in the number of homeless people is a sad indictment of a Government that has allowed people who do not need housing, such as investors and their friends, to squeeze out of the market those attempting to put a roof over their heads.

The notion that the investor in the market should receive benefits raises all sorts of ideological questions. Those who are investing in property invariably have a home already. The person who does not have a home is forced to compete with the person who does. Where should the priority lie? Where is the greater need? As a society, we should ask these questions and answer them in a particular way. Clearly people who need to purchase a home should be the priority.

The first-time buyer's grant was a very clear signal of the Government's policy to assist those attempting to enter the market and to get on to the property ladder in the first instance. Once one gets on to the property ladder, it is easier to move upwards. It is becoming increasingly difficult to do so, a factor which the grant was all about. In discontinuing the grant the Government is taking away the only support available to first-time buyers. However, this is not matched by any lessening of the supports available to investors in the market for whom the current tax reliefs are much greater than the supports available to first-time buyers. It is a very mean-minded gesture which gives a greater benefit to investors and takes it from first-time buyers. It sends a very negative signal in terms of social policy, where our priorities as a society lie and where the Government's priorities lie.

Those of us who travel through Kildare to the Oireachtas cannot help noticing the rapid growth of housing estates outside Dublin, as far as Portlaoise and Carlow. Even without a spatial strategy being published by the Government, people have been exercising their choice in the only way they can by buying houses very far away from where they work. The number of people commuting from Carlow, Portlaoise, Mullingar and Tullamore, for example, is increasing at a huge rate. The reason is simple. The crisis in affordability has forced people further away from Dublin and their place of work. This has put increasing pressure on other infrastructure such as roads because increasing numbers of people are forced to travel longer distances every day to work. Lack of housing policy is having a severe effect on other policy elements and how the Government does its work.

I appeal to Senators on the Government side of the House to exercise some power in this regard to put pressure on Government Ministers so that they will realise this is a major issue. It is also a major question of social policy. We are all aware that housing has become one of the most difficult issues with which people must deal. We must at an early stage in the lifetime of this Administration send a very clear signal that this simply is not good enough. We can do so by restoring the grant forthwith.

Mr. M. Kitt

I move amendment No. 1:

To delete all words after "Seanad Éireann" and substitute the following:

"recognises the Government's decision in regard to the first-time buyer's new house grant as one of the measures necessary in order to ensure a sustainable match between Government resources and expenditure and supports the continued action and commitment by the Government to focus housing expenditure on responding to the needs of low income households and those with special needs through a broad range of targeted initiatives."

I welcome the Minister of State, Deputy Noel Ahern, to the House. I realise the difficult decisions he and his colleague, the Minister, Deputy Cullen, had to make in the context of the Estimates, particularly in ensuring a sustainable match between Government resources and expenditure. The new house grant was introduced in its current form in 1977 when just 17,000 new private houses were being built each year. I recall it in particular because it was an issue in the general election of that year. Some 25 years later, private housing output exceeds 47,000 units.

I welcome the Minister's commitment to social housing, affordable housing and the disabled person's housing grant. However, some clarification is needed in regard to families who have moved into estates or perhaps families who are waiting to move into affordable housing schemes. I refer in particular to families who have not yet signed contracts but whose local authority, in this instance Galway County Council, has contracts signed with the builders. The Minister of State might clarify if people in estates such as Mount Bellew, Tuam, Abbey, Loughrey, including families who are about to move into a scheme in Loughrey, are eligible for the new house grant. I believe they will qualify as the local authority has signed contracts.

The main purpose of the new house grant scheme was to encourage new house building. For this reason, as Senator McDowell said, first-time purchasers who bought an existing house did not secure any grant assistance. In order to boost new house building, the grant was set at a high level. Some £1,000 was a high level in 1977. When the grant was first introduced it represented approximately 7% of the average new house price. However, in the context of the 2003 Estimates, the Government is considering carefully every expenditure programme and scheme. The new house grant is obviously of benefit to those who qualify but its economic impact has long since been absorbed in house prices. Its value is now exceeded considerably by the value of the stamp duty exemption for new houses. The Government is proposing to retain this exemption which would amount to €5,900 on the average new house price.

In recent years there have been a range of better targeted schemes to assist low income purchasers and those with social housing needs. Between 1998 and 2001, the provision of social and affordable housing has grown by 35% to 11,385 units. A further increase to almost 13,000 units is forecast for this year.

Mr. McDowell

Not next year?

Mr. M. Kitt

The focus of housing expenditure is, therefore, to respond to the needs of these groups with special housing needs through a range of targeted initiatives. The provision was €38 million for this year.

In regard to the grant scheme the Minister for the Environment and Local Government, Deputy Cullen, stated:

Grants have been a contributing factor in pushing up both house and land prices. It is clear now that the construction industry must reflect on today's developments when formulating house prices. Experience has shown that grants for house buyers has returned little benefit to consumers. They have simply been absorbed in the increased profits of builders.

The Department of the Environment and Local Government has increased its spending over the past five years. However, it is slightly down in the 2003 Estimate.

The Minister stressed that the new house grant scheme was not improving affordability. Many experts such as Colm McCarthy of DKM, Economic Consultants, the NESC and Peter Bacon in the Bacon report commented on this issue. As far back as 1993 the NESC expressed the view that grants are an inefficient and inequitable instrument to tackle housing needs.

I welcome in particular what the Minister said on the responsibility of builders. Many of us heard people speak on Marian Finucane's radio programme about the lack of information on the different housing estates. People could not even get information on the dimensions of the rooms in the houses or apartments for sale. This morning I heard the Minister talking about how builders could help if they, for example, furnished or partly furnished new developments.

The new house grant scheme goes back to 1977. House prices were low at the time, interest rates were high and tax rates were up to 60%. These factors certainly made grant-aid more meaningful. However, the housing market has changed dramatically since then.

The first-time buyer has been pushed out of the market in recent times because of escalating prices. However, Government measures have resulted in increased supply and even house price increases have been stabilised. We must be prudent in these measures. The Government has examined ways of helping people through the affordable housing scheme, but I would like to see those who have paid deposits but not signed a contract being helped. I hope the Minister of State will address this in his reply.

I am glad that we have examined ways of helping people. I hope a way will also be found in the forthcoming budget to target help through increased mortgage relief or subsidy. I am confident that the Minister will provide funding for the disabled person's housing grants scheme, which is an excellent scheme, although it urgently needs funding. Schemes for the elderly such as the essential repairs grants scheme and health board schemes should also be funded. This debate should address the exorbitant price of land and I hope we can have a debate on planning at a later stage. It is disgraceful that more land is not released for housing development. I know, as a Senator who represents a rural area, that it would be helpful if young people could build on their parents' land as they would have free sites on which to build homes for themselves.

I welcome the total housing expenditure of €1.787 billion for 2003. This is an increase on the 2002 Estimate for housing and shows that the Minister fought his case very well in Cabinet. I compliment him and his Minister of State on the work they are doing and hope they will be able to build on it in the future.

Mr. Bannon

I support the motion and welcome the Minister of State with responsibility for housing, Deputy Noel Ahern. In the light of the Government's decision to abolish the first-time buyer's grant, I ask the Minister what he is going to do for the many thousands of young people who will lose out on their €3,810 grant despite pre-election promises from the Government that there would be no cutbacks in any area. Lies buy votes, but they certainly do not buy houses. Purchasing a home is a large financial commitment for any person, let alone couples with young families. Many have budgeted for the grant on which they have depended and they have now been left high and dry by this uncaring Government, which has placed extra financial hardship on potential first-time purchasers.

Due to the slashing of the grant by the Government, many more young people will be forced to look to their local authorities for housing. Given the numbers – more than 100,000 – on waiting lists at present, the increase in the number of applicants will push an already over-stretched system to the limits, giving the people concerned very little prospect of being housed. Banks limit the amount young people can borrow. They will be forced to look to their hard-pressed parents for support with regard to building homes of their own. For many, the only alternative will be to remain with their families or look to the expensive private rented sector.

It is unbelievable and unacceptable that the Minister for Finance should penalise those struggling to acquire their first home, yet retain considerably higher allowances for members of the Government on salaries and other allowances that ordinary people can only dream about. Being privileged politicians, Ministers can claim 100% tax relief on mortgages for their second homes in Dublin and also standard tax relief on their constituency houses. A suggestion which has emerged and which should be implemented by the Minister is that mortgage interest relief be doubled for first-time buyers for the first five years. This is an issue in which the Taoiseach has a moral obligation to intervene, given the many serious and social repercussions attached to it.

The Government has put forward a cheap argument that the new house grant was simply absorbed by builders and went as far as to say that the grants contributed to increasing house prices. Rather, retaining housing grants ensures houses are built to a high standard, especially for new owners who may not be up to date with the building regulation standards. I was told this morning that the Department's inspector sent a builder back three times to rectify faults on a certain house before the grants were paid. Will the cowboy builders we had be allowed to creep back into the system?

Mr. N. Ahern

The Senator's local authority can police it.

Mr. Bannon

This is something that the Minister should consider.

This latest cutback is a dreadful blow to the people, especially those who voted for Fianna Fáil or the Progressive Democrats at the last general election. Never before in Irish political history has there been as much mistrust of a Government by the people as there is now. We have had bad times – Taoisigh suffering from loss of memory, corrupt Taoisigh, sacked Ministers, mistrusted Ministers, corrupt Ministers – but we have never witnessed lies and whitewash on the scale dished out to the electorate last May.

Mr. Dardis

Unfortunately, we have had Fine Gael in government also.

Mr. Bannon

The Minister for Finance stated prior to the election: "I can confirm that there are no significant overruns projected and no cutbacks whatsoever are being planned secretly or otherwise."

Mr. N. Ahern

The Deputy should read the full letter.

Mr. Bannon

I think manners could be afforded to me when speaking.

The Book of Estimates published last Thursday proves that the people have been duped by a deliberately orchestrated campaign of lies and deceit. The sick, the disabled, the less well-off, young people, those on community employment schemes, students, farmers, PAYE workers and the unemployed are all suffering the consequences. In addition, the Minister for Finance is putting a cap on the health board rent allowance, which is payable to the least well-off tenants. This is another deliberate attack on the marginalised in society. Potential home buyers who attended my clinics over the week were in a state of shock. They were sickened by the Government and the guillotine method by which the Minister axed the first-time buyer's grant. The deliberate targeting of the most vulnerable in our society is an indictment of the Government which vowed in May of this year that there would be no cutbacks.

Last Thursday was a very wet day, but it was also a dark day for first-time buyers and for the people. We were told that less than €38 million would be gained from this initiative. We are now paying for the cock-ups of the last three budgets. The Minister miscalculated the tax returns of the State, recklessly squandered the taxes and gains of the good years, and is now grabbing at every straw to survive. He shamefully mismanaged our taxes and is now recouping his losses from the weakest sections of the society. The Government must be toppled before it is too late. It went back to the electorate on the Nice treaty referendum. I call on it to go back to the people with the truth. The people have lost confidence and trust in it. We now even have Government backbenchers accusing the Government of pursuing Thatcherite policies and they are probably right. I understand plans to introduce a local poll tax are just around the corner.

If allowed to remain in government, Fianna Fail and the Progressive Democrats will destroy the economy and our country's future. Our standing in Europe and the rest of the world will be greatly undermined and confidence will be lost in our supposedly strong economy. I ask the Fianna Fáil and Progressive Democrat Members of the House not to be hypocrites. They should support the motion.

Senators

Hear, hear.

Mr. Dardis

I welcome the Minister of State, Deputy Noel Ahern. It must be a unique event for two brothers to sit in the ministerial chair in succession. While the economy is not in crisis, as some commentators would have us believe – the figures bear this out – it is the case that prudent management of spending is an absolute necessity. Unfortunately, corrective measures must be taken by the Government and endured by the people.

One such measure is the abolition of the first-time buyer's grant scheme as part of the 2003 Estimates. It was a difficult decision for the Government to remove it but it should be supported for taking that decision. Tough decisions are needed in Government. If we want to keep the public finances on an even keel and maintain the confidence and stability that are the very foundation of our economic success, that is what must be done. It is in that context that the decision to end the first-time buyer's grant was taken. This Government does not need to take any lessons about how to destroy an economy. A Fine Gael-Labour coalition could teach any Government a thing or two on that score.

Mr. Ross

Hear, hear.

Mr. McDowell

That is reassuring.

Mr. Dardis

I am very worried when I get support from Senator Ross. There has been a major fall off in tax revenue since the middle of the year. In this, Ireland is not unique; the same thing is happening in other European countries. The German Government is increasing taxation to recover revenue. We must protect the gains that have been made here. The Government will not be raising direct taxation. We have made great progress in reducing the burden of taxation on enterprise and employment and we recognise that this has been central to our economic success over the last five years. Progressive Democrat policies have helped cut the basic income tax rate from 26% to 20% and the higher rate from 48% to 42%. Capital taxation was halved from 40% to 20% and the standard rate of corporation tax was reduced from 36% to 16%.

These policies produced success over the last five years and it is worthwhile recounting those successes. There are 370,000 more people at work, the rate of unemployment is down from 10% to 4%, the number of people in long-term unemployment has fallen from 90,000 to 20,000 and emigration has been ended. If people want to leave the country they do so voluntarily rather than compulsorily as was the case.

Mr. Ryan

They leave because they cannot afford a house.

Mr. Dardis

Former emigrants have been welcomed home.

These are impressive achievements by any standards and the growth of the economy has generated the resources needed to finance massive increases in the levels of social provision. Consider what has been achieved in social progress since the coalition took office in 1997. The basic rate of the old age pension has been increased from €99 per week to €149 per week, providing the older generation with a real dividend from economic growth and a real reward for their efforts and sacrifices; child benefit has been trebled, providing strong support for family life and helping parents to cope with the financial pressures of raising children –

Mr. Ryan

This is the Senator's single transferable speech.

Mr. Dardis

– and there has been a massive increase in funding for the health service, with a particular emphasis on the needs of people with mental and physical disabilities.

When the Progressive Democrats Party was founded in 1985 it was said and repeated on all sides of this House that reducing tax would mean reduced levels of social provision. We were roundly condemned for our stance but the opposite has happened. When taxes were reduced, revenue increased and better services could be provided. The experience of the last five years clearly disproves the assertions made in 1985.

Mr. Ryan

Voodoo economics.

Mr. Dardis

The challenge now for the Government is to protect the progress that has been made and to ensure the public finances do not slip back into the mire of the mid-1980s. The challenge is to ensure that we never again return to the scourge of mass unemployment, emigration and the prospect of the International Monetary Fund taking over the management of the economy.

The best way to meet that challenge is to ensure prudent management of the public finances. The Government could have taken the soft option in the book of Estimates and Government parties could have ignored the problems on the international front. The way some people are talking, one would think that 11 September, BSE, foot and mouth and the slow down in the international economy did not happen. They are realities and we must deal with them.

The Government could have ignored the slow down in tax revenue and could have courted cheap popularity by letting public spending run way ahead of our economic growth, growth that is still good by international standards.

Mr. Ryan

Like the Government did for the last two years.

Mr. Dardis

That has not happened. The Government has taken firm and decisive action at the first available opportunity. Yes, it has involved tough decisions and the ending of the first-time buyer's grant is one of those tough decisions.

Mr. McCarthy

That decision was cruel.

Mr. Dardis

I recognise this may come as a blow to young people setting out to buy their first home but let us avoid getting swept up by emotion, as we have seen this evening, and instead look at the facts.

Mr. Ryan

Not being able to afford a house is an emotional subject.

Mr. Dardis

Who benefited from the hand out? This grant was effectively from the Government to house builders and it was adding to house prices. All experience has shown, and experts agree, that builders rather than first-time buyers were reaping the rewards of the scheme. Peter Bacon is one such expert. The National Economic and Social Council argued as far back as 1993 that such grants were an inefficient and inequitable instrument to tackle housing needs. More importantly, such grants have served to push up house prices and land prices and have done more damage to those struggling to get a foot on the property ladder.

Direct hand outs never benefit those to whom they are targeted. There is plenty of evidence of that in agriculture. People get headage payments, go to the marts and give the money to the dealer.

Mr. O'Toole

I bet the Government is not going to stop grants for agriculture.

Mr. Ryan

Is the Government going to stop those grants?

Mr. Dardis

This is the same situation. The money is given away.

Mr. Bannon

Are those being stopped by the Government?

Mr. Dardis

It was Senator Bannon who mentioned manners earlier.

The first-time buyer's grant dates back to 1977 when the economy was completely different, with low house prices, crippling interest rates and tax rates as high as 60%. It was introduced at a time when only 18,000 new private houses were being built each year because we did not need them when so many were forced to take the boats. Last year, private housing output amounted to 47,000 units. The economy in the housing market has changed fundamentally and this must be reflected. The onus must now be on the construction industry, consumers and the Government to ensure sensible house prices and affordability.

Over time the real impact of the removal of the grant will be seen in the moderation of prices for starter homes. Builders must take account of the removal of the grant and will have to set their prices accordingly, taking cognisance of the market, as they always do. It is what they are doing in the case of the grant.

The first-time buyer's grant has outlived any usefulness it had as an economic incentive. Designed to benefit those who qualify, its economic impact has long since been absorbed in house prices. Its value is now considerably exceeded by the value of stamp duty exemption for new houses which the Government proposes to retain. That amounts to €5,900 on the average new house price. In recent years a range of better targeted schemes to assist low income purchasers and those with social housing needs has been put in place. Between 1998 and 2001 the provision of social and affordable housing has grown by 35% to 11,385 units and a further increase to almost 13,000 is forecast in 2002. This provision will deliver more real and lasting benefit to young couples struggling to buy their own homes than any outdated and ineffectual first-time buyer's grant.

If it is the policy of Fine Gael and the Labour Party to reverse this measure, they should tell us how they would fund it. In the case of Fine Gael, it should indicate how it intends to fund some of its other fiscal initiatives, how it would provide hundreds of millions in compensation for taxi plate owners and Eircom shareholders.

Mr. Ross

I hope the Senator is not reading his speech.

Mr. Dardis

Senator Ross has enough experience of my contributions to this House to know that I do not have to read a speech.

Mr. Ross

As long as the Senator is not reading, that is fine. Read on.

Mr. Dardis

I will read around the notes I have.

Mr. Ross

I will read the speech afterwards.

Mr. Dardis

In an ideal world the Government would prefer not to have to take decisions of this kind but politics, ultimately, is about choices. Governments can choose between fiscal responsibility and irresponsibility and this Administration and the Minister for Finance have clearly chosen the former. The Government has made hard choices about how and where to spend money when resources are tight and, for me, the top priority in public spending for any Government must be to look after the needs of poorer people, those dependent on social welfare. By tradition social welfare increases are not provided for in the Book of Estimates but in the budget. I am confident that on 4 December the Minister for Finance will be generous to all those on social welfare and will ensure their living standards are maintained.

Mr. O'Toole

There are issues to look at here. We could all make speeches about the direct contribution and how inefficient it might be as a means of supporting somebody. There are many on this side, including Senator McDowell, who have never been enthusiastic about the first-time buyer's grant. That is a given. However, it is utterly unacceptable that the way to deal with that is to abolish the grant and not replace it with anything else. I say that specifically in welcoming the Minister of State to the House. If there was a proposal to replace the first-time buyer's grant with something more efficient I would be the first to support it. It is dispiriting, demoralising and undermining the ambitions of young people toabolish it without putting something in its place. The same would apply were it in agriculture. I have referred many times to beef prices.

There is also the question of the economy and supply and demand. I agree that on many occasions interference with the market can cause a difficulty. I have always said that the market needs regulation. The Minister of State, Deputy Noel Ahern, will agree there is no normal uninterrupted and uninhibited market in housing. In the Dublin area it is disgraceful that those referred to as the big seven developers have either a lien on or ownership of almost all the development land.

Given that we are the legislators, why can we not stop it? We should do it. I live in north County Dublin and I know farmers beside me who have owned their land but have done deals with potential developers who have first call on the land and are paying them for it. No matter which way the council goes the land goes back to them. In the 1930s this matter was dealt with in an efficient way because the legislation provided that where there was a compulsory purchase order on development land, it was bought at agricultural prices and the owners got a premium as it was for development.

One of the problems about the first-time buyer's grant is that suddenly it appears the builders are the good guys who are trying to do us a favour. I agree they trousered most of the money but that is of no help to first-time buyers. We have given them, their parents, their immediate and extended families, friends and others who want to be in the same position a focus point at last and I welcome it. Until now I could not get young people to take an interest in the way development land in this county was collared. Neither would they take in interest in profits on housing; they were simply focused on the price. The one good thing about this is that the young population are angry. I am delighted about that because an angry population will question and challenge and eventually the Minister of State will have to respond. He cannot and will not be impervious to that anger.

I wish to make a point about the Bacon report. Of the 50,000 houses sold last year, this year and that will be sold next year we know from the figures that 20% will go to first-time buyers. Approximately 10,000 got the €3,000 grant in 2001, according to the Minister's figures. It is simple enough to divide the €38 million by the first-time buyer's grant and one gets 10,000 which is one-fifth of the houses. More than one-fifth goes to those investing to create a rental market. It is about one in four and the rest goes to those changing up and down and so on.

In reversing the Bacon report it was done on a one size fits all basis. I listened to the Minister of State on the radio at the weekend and I do not disagree with many of the points he made. I simply disagree with the way the problem has been addressed on this occasion. Will the Minister of State look again at the Bacon report and the problems it appeared to create until we decide our rental market? It is not difficult to make changes to the Bacon report in such a way that the first-time buyer is not in conflict with the investor. Bacon can be put back in place for certain areas, certain types of accommodation or certain types of building. One can choose areas of the city where Bacon will be implemented and the investors will keep out of the area. It can be assigned to certain types of apartments or certain other categories. Time does not permit me to go into this but it can be done. In that way both would be kept apart.

What was done at the weekend is something for which all politicians are blamed. I welcome the Labour Party's position on it. We have taken the balance away from the first-time buyer. The article in The Irish Times yesterday by Frank MacDonald was the truth and we all know it. Not only are we bringing investors into the market in terms of the Bacon report but the taxpayer, by forgoing tax revenue, is paying for many of the properties investors are buying to create a rental market. I have no objection to a rental market because it is needed, but the balance is wrong when one is buying against the other. When the investor gets a bigger break than the home owner the balance is wrong. It is wrong and unacceptable. Not only have we failed to give support to first-time buyers but we have failed to give a balance to the market, which is weighted in favour of the investor. It goes against the spirit of the Constitution and against the views of every person in this House including, I have no doubt, the Minister of State. There is a need for a hard look at this issue.

I appeal to the Minister of State to reinstate the first-time buyer's grant until such time as he puts something in its place which is more efficient. I would support such a move. This is the only support at present and it is used by young people to put a deposit together in many cases or to furnish their houses.

Minister of State at the Department of the Environment and Local Government (Mr. N. Ahern)

In launching the 2003 Estimates, the Government acknowledged that difficult decisions had to be made in terms of spending priorities. To do anything less would be irresponsible at a time when the worldwide economic slowdown in growth is impacting seriously on Ireland and our public expenditure is running ahead of tax yields. The abolition of the first-time buyer's new house grant was one of these difficult decisions which the Government had to make in order to ensure a sustainable match between Government resources and expenditure.

The Government, nonetheless, remains determined to respond effectively to the broad range of housing needs, particularly the needs of lower income groups. We have also continued, in this term in office, with the measures initiated in our previous term to increase the supply of housing and bring moderation to the rate of house price increases, including increasing investment in the provision of serviced land for housing and more effective use of that land through improved planning guidelines on residential densities.

It is clear that these measures have been effective in dealing with the impacts of the unprecedented demand for housing in recent years. In 2001, 52,500 housing units were constructed, of which just under 48,000 were built by the private sector. At 13 houses per 1,000 population, this was the highest rate of house construction in the EU in proportion to population and about four times the UK rate. By contrast, when the first-time buyer's grant was introduced in its present form in 1977 – essentially to encourage new house building – about 17,000 to 18,000 new private houses were built each year. At that time £1,000 was about 7% or 8% of the price of a new house and it had added enormous stimulus to the market.

Housing output continues to increase this year with marked increases in the greater Dublin area. The increase in the supply of houses, together with other Government interventions, have brought greater stability to the housing market and moderation to the rate of average house price increases which peaked approximately four years ago when they were rising at about 40% per annum. In addition to specific housing measures, the general improvement in employment and increases in disposable income resulting from economic growth, lower interest rates and tax reductions assisted many individuals in purchasing their homes.

While I appreciate that the first-time buyer's grant is obviously of benefit to those who qualify, it has outlived any usefulness it had as an economic incentive. When introduced in 1977 to boost the supply of housing, it represented 7% of the average new house price. At €3,810, it could not be considered to be of critical importance in an individual's decision to purchase a house and its economic impact has long since been absorbed in house prices. Furthermore, its value is now considerably exceeded by the value of the stamp duty exemption, which amounts to some €5,900 on the average new house price.

Senator McDowell said – I thought this was most unfair – that we were sending out the message that first-time buyers were on their own. The State assists them through the stamp duty exemption, worth €5,900 on the average new house price and mortgage relief which is a very significant factor at €1,200 per couple in each of the first five years and slightly less thereafter, representing approximately €12,000 to €15,000 of the total purchase price.

Senator O'Toole referred to the need to introduce new measures. New measures such as the affordable housing scheme – the scheme of the future – have been introduced. A site subsidy of up to €38,000 per site is now available in Dublin. The figure is approximately €31,000 outside Dublin. This represents an enormous subsidy for those in that bracket. The shared ownership and affordable housing schemes provide subsidies to assist with repayments in the form of a rental subsidy in the first instance and a mortgage subsidy in the latter instance. The subsidy, which is income related, can be as much as €2,550 per annum.

I have outlined several forms of assistance being provided by the State for first-time buyers. Many of the schemes mentioned, which have only been introduced in the last couple of years, are targeted more at low income families than is the case with the first-time buyer's grant. To say we are sending out a message to first-time buyers that they are on their own is totally untrue and unfair.

Having listened to Opposition speakers, I fail to get their drift. Some criticised Government support for the investor who provides much needed and valued rental accommodation. Senators Bannon and O'Meara spoke about the recent circular issued by the Department of Social and Family Affairs and stated the Minister was trying to cap rent allowances. If the Minister was to announce an increase in rent allowances, the same individuals would say the Government was giving more money to its friends, the investors. The Government recognises that rents have stabilised or dropped in some instances as a result of the reintroduction of the investor to the market. The Minister is putting a cap on rent allowances which is right and proper. It is not the job of the Department of Social and Family Affairs to make or determine the market. It is reacting to the fact that rents have stabilised and dropped in some cases.

Senators Bannon and O'Meara are, on the one hand, complaining about the Government's support for the investor and, on the other, rebuking it for retaining the rent allowance figure. What is important is that rents are holding.

Mr. Ryan

The Government is keeping people out of housing.

Mr. N. Ahern

We are not.

Mr. Ryan

That is what will happen.

An Cathaoirleach

The Minister of State to continue without interruption, please.

Mr. N. Ahern

I will speak about housing figures, if the Senator so wishes. In making this difficult decision on the first-time buyer's grant we sought to ensure fair treatment by ensuring all approved and yet to be approved applications in the Department would, subject to the normal conditions of the scheme, qualify for the grant payment. In addition, those who have already made commitments in the form of signed contracts to purchase or build, or where they were building house themselves on which they had already poured the foundations by 14 November 2002 have been given an opportunity to apply for the grant. We did not include those who had paid booking deposits because they did not constitute a contract. In essence, booking deposits are specifically paid "subject to contract" and before a formal written contract is signed either party, vendor or buyer, is free legally to back out and the deposit should be returned. In providing for a grace period up to 4 December for those who had signed contracts or poured foundations before 14 November 2002 we were ensuring those first-time buyers at the most advanced stage of purchase would not be unfairly disadvantaged. It would be almost impossible to manage or control this if we had included those who paid booking deposits.

Similarly, we are also ensuring those on the lowest incomes, that is, households qualifying under the affordable housing scheme, are not disadvantaged by the abolition of grants. Again, the Department will honour any contracts entered into by local authorities prior to 14 November 2002 where the applicant has provided for a power of attorney in respect of the new house grant. This point was raised by Senator Kitt. The same applies where a local authority has issued a certificate of final approval in relation to a shared ownership application.

In addition, local authorities have been informed that the deposit under the scheme may be reduced from 5% of the house price to 3%, where appropriate, for all applicants who do not qualify for a first-time buyer's grant. The practise had developed in Dublin whereby the first-time buyer's grant was being treated by local authorities as part of the deposit. To compensate, the deposit is being reduced to 3% of the house price.

The Government has a strong commitment to respond to those in need of social housing and those with special needs. However, we have to target our resources wisely to meet this demand. In recent years a range of better targeted schemes to assist low income purchasers and those with social housing needs have been put in place. Between 1998 and 2001 the provision of social and affordable housing has grown by some 35% to 11,385 units and a further increase to almost 13,000 units is forecast in 2002. I accept that, although one houses 13,000 people, sadly, as many more join the waiting list.

The figures I published last week regarding needs assessment showed that the number on the waiting list had increased by 23%, although many groups were issuing figures in trying to create the impression that the figures were higher. Yes, the figures have increased over the last three years, but one has to recognise that 32% of those on local authority waiting lists are single while 29% are lone parents with one child. Ten years ago those single people would not have got on a local authority waiting list unless they were over 60 years of age, which accounts for only 4% of the 32%. Like is not compared with like when we compare the current figures with those from some years ago. A huge new wave of single people has been allowed to apply for local authority housing and 32% of those on local authority lists are single or separated.

I anticipate that local authority housing output this year will be the highest for 16 years, at 5,500 units, and the output of the voluntary and co-operative sector is likely to reach an all time high at 1,500 units. Activity is also increasing significantly under the affordable housing and shared ownership schemes. In the first six months of this year, over 350 homes were completed under the affordable housing scheme and a further 1,800-odd units were in progress at the end of June last. Local authorities assisted 710 households with shared ownership homes in the first six months of this year. The prospects are good for substantial growth in activity next year also.

It is clear that, apart from these schemes, the house building industry is also responding to the need for more affordable housing with an increased supply coming on stream, particularly in the greater Dublin area. There have recently been some innovative schemes developed between local authorities, particularly in the greater Dublin area, and private builders. Fingal County Council has schemes in Mulhuddart and the surrounding area – one has over 700 units and the mix is about 400 affordable, 100 social and up to 200 private homes. That mix, which is far better than what could have been achieved under Part V, is the way forward. It is a pity that builders did not work at this before the big stick of Part V came into force. The scheme in Mulhuddart also has a community centre and child care facility.

Many units and developments are coming into being and that shows that affordable housing will be the big area for future development. Local authorities can claim from the Department a site subsidy of up to £38,000 on affordable homes, which is of enormous significance in being able to provide cheaper starter homes. These are high quality homes and they are "cheap" in the sense that the site is cheaper or subsidised by the Department. That is a marvellous move and, over the next couple of years, the number of affordable units will rocket. They will cater for an existing demand.

I accept, when one looks at the housing statistics published last week, there are people in a certain income bracket on housing lists who would not have applied for local authority housing in the past and who do not wish to be on the lists. If these people are assisted, they will be able to get their own homes. Measures such as the rental subsidy scheme and the site subsidy scheme are more focused and targeted at the right people than the first-time buyer's grant was.

We must consolidate the substantial progress made in increasing housing output and responding to those most in need. Next year total capital funding for housing – Exchequer and non-Exchequer – at €1.7 billion will be up 7% on the amount provided this year, almost double the spending of two years ago. Our priority is to respond to those most in need. The provisions available for social rented accommodation are likely to allow for some increased starts under the local authority programme and for the voluntary and co-operative sector to continue its increased contribution to social housing as envisaged under the NDP.

Mr. Ryan

Does that still exist? I thought the Government had abandoned it.

Mr. N. Ahern

It certainly does. It is full steam ahead. While I appreciate that abolition of a scheme inevitably causes disappointment, particularly for those who hoped to benefit from the scheme, our focus must now be on the more targeted schemes and particularly the housing needs of lower income groups. The range of schemes and supports which I mentioned are more targeted. It is the philosophy of the Government that we assist those in the lower income brackets who wish to buy their own homes. The housing market is complex and it is amusing when people criticise the Government and say it has changed policy a couple of times over the past five years. The Government has changed policy. Normally, the complaint would be that the Government is locked into its policies and will not move to the left, right or centre. The housing market is like a see-saw.

Mr. Ryan

The Government will not move to the left in any case.

Mr. N. Ahern

The measures I have listed indicate that the Government is very left minded in the way it has brought in rental subsidy schemes and a site subsidy scheme.

Mr. Ryan

The Minister should look at the rest of Europe.

An Cathaoirleach

The Minister without interruption, please.

Mr. N. Ahern

Those are enormous benefits for the low paid and those most in need. The Senator should look at them and recognise their significance. That is the direction. I hope that, through stamp duty exemption and mortgage relief, the Government can continue to assist the middle classes. However, the main emphasis is on lower paid people – the attempt to get them off local authority lists and to allow them to do their own thing by moving into the private market.

Mr. McCarthy

I have spent the most recent part of my 26 years listening to quotes from Oscar Wilde. If you, a Chathaoirligh, ever read a book of quotes from Oscar Wilde, you will not be as entertained by those quotes as you would be by the quotes of the Minister for Finance, Deputy McCreevy and the Taoiseach, Deputy Bertie Ahern, throughout the general election campaign which saw them returned to govern for another five years on a tissue of lies. We were told there would be no cutbacks by several Ministers who have been rewarded for telling lies by being appointed to those Ministries. The bright eyed boy from Cork South-Central, Deputy Micheál Martin, told Cathal Mac Coille that there would not be cutbacks.

An Cathaoirleach

Deputy Martin should be referred to as Minister.

Mr. McCarthy

I beg your pardon – the Minister, Deputy Martin. I thought he was just the bright eyed boy. He is a Minister and also the bright eyed boy.

A part of the Fianna Fáil election manifesto of 1997 stated explicitly that "we will improve the first-time home buyer grant to £5,000 where the house is being bought in the joint names of a couple". The rhetoric and hypocrisy that successive Ministers have been piking out of the stables of Government over the past week lead me to believe that they had no meas for this grant. This begs the question why it was included in their election manifesto of 1997. Votes were won and the Cabinet table was filled by the star performers who had ensured in one fell swoop that the first-time buyer's grant would be eradicated almost as mysteriously as the Marie Celeste. They have done it with a speed that would do justice to an Olympic sprinter.

I do not know which annoys me most about the abolition of this scheme – the willy-nilly fashion of its abolition or that the Government has spent the last week trying to defend it. That insults the intelligence of the people, especially young people. Those young people have made provision for that grant. They are pushed into banks to try to come to some sort of agreement whereby they can own their homes. That is their right. Ireland has the highest concentration of home ownership in the European Union. That is a very healthy thing about this economy and our young people. However, the Government has slashed the grant that pushed people from local authority waiting lists into a position where they are sufficiently equipped to buy their own homes.

This is another act of butchery and savagery by this arch conservative Government – arch conservative by the accusation of a former Minister of State from the constituency of Cork East, Deputy Ned O'Keeffe, who was lined up with about another dozen rebels from the other House and, I suspect, a few from this House who attended the parliamentary party meeting this afternoon. Those Fianna Fáil members who have played to the media, the press and young people in the past week should put their vote where their mouth is. This is a motion which not only condemns the action of the Minister but calls for the immediate reintroduction of the first-time buyer's grant. We put it to them to vote with us and show an act of faith for the many thousands of young people who availed of the scheme through the years and who will need, especially in the current economic climate, to avail of it in future.

Many decisions in the Estimates were, and I suspect many in the budget will be, hard hitting but none is as cruel and barbaric as the elimination of the first-time buyer's grant. The Minister for Finance had the further gall to say on national television last week when interviewed by a reputable journalist that the grant of €3,800 was little or nothing.

Mr. N. Ahern

That is not what he said.

Mr. McCarthy

It may be nothing to a patron in the Fianna Fáil hospitality tent at the Galway races, but when one is pushed to the limit to obtain a mortgage to buy or build a house to start one's life, it is a considerable amount of money. The display of arrogance and ill manners by some Members of the House while other Members attempted to make fine and eloquent contributions on the debate is almost as galling as the fact that we must have the debate in the first place.

Why for once can this arch conservative Government not pursue the rich boys? Why not chase the developers and the multi-millionaire builders who pack the Fianna Fáil hospitality tent at the Galway races every year? Why chase the people at the other end of the market and add insult to injury by capping the rent allowance from health boards? It is disgraceful and appalling and sends out a stark and sinister message to young people who can no longer avail of the first-time buyer's grant that they will be forced onto local authority waiting lists. These have grown in County Cork by 75% in the last three years.

We have listened to assertions that the grant was never what it was supposed to be and that the Bacon reports were used to guide housing policy. In fact they were used to rush to the defence of a housing policy that would make the former British Prime Minister, Margaret Thatcher, in her day look like a baby with a bag of Jelly Tots.

It is essential that young people in any democratic state should be encouraged when they set out to make a life for themselves. While times were good in recent years, the Government gave all it could to the golden circle, no matter of whom it was comprised. If one is not in that circle and earning hundreds of thousands per annum, one has no rights according to this morally bankrupt Administration which views people, especially young people, with contempt, as displayed last week by the abolition of the first-time buyer's grant.

Around the time of the launch of the Fianna Fáil manifesto, a document which, when presented on television, produced as much entertainment as the Punch and Judy show, and also around the time when the money was thrown around like confetti, Champagne Charlie, the Minister for Finance, wrote to an honourable and decent politician in the other House, Deputy Noonan, and assured him: "I can confirm that there are no significant overruns projected and no cutbacks whatsoever are being planned, secretly or otherwise". One does not need a degree in politics or economics to know that such plain and simple English tells us that the Minister was either taking us for a massive ride or he was telling lies. It is simply one or the other.

The Minister of State should urge the Taoiseach, who also beats Banagher when it comes to debates such as this, to reintroduce the scheme immediately. He need only look at the people benefiting from it. I am a young person and understand full well the financial constraints on young people who must leave for work early in the morning and do not get home until late in the evening and who depend on the grant to buy a house. No matter how miserly or ineffectual some think it to be, it has been worth a great deal to the tens of thousands of young people who have availed of it in recent years.

Mr. Brady

I wish to share my time with Senator Dooley.

An Cathaoirleach

Is that agreed? Agreed.

Mr. Brady

I welcome the Minister of State to the House. I live in a neighbouring constituency to his and have a good idea of how much time he spends in it. I am sure he is as aware as anyone of the implications of the hard decision taken last week.

Mr. McHugh

Hard on whom?

Mr. Brady

In supporting the amendment it is worth examining the changes which have taken place in housing. When house price increases peaked at 40% in 1998, there was a clamour, mostly from the Opposition parties, for the Government to examine ways to stop the dramatic rise. Everyone argued that something must be done.

Through a series of measures, housing supply was increased to try to meet demand while at the same time maintaining and improving affordability. The results are evident. The number of units built last year was 52,600, which was the seventh year of record output, interest rates are at their lowest for a long time and price increases have now been reduced to 5.7%. There are a number of contributory factors to these achievements. Some have been outside our control, but most have been the result of strong, prudent economic management of the economy. The so-called Celtic tiger, a media generated term I detest, dramatically increased disposable incomes and employment. These joined with lower tax levels and high levels of economic growth contributed to an increased supply of properties.

It is agreed that more needs to be done to maintain this progress. As someone who benefited from the first-time buyer's grant when I took advantage of a subsidised mortgage from a housing financing agency when I started off, I found the abolition of the grant surprising but understandable. Times have changed. When it was introduced in 1987 the market and economic climate were different. Perhaps we have been victims of our own success. The result of the improvements over which my party has presided is that the focus and effectiveness of the grant has been lost. It was originally conceived as an assistance for people to enter the housing market. Most new buyers today do not benefit directly from it but builders do. Some lending institutions include the grant in the calculation of their eligibility criteria for a loan. The purchaser never sees the grant. Some people buying property for investment purposes also avail of it.

I welcome the Minister of State's announcements about the affordable and social housing schemes. The enhancement of more targeted and effective schemes, such as the shared ownership and social and affordable housing schemes, benefit those who otherwise could not aspire to home ownership. Co-operative housing initiatives contribute greatly to tackling local authority housing lists.

The redirection of resources in favour of these areas can only benefit those most in need of assistance. In the current economic climate, hard decisions must be made but I am convinced that the Government will continue to manage matters fairly and firmly and will continue to make the difficult decisions to prevent us returning to the horrendous conditions in which we found ourselves in the 1980s when the grant was first introduced.

Mr. Dooley

I thank Senator Brady for sharing his time. I join my colleagues in welcoming the Minister of State. It is good that he is in a position to listen to the diverse views we have heard.

It will disappoint some Opposition Members to learn that I support the amendment. I believe in the measure taken, although it was a difficult one. The abolition of the scheme was a difficult decision the Government was required to take to ensure a sustainable match between Government resources and expenditure. Difficult decisions had to be taken in the context of the current economic performance. We have been elected to take those decisions. Fianna Fáil will not be found wanting when decisions are needed to ensure prudent management of the economy. Analysis has shown that this scheme was no longer the best way to target the disadvantaged. The Minister of State alluded to this.

The new house grants scheme was introduced in its present form in 1977 when only 17,000 or 18,000 new private houses were being built each year. Last year private housing output amounted to 37,487 units. The main purpose of the grant was to encourage new house building. Although no longer the case, when first introduced it was a support for the construction industry. For this reason first-time purchasers who bought existing houses did not receive grant assistance. At the time the grant was set at the high level of £1,000 in order to boost new house building. That sum represented about 7% of the average new house price. Today, at €3,800, it represents only 2% of the average new house price and is no longer such a major element in the calculation for the purchase of a house.

The grant was, effectively, inequitable as it did not provide assistance for the purchase of a second-hand house. Unlike my colleague, Senator Brady, I was not fortunate enough to take advantage of the measure as I could not afford a new house and had to buy a second-hand house. Those who bought new homes were able to use the grant to buy the furnishings and trappings that I had to wait about 18 months to afford.

In considering the 2003 Estimates the Government was obliged to look carefully at every expenditure programme and scheme. The new house grant has outlived its usefulness as an economic incentive. While obviously of benefit to those who qualified for it, its economic impact has long been absorbed into the house price. Its value has now been considerably exceeded by the value of the stamp duty exemption for new houses. The Government proposes to retain this exemption which amounts to about €5,900.

In recent years a range of better targeted schemes, to assist low income purchasers and those with social housing needs, have been put in place. I am delighted the Minister of State has defended this and outlined clearly that this is a better way forward. Between 1998 and 2001 the provision of social and affordable housing has grown by 35% to 11,385 units and a further increase of almost 13,000 units is forecast for 2002. It is clear there was an overlap in the system. On the one hand, we still had the first-time buyer's grant while, on the other, the real area of disadvantage was being catered for. As the Minister of State indicated, the money that will now be saved in this regard will be available to assist in the provision of social and affordable housing. This will assist those mentioned by Senator O'Meara to get on the ladder for the first time.

A number of Opposition speakers mentioned the so-called friends of Fianna Fáil – the people who own vast amounts of rental property. Not too long ago the Opposition accused the Government of being in cahoots with the same people in the sense that the Revenue take was increased by their numbers. The Government has made prudent decisions based on the Bacon report and others. If we were to remove investors from the market, as was done in the past, the rental market would be stymied and the people hit would be those who could never dream of being involved in the purchase of a house. At the minute we are talking about those on the margins of being able or unable to afford to buy a house. Those who have to rent cannot even contemplate purchasing. If we removed the investors from the market, we would disenfranchise the people concerned.

Mr. Coghlan

I wish to share time with Senators Feighan and McHugh.

An Cathaoirleach

Is that agreed? Agreed.

Mr. Coghlan

I listened to Senator Dooley's tale of being hard done in having to buy a second-hand house and not getting a grant. I welcome the Minister of State and thank him for his interest in housing despite the fact that things seem to be going backwards. People are angry and will not let the Government away with this. It is up to us to express their anger. No matter what way the Minister of State colours it the measure is draconian and we are calling for its reversal. If we did not, we would be failing in our duty.

I appreciate what the Minister of State said about the grant having outlived its usefulness as an economic incentive, but that history lesson coming without any advance warning is unfair. I would almost go so far as to say it is a bit of a con. The measure has killed the hopes and aspirations of first-time buyers. What is more serious is that, not only does it affect people on a personal level, but it also puts more pressure on local authority housing lists which are increasing all the time.

The Government must swallow its pride and back down on this farcical measure, otherwise the economy will reap the consequences for a long time to come. Not alone has the Minister for Finance dashed the hopes of thousands of young people, but the Government will become known as a Government of dream wreckers. The dream of most young people is to own their own house. The first-time buyer's grant may not matter much to the Minister for Finance, but it is of critical importance to young couples. The Government deserves condemnation for its callous action. It is unfair, was announced without notice and leaves many couples who have booked new homes high and dry.

I appreciate what the Minister of State said about those who have signed contracts. Unfortunately, many new homes are being sold off the plans. This is a disastrous measure, unless the Minister for Finance intends to introduce mortgage interest relief in the budget to cover for it.

Mr. Feighan

I appeal to the Minister to restore the €3,800 first-time buyer's grant. Young people in the west are trying to purchase their own homes. They want pride, esteem and self-confidence and do not want to rely on hand-outs or council housing. Now they are being put under added pressure and councils will have to provide for them with depleted resources. People were relying on the first-time buyer's grant to afford their dream. I welcomed the CLÁR project which created opportunities through installing sewerage schemes, roads, footpaths, lighting and water etc. I also welcomed the establishment of the Western Development Commission.

The Minister has removed the budgets for all of these. The Government has cut the budget for the Western Development Commission by over 70% and that for the CLÁR project by over €3 million. The Minister for Finance is saying, as Cromwell did, to hell or to Connacht. This is an attack on the people of the west and the few young people left there. We have all had aspirations of a united Ireland, but my belief is that there will be a new six counties in the future – the six counties of Donegal, Sligo, Roscommon, Mayo, Leitrim and Galway which are being left out of the equation of a 32-county Ireland.

Mr. McHugh

I thank Senators Coghlan and Feighan for sharing time. I echo their sentiments on behalf of my county council as well as talking on behalf of the rest of the people who have spent the past two to three years pre-planning the building of a house. The Minister for Finance, Deputy McCreevy, may have no expertise in pre-planning, budgeting and putting money aside for a rainy day or a project. From 14 November, people who had not paid a deposit to a builder will not get the €3,810 grant. I am looking forward to an election in a year's time when people on the Government side will be canvassing houses in their areas where there might be no kitchen or fireplace or wooden floors because this €3,810 was part of their budget set aside to pay for a part of their house. These people have been betrayed by the Government because they were not consulted on this change. It is a disgrace. I speak on behalf of many young people and I call for the immediate reinstatement of the first-time buyer's grant.

Mr. Brennan

I wish to share my time with Senator Morrissey. In welcoming the Minister of State, Deputy Noel Ahern, to the House, I support the amendment. The Government's first priority is to get the country back to a sustainable rate of spending in order to avoid a long-term crisis. To do this, tough measures have had to be taken in different areas. The Government's decision on the first-time buyer's grant was taken to ensure a sustainable rate of spending and prevent a long-term crisis in public spending.

As many speakers have said, the first-time buyer's grant was introduced in 1977. We all remember the state the construction industry was in at the time and how few houses were being built. It was an initiative to support the less well off in our society to build a house of less than 1,346 sq. ft. An average of 10,000 grants per year have been given in the past five years. The grant was introduced at a time when only 17,000 to 18,000 houses were being built in the private sector. The scheme was initiated to encourage the building of more new houses as demand had exceeded supply. Last year there were 47,000 private housing units so the need to encourage new housing development has greatly changed.

As the Minister, Deputy Noel Ahern, has rightly said, the Government should now focus on responding to the needs of low income households and those with special housing needs through a broad range of targeted initiatives. I ask the Minister for Finance to give consideration to these people who would have qualified for housing grants. He should consider giving tax credits amounting to €10,000 over a five year period to people who would have qualified for grants in the past. Some 27% to 34% of the cost of building those houses now goes back to the Government in taxes.

Fianna Fáil has always helped those less well off in our society in areas such as housing and social welfare. I ask the Minister for Finance to continue to do so in the forthcoming budget. A balance needs to be struck in Government housing policy in the budget. It must aim to target scarce financial resources and to build social and affordable housing. The Government, local authorities and the building industry need to come together to tackle this problem and work for the common good in both the public and private sectors. I welcome the public private partnership that has taken place in Fingal. Local authorities have ample scope to meet the housing needs through the serviced sites initiative. I am delighted the Minister has seen fit to increase the funding available for that next year.

Mr. Morrissey

I am delighted to welcome the Minister. While I know thousands of people have benefited from this scheme, I received the first-time buyer's grant, but I was not a beneficiary. After I paid my booking deposit, the house price increased by the corresponding amount. This has been the practice since 1981. I purchased my first house on the weekend the first-time buyer's grant was increased by £1,000 to £3,000 at a Fianna Fáil Ard Fheis. The following week builders increased prices by the same amount.

About 10,000 people benefit from this scheme each year, but there are 33,600 first-time buyers every year. About 70% of the first-time buyers do not buy new houses; they buy second-hand houses. They do not get grant relief. Some could argue that is a distortion of the market. At present the average house price is about €190,000. This grant represents a mere 2% of that price, which would not affect the decision whether to buy. In the early 1980s it represented 10% of the value of the house and it certainly made a difference in deciding whether to buy. There are many other initiatives the Government has for first-time buyers but this scheme does nothing to increase the supply of land, which is the greatest impediment to solving the housing crisis.

Over the weekend, Colm McCarthy, an economist, said:

There can be no control without clean decisions, including the use of the word "no". One such was the decision to scrap grants for first-time home buyers. There is always a suspicion that cash grants, which stimulate demand in housing but which have no effect on supply, end up in the price and really benefit landowners rather than the intended beneficiaries. The decision to scrap the scheme is long overdue.

I agree with that.

Mr. Norris

With the permission of the House, I would like to share time with my colleague Senator Ross.

An Cathaoirleach

Is that agreed? Agreed.

Mr. Norris

It is a pleasure to welcome the Minister to the House because, of the two brothers, I have nice things to say to him; I had to be a little firm with his one of his brothers today. It is a pleasure because of the reasonable and balanced nature of what he had to say. Although I sit on this side of the House, he and the other contributors on the Government side convinced me of their argument even though it is a very difficult one indeed and I shall be voting with the Government tonight.

I remember meeting the Minister for Finance, Deputy McCreevy, in the corridor after the last general election. I told him he had been a good Minister for Finance and he had a capacity to be a great one provided he broke every single promise he made during the election campaign. I am glad to see he has started on that, because it is necessary. There is considerable hypocrisy in this place because the last general election was guided by auctioneering principles. I remember when certain parties, which will be nameless, were offering to recoup losses on the Stock Exchange in an effort to buy votes. It is perfectly obvious that cuts have to be made. With wise economic tactics we can get back on track within 18 months. In that circumstance, it is extremely foolish to advocate cuts, but not here or there. In that case where?

It is very difficult and I have great sympathy for young people who want to get into the housing market and one's heart goes out to them. However, this is one among a large number of areas that will be cut. When rents were frozen during the First World War it led to the destruction of the inner city of Dublin because it was not possible to get economic rents. It is one thing to freeze rents during wartime; it is another thing to unfreeze them. No Government had the courage to do it until Mr. Madigan took a constitutional action.

This grant is already discriminatory because it discriminates against buyers of second-hand houses. Why do only new houses qualify? The Government has said this was to act as an incentive to the building industry. The former Senator, Deputy Jim Glennon, got it right – and was backed up by Government Senators – when he said the building industry trousered the grant. Perhaps, in a time of excess, that is acceptable but the building industry must now be faced down. It treats its customers with contempt, allowing them to be gazumped and refusing point blank to tell them the square footage of rooms in properties and so on. It is about time the arrogance of the building industry was taken into consideration and it was taken down a peg or two.

The principle of spending cuts should be to cut flab. I am not suggesting this is the case for all first-time buyers but I have heard some harrowing stories – and I am sure the Minister and his advisers will be able to target resources towards these people – from people who said they would not have a carpet before Christmas if they did not get the grant. That would break my heart but it is the way married life always was – and I do not speak as any great authority on marriage. In my first co-habitation in Jerusalem we did not have a carpet, nor did we even have a pair of curtains but I was damn glad to be in that house with the person I cared about.

I am prepared to take the cuts. If the Minister wants to cut the SSIAs, where I was advised to shove my money, he can do so. The Government can have the money back as far as I am concerned. We must all experience a bit of the pain. We must cut the flab, continue developing infrastructure and make painful decisions. I will stick by the Minister because I think he is doing the right thing.

Mr. Ross

I am sorry to part company with my right-wing friend but occasionally these things happen. With a great deal of soul searching, I will support this motion. There is an obligation on those who are not part of the Government not to oppose all cuts but rather to make serious suggestions about where they should be made because everyone acknowledges they are necessary. The Labour Party may also propose, with honesty and integrity, that the budget should be balanced through taxation but it is not enough simply to oppose this measure. If I have time tomorrow, I will suggest where cuts can be made which would be more palatable, fair, appropriate and timely.

There is a real problem in this nation with private sector housing. I am not a free marketeer to the same extent as Senator Norris. I do not believe the market should never be interfered with under any circumstances. However, as a general principle the Government is right that the housing grant was fundamentally flawed when it was introduced. It was designed to give the construction industry a boost but its effect was to distort the market and give an illusory benefit to those who got the grant.

The housing market has taken off and become a terrible social problem. The free market has gone mad in that sector and the Government, despite several attempts and a succession of reports by Peter Bacon, has been unable to solve the problem. It is untrue to say that this is a mechanism and that builders have raised the price of houses by €3,800 because, as the Minister of State and other Members will know, the cheque is issued after the purchase is completed. It is not a totally illusory benefit. People make their calculations, they borrow a certain amount of money from parents and so on and work out that they will get €3,800 to furnish the house. That is the reality. There may be a degree of circular movement but people who are in this extraordinarily penal market are being punished for being there.

If the Government were to come forward with budget proposals to cut the grant because it is distorting the market but if it also introduced measures to ameliorate the circumstances of people who have suffered greatly in this market, I would support this measure. However, we have heard nothing to that effect. If there were reasonable balancing measures, it would be acceptable. We are talking about €38 million or €40 million, which is peanuts. As a public relations exercise, this is something about which the Government should have been advised. Once again, it has picked some unfortunate victims and they need protection because they are in the market – a jungle they do not understand.

I will vote for this motion but I have a difficulty bowing a knee to the Irish Congress of Trades Unions in motions of this sort. I see no reason why the Labour Party needs to give reassurance to these people that it is their party and will support them at all costs.

Mr. Ryan

The Senator says that like nobody else.

Mr. Ross

It is extraordinary that Members of this House should put that into a motion. The reality of power in this country is that the social partners must be deferred to on the enacting of legislation and the budget. The truth is that the social partners will probably write the budget.

Dr. Mansergh

Not for the first time, I have to say that social partnership is a good policy which has served the country well.

Mr. Ross

That is an assertion. Where is the evidence?

Dr. Mansergh

The Government has a proud housing record with a record supply of 52,000 houses in the past year. I support the social and affordable housing programme, even those parts that are not particularly popular with builders and I hope the Government will adhere to it. The first-time buyer's grant was of value and importance to some people but in many cases it was absorbed into the builder's price. The Labour Party spokesman, Deputy Eamon Gilmore, fully understands the limitations of the value of the first-time buyer's grant.

The real problem is that young people are unable to get into the market. A massive inter-generational redistribution of wealth to older people who own houses is taking place and that is regrettable. I was appalled by the recent commment of an estate agent that the property market is growing ever onwards and upwards. That is the psychology of the South Sea Bubble. I do not believe it but it is pernicious.

The Government must, in a budgetary context, look at the imbalance that has been created by removing the first-time buyer's grant. I do not like when professional people who have more money than they know what to do with put their money into the housing market, crowding it and making it impossible for younger people to buy into. It is not the Government's job to sustain the housing market at an unrealistic price level. Apart from the social and affordable housing which deals with one segment of the population, we need to look at measures to dampen the market. Having been a member of the tax strategy group for the last five years, I know this is not an easy thing to get right but that should be the priority rather than the health of the building industry.

Mr. Ryan

This has been a night of revelations for me. The first is that Fianna Fáil seems to have discovered that the building industry has been ripping off the nation for 20 years when in fact it is the number one conspirator in allowing it to happen. The party allowed those who fund it – and keep members in the style to which they are accustomed – to rip off the nation and it has done so consistently for 20 years. Fianna Fáil has taken their donations and encouraged builders and speculators with grants. It has left them alone and is still doing so.

The Government will not introduce proper regulation of the private rented sector because its friends do not want it. It reduced capital gains tax because its friends wanted it. As Senator McDowell said, it has refused to implement the full provisions of the Bacon report to tax speculative land because its friends do not want it. However, we have now had successive speakers on the Government side wringing their hands about cruel builders ripping people off. We know what has been happening for the last 20 years, but apparently it only dawned on Fianna Fáil tonight, which is welcome. At least, it has forced Fianna Fáil members to concede that their friends in the building industry have given this country an abysmal service in terms of price, quality, customer relations and follow-up to faults in new buildings. Now that Fianna Fáil has discovered the problem and admitted to it, perhaps the Government will do something about it by giving young couples some guarantee of quality and some rights, rather than being expected to buy from plans which give very little information about the property in question. Now that Fianna Fáil has admitted what its friends are like, will it stop taking their money to fund the party? Perhaps something has been learned.

The second revelation is the realisation that €4,000 is an insignificant sum. When Frank Dunlop was giving money to members of Dublin County Council, £1,000 was enough to buy votes for rezoning. To most people in the State €4,000 is a lot of money. It is only those in Fianna Fáil who have lost contact with reality who consider it a small sum.

The third revelation is that capping rent allowances is supposed to push down rents. What it will actually do is push poor people out on the street. This has been a desired objective of the Department of Finance for many years. The Department did not like an open-ended guarantee to anybody in need of housing that their rent would be covered if they could find accommodation. It has been trying to get rid of this socially correct measure for the past 20 years and has now got it from the Government under a smokescreen about rent stabilisation. There is no point in telling young people in this city that rents have stabilised. During the week The Irish Times published a letter from a young man with a good job who could not afford a single room in this city, yet the Government claims that rents have gone down while poor people are being pushed out of private rented accommodation. Nobody believes the Government on the issue.

The fourth revelation is that there is no housing crisis. Any Member of this or the other House will confirm that housing is the single biggest issue being raised at their clinics, yet, according to the Minister of State, there is no crisis, the problem has been solved, plenty of houses are being built and most people on the housing lists are not in the same category as were formerly on them. The people my colleagues, Senators on the other side of the House and I meet are victims of the crisis on which the Government sat for five years. I will move on to revelation No. 6.

(Interruptions.)

A Senator

What about No. 5?

Mr. Ryan

The supply of building land presents a problem, but, yet again, it is the supporters of Fianna Fáil who are sitting on it. They hope to get rid of the present appalling provision, as they see it, for social and affordable housing in order that they can maximise their returns from land they will not now sell to provide housing for those who desperately need it. There is a solution to which Senator O'Toole referred. The landowners concerned should be given the choice of selling the land or having it acquired at current use value. This could be done, but Fianna Fáil will not do it because its friends own the land.

The final revelation, after a week of hot air and smoke, is that Fianna Fáil backbenchers have absolutely no influence. They exist only for the purpose of doing what they are told. They lined up and did just that, despite all the hot air at constituency level, saying the very opposite of what they said last week. If that is the extent of their influence, what is their purpose in being here? I do not care whether they vote with or against us.

(Interruptions.)

Mr. Ryan

We thought they had some influence with the Government—

(Interruptions.)

An Cathaoirleach

The Senator's time is up. He should conclude.

Mr. Ryan

Finally, a Chathaoirligh, they have realised they were spending like social democrats and taxing like Tories and got caught after the general election. Now they are behaving like the Tories they are. Not only will they do social damage with the current Estimates, they will also cause enormous economic damage. They will set the country back five years by ideological nonsense—

(Interruptions.)

Mr. Ryan

—based entirely on protecting the vanity of the Minister for Finance.

Amendment put.

Tá

Brady, Cyprian.Brennan, Michael.Callanan, Peter.Cox, Margaret.Daly, Brendan.Dardis, John.Dooley, Timmy.Feeney, Geraldine.Fitzgerald, Liam.Kenneally, Brendan.Kett, Tony.Kitt, Michael P.Leyden, Terry.Lydon, Don.

MacSharry, Marc.Minihan, John.Mooney, Paschal C.Morrissey, Tom.Moylan, Pat.Norris, David.O'Brien, Francis.O'Rourke, Mary.Ó Murchú, Labhrás.Ormonde, Ann.Phelan, Kieran.Scanlon, Eamon.Walsh, Jim.White, Mary M.

Níl

Bannon, James.Browne, Fergal.Burke, Ulick.Coghlan, Paul.Coonan, Noel.Feighan, Frank.Finucane, Michael.Hayes, Brian.Higgins, Jim.

McCarthy, Michael.McDowell, Derek.McHugh, Joe.O'Meara, Kathleen.Phelan, John.Ross, Shane.Ryan, Brendan.Terry, Sheila.Tuffy, Joanna.

Tellers: Tá, Senators Minihan and Moylan; Níl, Senators O'Meara and Tuffy.

Amendment declared carried.

Question put: "That the motion, as amended, be agreed to."

Tá

Brady, Cyprian.Brennan, Michael.Callanan, Peter.Cox, Margaret.Daly, Brendan.

Dardis, John.Dooley, Timmy.Feeney, Geraldine.Fitzgerald, Liam. Kenneally, Brendan.

Tá–continued.

Kett, Tony.Kitt, Michael P.Leyden, Terry.Lydon, Don.MacSharry, Marc.Minihan, John.Mooney, Paschal C.Morrissey, Tom.Moylan, Pat.

Norris, David.O'Brien, Francis.O'Rourke, Mary.Ó Murchú, Labhrás.Ormonde, Ann.Phelan, Kieran.Scanlon, Eamon.Walsh, Kate.White, Mary M.

Níl

Bannon, James.Browne, Fergal.Burke, Ulick.Coghlan, Paul.Coonan, Noel.Feighan, Frank.Finucane, Michael.Hayes, Brian.Higgins, Jim.

McCarthy, Michael.McDowell, Derek.McHugh, Joe.O'Meara, Kathleen.Phelan, John.Ross, Shane.Ryan, Brendan.Terry, Sheila.Tuffy, Joanna.

Tellers: Tá, Senators Minihan and Moylan; Níl, Senators O'Meara and Tuffy.

Question declared carried.

An Cathaoirleach

When is it proposed to sit again?

Ms O'Rourke

At 10.30 a.m. tomorrow.