Seanad Éireann debate -
Wednesday, 28 Jun 2006

Vol. 184 No. 7

Housing (Stage Payments) Bill 2006: Second Stage.

Question proposed: "That the Bill be now read a Second Time."

Mr. Coghlan

I welcome the Minister of State, Deputy Noel Ahern, to the House and look forward to hearing what he has to say on this matter.

I am happy to introduce, in conjunction with my colleagues, Senators O'Toole and Ryan, the Housing (Stage Payments) Bill which is designed to abolish the practice of stage payments for certain types of newly-constructed houses, thereby reducing the cost to consumers of such housing and eliminating the risks associated with such practices.

Stage payments mainly arise in the case of houses built in housing estates whereby their purchase is funded through stage payments. However, the system only operates in a few counties and does not, I understand, exist in Dublin or most of Leinster. Nowadays purchasers in these areas pay for the construction of newly-built houses with a 10% contract deposit and the payment of the 90% balance on final completion. This system is open and transparent, as it should be, with the purchasers being fully aware at the outset of the extent of their liabilities, thus enabling them to budget accordingly.

Sadly, in some parts of the country the practice of purchasing newly-constructed houses in housing estates by stage payments endures. This Bill seeks to abolish this practice on the basis that it adds to the purchasers' costs of buying such new houses and introduces significant financial risks for the purchaser in stage payment contracts.

The stage payment system in estate-type housing purchases is unfair as it involves the preponderance of risk in the construction of new houses in housing estates being carried by the purchasers rather than the builders. Similarly, it involves purchasers accessing significant funding by way of mortgages before they are in a position to live in the house and before work is completed. They must draw down their mortgage before completion and thus service a loan before they can occupy the property. They are often involved in bridging finance for this process at excessive rates over the normal odds.

Where an individual purchaser arranges with a builder to construct a house, usually on a site that has been provided by the purchaser, then payment for this house by stage payments is perfectly normal and acceptable, given that payment of the cost of construction is made by the purchaser to the builder on foot of architects certificates after the various stages of construction have been completed. This practice is recognised, standard and well established. It is acceptable because purchasers are paying for building works that are already completed on their own site. In addition, it should be pointed out that section 3 of the Bill deals with variations and allows for stage payments for the construction of a house in an estate where the builder has varied the plans at the express instruction of the purchaser to suit his or her requirements.

I am grateful to the Minister of State for his letter of 16 June last regarding this Bill and perhaps it would be helpful if I now read this letter. It states:

Dear Senator Coghlan,

I write in relation to the Private Members Bill in your name that was published on 3 April last. I would like to inform you of the ongoing dialogue that is taking place in relation to the practice of stage payments for the sale of houses in new developments.

The Government are concerned to ensure that house purchasers are not disadvantaged by any practices that might make it more difficult or expensive to access a home. I am conscious of concerns that the practice of stage payments may be contrary to the interests of house-buyers in certain circumstances. While it is generally accepted that stage-payments may be warranted in the case of one-off housing, I do not consider that this is likely to be the case in the context of speculatively built estate housing.

My officials met recently with members of the Construction Industry Federation — Southern Region (CIFSR). At this meeting, our strong preference for an agreed approach leading to a voluntary phasing out of the practice of stage payments in speculatively built housing estates was put forward and it was acknowledged that an agreed approach on the matter would be preferable to legislation or regulation. The CIFSR were also made aware that the balance of opinion among public representatives and the general public appears to be against the practice of stage payments in speculatively built housing estates. Subsequent to the meeting my Department wrote to CIFSR reiterating our position on the matter and seeking an indication of a definite commitment on the part of the construction industry to a voluntary phasing out of the practice of stage payments in housing estates. The CIFSR response is awaited and we will be pursuing the matter.

The Government has kept open the possibility of legislation to prohibit the requirement to stage payments in house purchase contracts for speculatively built housing estates. In this regard the Minister for Justice, Equality and Law Reform published the Land and Conveyancing Law Reform Bill 2006 on 9 June 2006. The Bill is largely based on a draft Bill published with the Law Reform Commission's (LRC) report on the Reform and Modernisation of Land Law and Conveyancing Law, in July 2005. The Bill contains a general power for the Minister for Justice, Equality and Law Reform to make regulations in the area of contracts. The LRC report proposed inclusion of the regulation of stage payments in the context of a provision for regulation of the terms of contracts. Accordingly, the provision in the Bill for regulation of contracts may provide an appropriate mechanism for regulation of stage payments, should such an approach be considered necessary.

What I am working towards is obtaining a commitment, on the part of the whole industry, contained in a suitably formal instrument, to a voluntary phasing out of the practice of stage payments in housing estates. I would hope that this voluntary phasing out could take place over a period of, at most, twelve months with the CIFSR's cooperation in a manner that benefits both the consumer and the building industry.

Yours sincerely

Noel Ahern.

I am grateful to the Minister of State for that letter. He may have had a previous commitment when we dealt with this on 18 June 2004. He had hoped, and stated at that time, that he would have had the Government's legislation within six months.

The Minister of State and the House, I am sure, agree that this is a serious loophole in the law which leaves consumers at a distinct disadvantage in purchasing a house in a housing estate off a particular plan. In particular, it reduces their bargaining power, adds considerably to their cost and involves them spending up to 90% of the price of their house before getting possession of it. I am sure the Minister of State agrees that the country is far too small for the lack of uniformity which exists in this matter.

The practice, as I have stated, is wholly one sided and entirely anti-consumer. It is entirely inequitable that a consumer ends up paying up to 90% of the price of the house before getting possession of it. As a direct result of stage payments being demanded in such circumstances, purchasers end up paying their mortgage repayments well in advance of living in the house. This is grossly unfair, as I am sure the Minister will agree, particularly given that interest rates are still on the increase. The fact that the consumer has paid over the bulk of the purchase price of the house before completion inevitably lessens the consumer's bargaining power with the builder and provides little incentive for the builder to complete the project on time and to specification. It also involves transferring the financial risk inherent in the stage payments system to the consumer in addition to imposing unwarranted costs on him or her. This in unreasonable and incompatible with the ability of many consumers to carry such one-sided impositions.

When the forerunner of this legislation was first introduced on 16 June 2004, I referred to the Law Society's report on the matter, which was prepared by the eminent firm of accountants Peelo & Partners. It stated stage payments cost consumers an additional €7,000 each. The majority of additional costs come in the form of extra interest on obligatory payments drawn down before the consumer took possession of the house. In addition, certification and survey costs had to be met. When one considers that 25,000 new houses are built annually in the affected counties, the total cost to consumers is €75million per annum. It is rare that we can implement legislation that can have such a direct and immediate effect to benefit consumers. This Bill would alleviate a considerable burden for house purchasers and, accordingly, I appeal to the Minister.

Members will be satisfied that this loophole in the law is causing direct and avoidable hardship for consumers in house purchasing and we have a duty to rectify it. There is no justification for continuing the system of stage payments. It imposes additional costs, inconvenience and heartache on purchasers of houses where the practice is still prevalent. Furthermore, the Consumers Association of Ireland, in addition to the Law Society and the Law Reform Commission, is steadfastly opposed to the practice. It is a one sided practice, which offers no benefits to consumers. This measure, if adopted, could go a considerable distance towards helping first time buyers. Allowing stage payments to persist is to perpetuate a continued injustice against consumers. Accordingly, I commend the Bill to the House.

Mr. O’Toole

I welcome the Minister of State to the House and I look forward to his contribution. I am pleased to have the opportunity to second the legislation.

We are faced with a simple choice. Senator Coghlan has clearly outlined what we are trying to achieve. The decision we face is whether we are standing with the builder or the buyer, with the speculator or the consumer. The Minister of State must address a number of issues in this regard. He is playing ducks and drakes with this issue. He is stretching it out because he does not want a resolution and he has done everything possible over the past two years to defer a decision. The Minister of State contributed to the debate on the previous legislation in 2004 and both the Law Reform Commission and the Auctioneering and Estate Agency Review Group reported on this issue in 2005. The Minister of State wrote to both Senator Coghlan and myself last week saying he wanted another 12 months, which is appalling. Members should recall all the fine speeches, crocodile tears and concern for first-time buyers.

This is a simple issue, which could be addressed to make life a little easier for such buyers. It would take pressure off them and allow them to purchase a house in a fair and legitimate way. We are proposing what the Law Reform Commission and consumer interests, including the Office of the Director of Consumer Affairs, have sought. Any fair minded person would seek this and it is not too much ask to Government Members to support the legislation. If there are problems with it, the Minister of State can address them on Committee Stage. The Government, however, must make a commitment on the issue.

How does the Minister of State stand on the issue? Does he think it is fair that young people struggling to buy a house must often involve their parents and extended families as well as their bank managers to make repayments on a house they are not even living in? Does it strike Government Members how grossly unfair it is that young people should pay for their houses while paying rent and other bills because they cannot live in the structure for which they are paying?

I take issue with the Minister of State's letter to Senator Coghlan and myself last week. It contains misinformation and it is misleading. The Minister of State wrote that the Government had kept open the possibility of legislation to prohibit stage payments, which he has stated previously. He continued:

In this regard the Minister for Justice, Equality and Law Reform published the Land and Conveyancing Law Reform Bill 2006 on 9 June 2006. The Bill is largely based on a draft Bill published with the Law Reform Commission's (LRC) report ... in July 2005. The Bill contains a general power for the Minister for Justice, Equality and Law Reform to make regulations in the area of contracts.

I was in contact with the office of the Minister for Justice, Equality and Law Reform four times earlier and I spoke to the Minister and that is not correct.

The Law Reform Commission published a report last year while a report was also published at the same time by the Auctioneering and Estate Agency Review Group. The conveyancing Bill to which the Minister of State referred is before the House and it is largely based on the review group's report, paragraph 7.3 of which states: "While recognising that the issue of stage payments is largely beyond its remit, the group is aware that the Minister for Housing and Urban Renewal is considering initiating a consultation process with relevant interests in relation to the practice of stage payments in house purchase with a view...". This is similar to the Minister of State's commitment in 2004 and any other time he has been asked to do something about this. It is understood the guiding principle is along the lines Senator Coghlan has outlined.

The group's report concludes, "The Group would generally support this objective and encourage the relevant parties, including the construction industry, the professionals dealing with the house purchase and the relevant Government Agencies, as appropriate, to work towards this achievement". This recommendation has been made by everybody but it has not been implemented. The only reason for this is that the Government is coming under pressure from vested interests in the building industry. The Minister of State is shaking his head but he should outline why he will not support the legislation. We have made a proposal that has been recommended by interests and agencies he represents.

The Minister of State may wish to amend the legislation, to which we are open and he may wish to introduce other provisions on Committee Stage and we are also open to that. However, we are not open to the principle of what we are trying to achieve being voted down later. This is an issue about which Government backbenchers get kicked around when they return to their constituencies and speak to ordinary people who are trying to buy houses for their children and friends at the weekend and witness the struggle they endure. This would be a simple gesture, which would cost the State nothing. I ask Government Members to do the decent thing and to not vote against the legislation later.

This is not a party political issue because Members on all sides are concerned about it. The Minister of State stated in his letter that he recently met officials of the Construction Industry Federation, southern region. I spoke to them to establish their views on the legislation. They wrote to the Minister of State saying they were prepared to phase out stage payments on a voluntary basis. The CIF's code of practice provides that its members should not take a stage payment over the value of what is on the site and that the site should be transferred to the potential owner immediately. The federation is trying to so something, although it is not sufficient. I accept, however, that the CIF is moving in the right direction.

While everyone appears to be moving in the correct direction, it seems the Minister of State is not prepared to state that he agrees with the principle of the Bill but wishes to make amendments on Committee Stage. He could then make such changes. This is completely wrong and unfair. The Cabinet should consider that it is putting the Minister of State's party, ordinary party workers, the Government and its backbenchers behind the eight ball on this issue, because there is no justification for not supporting this Bill tonight.

An Cathaoirleach

The Senator should conclude.

Mr. O’Toole

I urge the Minister of State to change his mind and do the decent thing by supporting the young people. He should take the same line as the consumer associations, the Law Reform Commission and everyone who cares about young people who are trying to get into the housing market.

An Cathaoirleach

The Senator must conclude.

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

There is broad consensus in the Oireachtas that stage payments should not be a normal feature in the purchase of houses in residential estates. As has been noted, the Government indicated in June 2004 that this was its preferred position and undertook to work with the stakeholders involved towards a resolution of the issues. Substantial progress can now be reported and I believe it would be more beneficial to house purchasers to finalise good solutions on this basis rather than invoking a legislative solution which could prove to be too inflexible.

A legislative approach risks being too rigid in an area that concerns private transactions and where circumstances can vary. Moreover, the introduction of additional statutory requirements in this area could add complexity to the process of property purchase.

It is usually preferable to proceed on the basis of agreement rather than by compulsion. This has been the basis of much of Ireland's overall economic and social progress for nearly 20 years. In the case of stage payments, as every Member of the House will be aware, this practice does not exist in many parts of the country. The vast majority of the enormous numbers of new houses which are sold each year are transacted without such a system. This situation obtains as a matter of market practice without any statutory intervention. The logic should be to facilitate the extension of this approach throughout the country.

Consequently, I am pleased to be able to inform the House that in recent days, the Department has received a strong commitment to pursue the voluntary phasing out of stage payments from the Construction Industry Federation's branch in Cork, which is the main centre where such payments now occur. In a letter addressed to the Department, it has indicated that its members have made a strong recommendation to the Irish Home Builders Association, IHBA, at national level to the effect that it should immediately enter into discussions with the Department with a view to voluntarily phasing out stage payments within a relatively short timeframe. I understand that this recommendation has been endorsed by the national body of the IHBA and the necessary follow-up arrangements will be put in place without delay.

This commitment on the part of the Cork Construction Industry Federation, CIF, members has followed efforts by the Department over a long period. It represents a major advance which will, I believe, lead to the early ending of the practice of including stage payment requirements in house purchase contracts in the case of housing estates. By an early ending, I envisage that the practice should be phased out within the next nine months or thereabouts and that whatever agreement may be required for this purpose should be fully concluded before the Oireachtas resumes in the autumn.

The option of legislative action would, of course, be available as a fallback position in the event of the matter not being brought to a satisfactory conclusion at an early date. In that regard, I should point out that the legislative approach proposed in this Bill is not considered to be appropriate. It is drafted as a stand-alone measure under a housing title, whereas any legislative measure in this area would require framing in the context of legislation relating to house purchase contracts and regulation of conveyancing practices as recommended last year by the Law Reform Commission.

Perhaps the last time this matter arose in this House two years ago, I was foolish to more or less accept that the Department would deal with this issue. It has nothing to do with the housing section of the Department. As the matter pertained to housing, I decided to try to use our influence to try to solve this matter by agreement in a consultative manner. However, if Members wish to adopt a legislative approach, this matter should be under——

Mr. O’Toole

The Minister of State would then be able to state that a Progressive Democrats Minister refused to do anything about it.

An Cathaoirleach

Order, please.

Mr. N. Ahern

It should be under legislation pertaining to contracts.

Mr. O’Toole

The Minister of State can blame a Progressive Democrats Minister.

Mr. Ryan

The Minister of State should be aware that Members are familiar with that particular refrain.

An Cathaoirleach

The Minister of State should be allowed to speak without interruption. Such interruptions impinge on the time available for Private Members' business. I want to give everyone an opportunity to contribute.

Mr. N. Ahern

It should be under the legislation already before the House or the forthcoming legislation regarding a national property services regulatory authority. While Senator O'Toole has stated that this could not be done last week, this is not the advice available to me. It could have been done. However, with regard to the other taskforce which was established, that legislation will be brought forward. The Government——

Mr. O’Toole

The Minister of State——

Mr. N. Ahern

This is my basic position in this regard.

An Cathaoirleach

Order, please. The Minister of State should be allowed to speak without interruption for his allocated 15 minutes.

Mr. O’Toole

On a point of order, the Department sponsoring the Land and Conveyancing Law Reform Bill stated that it cannot do this, while the Minister of State has informed Members that it can. Someone is getting it wrong.

An Cathaoirleach

Allow the Minister of State to continue without interruption please.

Mr. N. Ahern

The Department has been trying to achieve the desired goal by agreement with the stakeholders. If a legislative approach were to be adopted, it would not be as a housing Bill, but under a Bill dealing with contracts, which would come under the aegis of the Department of Justice, Equality and Law Reform.

The Government is concerned to ensure that house purchasers are not disadvantaged by any practices that might make it more difficult or expensive to access a home. I am conscious of concerns that the practice of stage payments may be contrary to the interests of housebuyers——

Mr. Ryan

"May be contrary".

Mr. N. Ahern

—— in certain circumstances.

An Cathaoirleach

Order, please. I remind Senators that this debate must conclude at 7 p.m. While many Members have offered to speak in the debate, some will be denied if there are interruptions which cause delays.

Mr. N. Ahern

How much time do I have?

An Cathaoirleach

The Minister of State has 15 minutes.

Mr. N. Ahern

While it is generally accepted that stage payments may be warranted in the case of one-off housing, I do not consider that this is likely to be the case in the context of speculatively built estate housing. Stage payments typically refer to the practice of requiring the purchaser in a new housing development to make payments to the builder at a number of set intervals or stages in line with progress of the building. While the practice of purchasing new houses in housing estates by means of stage payments does not apply in most parts of the country, it is recognised as being prevalent in Cork and some other parts of the south and west. The making of agreed phased payments under a standard building contract is a common arrangement for the development of one-off houses in rural areas generally. Substantial house extension or renovation contracts usually also involve such arrangements.

I understand that in the main, the use of stage payments in Ireland developed during the 1970s among a number of Irish builders who had returned from the UK. These builders operated at a small scale and used stage payments to gain access to capital to enable them to construct housing, as sufficient financing was not always readily available from the lending institutions. I understand that the absence of stage payments in Dublin and other areas has been attributed, at least in part, to the consequences of a court case involving stage payments following which Dublin solicitors opposed the practice. However, I believe that stage payment arrangements were not the norm in Dublin and adjacent areas before then.

The IHBA home purchase protection pledge code of practice contains provisions relating to stage payments. This is a purely voluntary professional code and does have any statutory effect or recognition at present. However, I understand that approximately 80% of builders subscribe to it and it includes a complaints procedure in respect of members who breach the code. It states that the value of a stage payment, when taken together with the cumulative value of payments made to that date, should not exceed the value of the site and the work completed at that date. There are also bonding systems in operation under which a certain amount of cover may be provided in cases where the builder is unable to complete the work and stage payments cannot be recovered.

In December 2001, the High Court ruled in a case taken by the Office of Director of Consumer Affairs under the European Communities (Unfair Terms in Consumer Contracts) Regulations 1995, that stage payments in house building contracts, which exceed the percentages stipulated in the IHBA code of practice, or which exceed the extent and value of works carried out at the date specified for the payment in question, shall not apply. However, it is important to note that the court made this ruling without prejudice to the propriety or impropriety of stage payments per se.

Following the debate on a Private Members' Bill in this House in 2004, I had a detailed examination of the issues carried out in the Department. Arising from this, a comprehensive paper was prepared for the purpose of consultation with relevant interests but its circulation has been deferred to allow engagement with the construction industry regarding possible voluntary phasing out. This process has taken longer than I would have liked but, as I indicated at the beginning of this speech, it promises to prove successful. It is clear from the examination carried out that arguments can be put forward both for and against the system of stage payments.

A claim made in favour of the system is that it tends to moderate house prices by virtue of reducing the builders' financing overheads during the course of construction. It has also been argued by the construction sector that stage payments can protect house buyers from gazumping, as contracts must be signed at an early stage for stage payments to commence, thus ensuring the house price is fixed and contractually binding.

A key argument against the practice of stage payments is that, notwithstanding the existence of bonding arrangements, it results in a large element of risk being carried by the purchaser rather than by the builder during development. As such, it is the purchaser's funds that are at risk if, for any reason, a building venture failed. While it is understood cases such as these are few and far between, if it does happen it is a serious problem for a buyer. Furthermore, it is claimed that stage payments can create a significant additional financial burden for many home buyers, particularly first-time buyers, those with restricted budgets, and those paying for rented accommodation while also making stage payments.

Many developers have ways to minimise financing costs not available to home buyers, such as extended credit facilities, more advantageous borrowing terms, time lag on payment of VAT and instalment payments for land purchase. Thus, overall cost savings from stage payments that might potentially be reflected in house prices are likely to be less than the additional cost falling on home buyers.

The pros and cons associated with stage payments and the balance of advantage or disadvantage is likely to vary, depending on the circumstances. While it is generally accepted that stage payments may be warranted in the case of one-off housing, this is not likely to be the case in the context of estate housing. It is evident that the mainstream new housing market operates extremely effectively in most parts of the country without a stage payments system.

While the extent of possible additional costs to purchasers arising from stage payments may be debatable, it would appear that the practice is, on balance, likely to have a broadly negative overall impact on purchasers in housing estates. Moreover, a stage payment arrangement is, on the whole, unlikely to provide the most effective form of contractual mechanism from the customer perspective outside of the one-off building contract. Indeed, it seems at odds with the emphasis in public procurement on seeking to achieve the most appropriate allocation of risk between developer and client.

A good deal of discussion and correspondence has taken place over the past six months or more between my officials and members of the CIF in Cork. We emphasised that the balance of opinion among public representatives and the general public appears to be against the practice of stage payments in housing estates. We made clear our strong preference for an agreed approach and sought a definite commitment on the part of the construction industry to a voluntary phasing out of the practice in housing estates.

I recently wrote to Senator Coghlan to keep him informed of developments. The fact that the CIF has now indicated its willingness to enter immediate discussions for early phasing out is a positive outcome of these efforts, even if it has taken longer than I would have wished.

In the course of our engagement with the construction industry on this matter, we made clear that the Government will keep open the possibility of legislation to deal with this issue. Any legislative measures, for example as a backup to voluntary agreement, would fall to be considered in the context of conveyancing practice and house purchase contracts. This area of law comes within the responsibility of the Department of Justice, Equality and Law Reform rather than my Department.

The Minister for Justice, Equality and Law Reform recently published the Land and Conveyancing Law Reform Bill 2006. The Bill is largely based on a draft Bill published last year and a Law Reform Commission report on the reform and modernisation of land law and conveyancing law. The Law Reform Commission proposed inclusion of the regulation of stage payments in the context of a provision for regulating the terms of building contracts. The Land and Conveyancing Law Reform Bill does not contain a specific reference to stage payments, but it does have a general power for the Minister for Justice, Equality and Law Reform to make regulations relating to contracts and conveyances for the sale of land, including buildings.

I note Senator Coghlan spoke favourably about the Land and Conveyancing Law Reform Bill on Second Stage. I am surprised that he or indeed any of his colleagues did not, as far as I am aware, mention stage payments in the course of the debate. Perhaps my letter did not reach the Senator before that debate.

Mr. Coghlan

That is precisely what happened.

Mr. N. Ahern

They will have another chance to discuss it on Committee Stage, whenever that is. I heard what Senator O'Toole stated but that conflicts with my information and understanding. I also understand further legislation to establish the new national property services regulatory authority will provide another opportunity to provide for matters recommended by the Law Reform Commission which are not included in the Land and Conveyancing Law Reform Bill. That report is the basis of two Bills, one which is before the Houses and one which is to come. Either of those Bills will provide a more proper way than a housing Bill to enshrine this in legislation.

My Department already indicated that agreement to phase out stage payments must be enshrined in a suitable formal instrument, possibly the IHBA code of practice on home purchase protection. I expect that an appropriate course would be for the CIF or IHBA and the Law Society to agree relevant aspects of standard contract documentation, since this is primarily a matter of conveyancing practice. As I already stated, I want to see the matter concluded before we return in the autumn, leading to an ending of the practice in all housing estate contracts by early 2007. This should enable a smooth transition and minimal disruption to the market while allowing builders, with the support of their representative bodies, to adapt, as necessary.

The phasing out of stage payments in all areas is one of many important recent initiatives taken by the Government which will benefit house buyers. The new national property services regulatory authority, which will be established by the Minister for Justice, Equality and Law Reform, is another major development. It will have a number of functions of importance to house buyers including regulating the auctioneering and estate agency business and related matters; licensing, regulating and dealing with complaints about property managing agents and the provision of relevant consumer information.

In my Department's area, the new social partnership agreement contains important housing elements including commitments to 27,000 new social housing commencements or acquisitions and 17,000 additional units of affordable housing over the period 2007 to 2009. The agreement also endorses the principles established in the housing policy framework Building Sustainable Communities, which sets out the objective of high quality, integrated sustainable communities that will form key principles of housing policy during the ten-year framework of the partnership agreement.

To summarise on the stage payments issue, I believe that we have now made an important breakthrough with CIF agreement to pursue voluntary phasing out of stage payments. This can be inferred from the letter of the Cork branch of the CIF, dated 23 June, which I have quoted. I have a statement in writing from that branch, which it sent to the national branch of the IHBA with a view to entering into discussions on how phasing out could be achieved. I understand the IHBA has endorsed the proposal. I hope this approach is preferable to legislation but the opportunity will arise in any event to make more appropriate provision in the context of the regulation of conveyancing practice and house purchase contracts.

I would have liked this problem to have been solved two years ago. Senator Coghlan has spoken to me about it on many occasions and I hope he and his colleagues will feel it inappropriate to push this Stage to a vote. I hope they will withdraw the Bill and lend their support to an agreed approach to the phasing out of stage payments.

I said 18 months ago that if the consultation with the stakeholders did not work, we would think about legislation. I did not necessarily say the Department of the Environment, Heritage and Local Government was the most appropriate Department in this regard. If the stakeholders and construction industry talk to us and are prepared to do business, this is the way we should go. Legislation is necessary at times but can also cause complications one might not necessarily predict.

This matter, if it is to be addressed legislatively, should be addressed in the Bills associated with the Department of Justice, Equality and Law Reform. One such Bill is before the Seanad and the other is to be published very soon — I am not sure of the date. Opportunities exist should the Senators wish to pursue them and should the discussions with the CIF not be finalised. I cannot accept the Bill as it stands and if the Senators do not withdraw it, I will have to recommend against it.

We did not have correspondence from the CIF heretofore. There were discussions and meetings, some of which might have gone very well and others of which might not, but we now have a statement in writing from the organisation. On the letter of 17 May 2006, the matter was discussed at a meeting of the Cork branch of the CIF on 15 June 2006. Members of that branch made a strong recommendation to the IHBA that it should enter into discussions immediately with the Department with a view to the voluntary phasing out of stage payments within a relatively short timeframe. The national branch of the IHBA met on the morning of Tuesday, 27 June and I understand it accepted the recommendation. I hope we can now enter into the discussions and finalise matters in the coming months. Should the progress made prove insufficient, the opportunity will arise to make amendments to the two justice Bills. With this in mind, I hope the Bill will be withdrawn.

Mr. Ryan

There are few spectacles more unedifying than that of Fianna Fáil wriggling under pressure from the construction industry.

Mr. Brady

It could be the unions.

Mr. Ryan

It shows the extraordinary way in which the now almost-mythological tent at the Galway races, visited by the greatest——

Mr. N. Ahern

I have never been there.

Mr. Ryan

One does not have to be there at all, Fianna Fáil just gets funded from it. The Galway branch of the party is now so disgusted it will not attend either but some people in the party are determined to continue with the practice. We know who turns up, including people who were required to pay €22.5 million in taxes of which they had defrauded this country.

Mr. N. Ahern

We are not embarrassed by it. Where does the Labour Party go? Is it Druids Glen?

Mr. Ryan

Let me go through what has been said. This is a simple Bill to prohibit the ripping off of young people buying houses. The Minister of State can put a long speech together but when one strips it down one realises it amounts to a statement to the effect that some builders from certain parts of the country, particularly Cork, discovered that they had, in a sellers' market, the capacity to make even more money from people who were already vulnerable. By God, did they go for it?

There are two lobby groups that invite me to meetings regularly to explain all their troubles, namely, the CIF and SIMI. I attend none of their meetings because neither the motor industry nor the construction industry needs to engage in the solicitation of many Members of the Oireachtas. They are doing bloody well as it is and do not need my concern.

The Minister of State said a great amount of time is taken up with an exchange of pleasantries, telephone calls, letters, requests and proposals between the Department and the CIF, both at national and Cork branch levels. Having had a substantial part of the personnel resource of his Department consumed by this issue, he now tells us he should not be doing this at all and that it should be done by somebody else. One does not have to be a particularly astute political analyst to realise he is effectively saying the Progressive Democrats, rather than the Fianna Fáil Party, should deal with the issue. Thus, members of the Fianna Fáil Party could say to their friends in the CIF, as they cough up large donations to the party, that they did their best and held up the process but that the crowd in the Progressive Democrats did not understand reality and gave in on it.

Mr. N. Ahern

It is a question of what Department deals with contracts and conveyancing law — that is the issue.

Mr. Ryan

Why were the Minister of State's officials dealing with the issue if it is not his business? It is either his business or it is not.

Mr. N. Ahern

I am trying to explain that. We tried to deal with it on a consultative basis, which is resulting in success.

Acting Chairman (Mr. Dardis)

The Senator, without interruption.

Mr. Ryan

If it is voluntary, it is the Minister of State's business, and if it is legally based, it is not. Give us a break.

(Interruptions).

Acting Chairman

Senator Ryan should not provoke interruption.

Mr. Ryan

We know what is going on. The Minister of State is one of the nicest people I know but he is stuck in an impossible position whereby decisions are being taken over his head not to upset the CIF in a year in which fairly substantial funding will be needed by a substantial number of Fianna Fáil Ministers. Not long ago, a Minister for the Environment, Heritage and Local Government addressed the House and filleted the proposals on the rate of 20%. The following year, his funding was disclosed and the main funder was discovered to be a member of the CIF, a member of the construction industry.

I do not attribute motives to people but when I see obvious occurrences like this, I can only draw one conclusion, that is, when it comes to a choice between the interest of those who are buying houses and that of the wealthy builders, Fianna Fáil will always jump as far as it can in the direction of the builders. Let me give a good example. Many of the extremely affluent builders in the part of the country in which I live drive large recently registered cars, including cars manufactured by Mercedes and Lexus, which cost up to €100,000. Many of these cars must be ordered six months in advance.

Acting Chairman

I take it the Senator is speaking to the Bill.

Mr. Ryan

I am, I am just making an analogy. If many of the builders who pay €100,000 for a car were told by the garages from which they buy them that they would have to pay 90% of the cost up-front before getting them, which might take six months, they would tell them to get lost. The idea that they would have to order and pay for a car now and wait for its delivery would cause apoplexy among those who believe it to be perfectly reasonable to——

Mr. N. Ahern

That is not a comparison. I am not standing——

Mr. Ryan

I did not say it was a comparison, I said it was an analogy. It illustrates how uniquely sensitive to the interests and considerations of the building industry Fianna Fáil has been, is and proposes to continue to be. I do not understand the position of its partners in Government, who are committed unequivocally to an economic model that involves genuine competition between people in a genuine marketplace. The Progressive Democrats founder and first leader was particularly eloquent on this matter.

It was rather telling that this most passionate advocate of business and free competition was not offered a single directorship by an Irish company after he left politics because he believed in genuine competition, which is something a huge chunk of Irish business, particularly in the building industry, does not believe in. They want a controlled, easy market where the risk is minimal. What does the construction industry do in areas where this is going on? It transfers the risk to somebody else.

I have friends who had builders whose businesses collapsed at the last stage of purchase of a property and who discovered that they did not own the property and their payments were gone. They had to buy their property twice because of the nefarious activities of builders who went through the stage payments procedure. It took years to do something about company law to deal with that during which there was much pussyfooting and delay. We saw it in the car insurance industry where the report of the review body lay in a Department for years before it was finally published. It then turned out that the huge losses the industry was supposed to be making were entirely fictitious.

It is a pity that we cannot do what should be done, which is to pass this Bill on Second Stage. The Minister of State can then say that the view of his own party and everybody in Leinster House is that this is part of history. He can say there are two ways of dealing with this, namely, putting together a code of practice, backed up by legislation, or introducing legislation to tell us what to do. He can then ask Members which course of action they wish to take. Instead, the Minister, with all the power of Government, is saying he is grateful to a private lobby group because it agrees not to rip off its customers. Those are extraordinary words from a Minister of State.

One of the groups that made the most money out of our booming economy have kindly agreed, in the past month or two and under enormous pressure to bail out Fianna Fáil, to enter into discussions about putting an end to ripping off their own customers. We are supposed to be grateful for that. There is only one response. We must have a vote on this Bill and let Fianna Fáil show that when it comes to the crunch that it stands with the builders against those who must deal with builders.

Mr. Kitt

I welcome the Minister of State to the House and congratulate Senator Coghlan and his colleagues for producing this Bill. Senator Coghlan has outlined well in the explanatory memorandum the way stage payments arise. He gives an example of two types of house purchase transactions. The first, with which most people in rural Ireland would be familiar, is where an individual arranges with a builder to construct a house and stage payments are made as the work proceeds. The second is where stage payments relate to houses built in housing estates. In the first instance, dates are arranged for the payments. In the second case, a 10% contract deposit is paid with the 90% balance paid on completion of the house. In the past, the purchase of these houses was often funded through stage payments but that practice appears to have disappeared in most areas of the country, apart from Cork, as other speakers said.

The ending of stage payments would be welcome. I was interested to hear the Minister of State say he was trying to do this in a voluntary way. Nobody wants purchasers to have to make extra financial payments where houses are being built. I would like stage payments to be ended as quickly as possible.

The Minister of State mentioned his discussions with the Construction Industry Federation and said that the Cork members met with the national IHBA yesterday, 27 June. I hope its members will accept the Cork recommendation. I do not know if there has been any response on that and I would like to hear an update in that regard because if the problem is just in Cork and some other areas of the south west, it is important those areas be dealt with in the same way as the rest of the country.

The code of practice of the Irish Home Builders Association the Minister of State spoke about is welcome. One of the difficulties is that this is a voluntary professional code, which does not have any statutory effect or recognition. I understand that 80% of house builders subscribe to the code and if that figure is correct, we have gone some way to achieving full compliance and it is a only question of getting the other 20% to comply. Full compliance is what we all want to achieve as we go forward on this issue.

The Minister of State referred to a High Court ruling in December 2001 on a case taken by the Office of the Director of Consumer Affairs. That ruling came out strongly against the practice of stage payments but was without prejudice to the propriety or impropriety of stage payments.

The most important issue now is the voluntary phasing out of stage payments. The Minister of State mentioned the case in regard to one-off housing. The only issue in that regard was stage payments but as we all know many other issues arise in regard to service charges and, for example, archaeological reports which must be obtained on many houses. I would point out to the Minister of State that there is a shortage of archaeologists, particularly in County Galway, to do such reports.

Another issue that arises is in regard to national safety audits, which are causing problems. I inquired recently about the number of personnel available to Galway County Council to do safety audits and was told there were three companies, all in Galway city. It costs €2,500 to €3,000 for a safety audit to be carried out. Those are the type of requirements that increase the cost of building a house to a point where it turns out to be much more expensive than many purchasers expected.

The Minister of State said that Cork CIF has agreed to enter discussions with the Department on the voluntary phasing out of the practice of stage payments at an early date. That is a significant development which I hope will end the practice of stage payments as soon as possible.

What we are discussing tonight is the provision of legislation by way of this Private Members' Bill. The Minister of State said the Bill is not appropriate and mentioned two items of legislation in the Department of Justice, Equality and Law Reform. One is the Land and Conveyancing Law Reform Bill 2006, which has begun its Stages in the Seanad. The other is the legislation relating to a national property services regulatory authority. I hope these legislative measures could be dealt with quickly in this House.

While the issue of stage payments is important, it is not the only issue causing difficulty for people acquiring a house. We have had debates here in the past, and I hope we will have them in the future, on planning because planning was something on which the Minister, Deputy Roche, put much emphasis. It is obviously down to interpretation when it comes to actually achieving planning permission. It is an issue I should like to see both the Minister and the Minister of State refer to in this House, again. I hope we will have another debate on it.

Apart from planning some positive developments are happening. I understand we now have six years supply of serviced residential land, nationally. That is very welcome. I can speak with some authority about County Galway where affordable housing is very well supported. There are designated people in the housing authority who are available for any member of the public who wants to talk about affordable housing. I hope, also that the issues as regards Part V can be resolved. This House has discussed, and Senator Ryan referred in passing to, some problems about where the 20% affordable housing is provided in a county or particular town. There are positive aspects which should not be forgotten about. It is not just a matter of saying stage payments are the problem. They certainly are one aspect of the problem, but there are other challenges, too, that we should be able to meet. Hopefully we will have a chance to debate them in the weeks and months ahead.

Mr. B. Hayes

I welcome the Minister of State to the House again to discuss this issue. It is a case of déjà vu because on 16 June 2004 I spoke in the House on the first outing of Senator Coghlan’s Bill. A pretty clear indication was given by the Government at the time through the Minister of State with responsibility for housing that something would happen on this. Here we are two years later. The Minister of State has taken a letter he received from the Cork branch of the Construction Industry Federation only last week and informed the House that two years after the Bill’s first outing, the federation has now signed up to a voluntary code of practice. We are all supposed to be jumping up and down and acclaiming this as fantastic. I admire the Minister of State in many ways. His is a straight talking Dublin politician and we need more of those in Government.

Mr. Brady

Including the Senator.

Mr. B. Hayes

I will leave that to Senator Brady.

The fact that it has taken two years to extract a voluntary concession from the area of the country where this anti-competitive practice is going on is just outrageous. There is nothing functional about the current Irish housing market. It is dysfunctional, primarily because the pent-up demand that has been there for many years far outstrips supply. Consequently, there are too many people chasing too few houses. In that type of market, anti-competitive practices such as stage payments and gazumping — which I will talk about in a moment — are bound to occur. The job of the Minister of State with responsibility for housing and that of the Department of the Environment, Heritage and Local Government is to represent house buyers and stand up for them. They must introduce regulations or legislation for house buyers because it is a dysfunctional market. There is no way that the pent-up demand can actually meet supply. Hopefully, at some point it will and then there will be price equilibrium or even a reduction in price for some people who can then enter the housing market. The Government has been in dereliction of its duty, not just for the past two years. As I pointed out on 16 June 2004, it is inaccurate to say that the Law Reform Commission looked at this last year in a report and came to a conclusion as outlined in Senator Coghlan's Bill. That is inaccurate because the commission examined it the previous year. It also examined a whole range of other things.

When I first introduced my anti-gazumping Bill in the other House in 1998, one of the initiatives it led to was the establishment by the Government of a Law Reform Commission report into anti-competitive practices in the Irish housing market. One of the issues mentioned at the time was stage payments. It is to completely mislead the House to say the commission only came to a conclusion about this last year. It did not. Its views on this were stated as far back as 2003. The fact that it has taken three years to get a voluntary concession or extraction from some aspect of the building industry is crazy. I do not believe the Minister of State has been doing his job, to put it bluntly. He has been sitting back as happy as Larry, while the Department of Justice, Equality and Law Reform produces a conveyancing Bill into which he has had no input at all. He came down very heavily on my colleague, Senator Coghlan, in his speech where he said that he recently welcomed the conveyancing Bill on Second Stage, as he did, but the Minister of State is surprised that he has not produced any Committee Stage amendments as yet or made any reference to the fact that he will amend the law. With all due respect, that is the job of the Minister of State. He is paid to stand up for home owners and young people who are trying to get on the first step on the housing ladder. The idea that fundamentally all legislative proposals in this area must be left to the Opposition is just daft, quite frankly.

If this was coming onto the Minister of State's desk one month into office, that would be fine, and he should be given time. However, in effect it is three years since the first mention of this practice by the Law Reform Commission in 2003. The Minister of State has known about it for quite a while and suddenly, a week before this debate, a voluntary code is produced like a rabbit out of a hat. On voluntary codes, when I examined the issue of gazumping, I was told by the then Fianna Fáil-led Government that they would work. If we were serious about trying to outlaw the ugly practice of gazumping in the housing market, we should seek a voluntary code. Why is it that when it comes to any aspect of the construction industry, we do not want standard legislation outlawing practices, we refuse to include such practices in legislation or even regulate them, but we want voluntary codes? What is so different about the Irish construction industry that voluntary codes should apply to it, but to no other industry? I have never come across this obsession with voluntary codes anywhere else. Of course it only applies to those sections of the various construction groups who are members of the CIF. There is absolutely zero impact if one is not a member. Who is policing this? The people who are involved in the practice in the first place. As Senators O'Toole and Coghlan have said, the Irish auctioneers have already highlighted this particular problem. The notion that all of the interested parties are singing off the same hymn sheet on this issue is completely inaccurate.

I do not accept the argument about a voluntary code. Something is either right or wrong.

Mr. N. Ahern

There are voluntary codes all over the place in all industries, for God's sake.

Mr. B. Hayes

I am referring to the most important purchase anyone will have to undertake in his or her life, buying a house. It is not as if one is going into DID to pick up a washing machine or a hair dryer. We are talking about the most important financial transaction people will every make in their lives and people must have certainties and guarantees of the type the Minister of State has failed to work on over the three years since he took on this job. He has just washed his hands of it.

Mr. N. Ahern

There is no legislation for the practice in Dublin and the system works. There is no legislation for the Senator's constituency and it works.

Mr. B. Hayes

The Minister of State is happy to let the Department of Justice, Equality and Law Reform look into it and produce a Bill in respect of which he has not even made a submission. That is a dereliction of duty and responsibility and if we are really serious about stamping out this practice, which I understand only takes place in a small number of counties in Munster, and does not happen in Dublin or——

Mr. N. Ahern

Exactly. The Senator is making my point.

Mr. B. Hayes

If we are really serious about it, we should abolish the practice rather than have a two-year hiatus, about which the Minister of State seems to be blissfully happy, as the world moves on and more people are scammed. The Irish housing market, unfortunately, is riddled with scamming in a whole range of areas. One of them is the explosion of management companies. Many young couples and individuals now have to pick up the bill on a yearly basis for essential services which local authorities provided for years.

The job of Seanad Éireann is to get agreement on legislation such as this, which has the support of all sides of the House. It is not the Government's job to stop it. I regret that the Government has chosen on the second occasion in two years to stop this pro-consumer legislation, which could introduce guarantees into the housing market for a part of this country where this scam has existed for far too long.

Mr. Minihan

I welcome the Minister of State and his officials to the House this evening. I congratulate Senator Coghlan on maintaining his initiative on this issue. This is not the first time I have spoken about stage payments — inside or outside this House — and I am grateful for the opportunity to outline my views again.

I have a certain level of experience of stage payments in County Cork, where the scheme is normal practice. Without doubt, there has been abuse of stage payments and that is a real problem. On the other hand, there are many occasions in which stage payments have operated effectively, both to the benefit of the builder and to the benefit of the house purchaser. My concern remains that we might see some reactive measure to alter a practice which has operated in parts of the country for more than 40 years.

Housing provision is a hot topic and one that creates anxieties for many people, especially young people. It is a complex issue and the housing market should not be tweaked in a way that could damage or interrupt supply. The Government's policies are having a positive impact, but in the face of sheer demand, relief is difficult to identify. Tinkering around the edges of the problem achieves little. This was tried in the mid-1990s, but it was only when we started to get really serious about supply that progress of any sort was made. Initiatives taken by the Government have resulted in increased housing supply. We should be concerned that any legislation at this time could interrupt that process, especially for smaller developers. While larger developers should be able to carry the cost, we should not even inadvertently limit major housing developments to the larger builders. To do so could be anti-competitive and, ultimately, anti-consumer.

Despite being a small country, a wide variation in practices has emerged over many years. This has resulted in two particular types of stage payments. In one case, the title to the site is transferred on completion of the transaction. In the second instance, the title is transferred before completion. From my understanding, the practice has been to transfer the title before completion of the transaction. As the site purchase is a separate transaction and the site is transferred at a very early stage, this provides the house purchaser with security of the site.

I would like to give an example of this. A number of years ago in Cork, the builder of a large and expensive development went bust when three quarters of the development had been completed. The code of practice had been adhered to. After a period of deliberation, those purchasing the partially-built houses were able to continue the development. I became involved at that point as I was concerned about the rights of the purchasers. In the heel of the hunt, their rights were thankfully upheld according to the code of practice. Nevertheless, one can see how problems can emerge and can generate enormous distress. Outside of that instance, I have never received a complaint from a house purchaser in Cork about stage payments.

Nobody can stand over the cases alluded to by Senator Coghlan and the horror stories reported widely in the media. There is a duty on the developers in question to provide answers. Legislation should be enacted to protect consumers. However, this does not mean that we should act in a way that could disrupt or interfere with the outturn and supply of houses in areas where a system of stage payments is practised. Lest anyone misunderstand me, I am concerned about small and medium-sized builders who are operating this practice and who are building badly needed houses. I am not referring to the big developers. The code of practice needs to be considered and developed further. Any action in this area is welcome and to be supported.

Financial institutions in Cork have established a system under which mortgages can be released at an early stage. This can remove the need for bridging finance. It is paid in stages where the institutions are satisfied that the money advanced does not exceed the value of the work carried out. The financial institutions have embraced this and have been supporting house purchasers in the areas where stage payments take place. The amount of legal work for a solicitor operating on behalf of a consumer who has entered into a contract involving stage payments is undoubtedly greater. If there is only a deposit stage and a completion stage, there is less work involved. Should a solicitor be working for a scaled fee based on the purchase price of a house, he must do more work for the same fee in the case of a client who is purchasing in stage payments. Consequently, there in an incentive for the legal profession to see a streamlining of the system.

My primary concern remains the consumer. We must not underestimate our responsibility to protect home buyers. Senator Coghlan's Bill has this concern at its heart and I commend that. However, there are three entities involved, namely, the consumer, the builder and the legal profession. Who is driving this change? Given the sensitivity of the housing market and the importance of supply, I support both the Government's somewhat cautious approach and the acknowledgment that if there is a need to enact legislation in this area, then it will be done. Such action should include discussion with the Construction Industry Federation, the legal profession, the Director of Consumer Affairs and other relevant stakeholders. I seriously suggest that we look at the role of the legal profession in this process. There are search fees for housing estates and for individual houses. In an estate of 200 houses, 200 consumers each pay a search fee.

It is clear that no legislative provisions currently exist to deal specifically with the operation of stage payments. It would seem preferable to phase out stage payments, assuming an agreed basis for doing so can be found. However, there will always be an option to take legislative measures should the issues not be resolved adequately. Notwithstanding the commendable work of Senator Coghlan, it appears the proposed Private Members' Bill is not the most appropriate way to proceed. Given the linkage with conveyancing and contract law and that the Bill is a stand-alone measure, more work is required. The Law Reform Commission recommended in 2005 that should legislative action be necessary, it should be part of a broader approach on legislation affecting house purchase contracts and the regulation of conveyancing. In this context, I support the Government's proposals on the issue.

Mr. Bannon

I welcome the Minister of State to the Chamber to discuss this very important Bill. I thank those who helped to produce the Bill, especially Senator Coghlan, who has put so much time and effort into drawing it up.

The practice of stage payments, which has resulted in this Bill that is before us for a second time, is a form of legalised extortion. It represents nothing more than a pushing out of the boundaries to extract every cent possible from those struggling to meet the costs of a first property. The rungs of the property ladder are being pulled further and further apart by the actions of modern highwaymen and pirates, who exploit the financial position and powerlessness of first-time buyers attempting to take their first step into home ownership.

I call on the Government to support Senator Coghlan's Private Members' Bill to end the practice of stage payments for houses built in housing estates, which is another Government-supported rip-off. In June 2004, when it was first before this House, Minister of State, Deputy Noel Ahern said of this Bill:

If the other routes to which I referred do not lead to potential success, I will support the legislation if we decide it is the only route to take. I suggest a period of approximately six months to see if the other routes are successful. I agree with the basic idea in the legislation. I find it difficult to disagree with what Senator Coghlan and others in the House to whom I spoke recently are trying to achieve.

As a considerably longer period than six months has passed and the Government has done nothing to end the anomaly highlighted in the Bill, I hope there will be unity here this evening and common sense will prevail in the interest of home buyers, not developers. The Government must commit to this and replace empty words with action.

In 2006 official statistics show the average first-time buyer is paying more than €250,000 for his or her first home. Meanwhile, only 1,833 affordable houses were acquired, only 730 shared ownership transactions were completed and only 57 sites have been fully or partially developed on foot of Part V of the Planning and Development Act 2000.

Mr. N. Ahern

To which year's statistics does the Senator refer?

Mr. Bannon

I am talking about the latest statistics available. Some 100,000 individuals are still waiting for a local authority house and only 3,723 social housing units were built in the 12 months to September 2005——

Mr. Minihan

They do not have stage payments.

Mr. Bannon

——despite the NESC estimate that 10,000 units are needed annually. The Government is not performing. The Minister of State is contradicting me because truth hurts.

Acting Chairman

I believe we have heard this speech before.

Mr. Bannon

Despite a Government promise to assist the voluntary housing sector so that the target of 4,000 accommodation units per annum envisaged under the national development plan can be reached, only 1,512 voluntary housing units were completed in the 12 months to September 2005.

Mr. Minihan

What has this to do with stage payments?

Mr. Bannon

There are still enough homeless people in Ireland to fill the Point Depot twice over. If the Minister of State walks out of this building any night he will see people sleeping in doorways within 200 m of this House.

Acting Chairman

Is the Senator speaking to Senator Coghlan's Bill?

Mr. Bannon

I am certainly speaking to the Bill. I need to give facts and the Minister does not like to hear facts. The practice of paying for new homes by stage payments is not a countrywide one. It has been isolated to Cork, Kerry, Limerick, Galway, Mayo and Sligo.

Mr. Scanlon

Not Sligo.

Mr. Bannon

There is evidence that the practice is spreading, in particular to County Kildare. It has resulted in some homeowners in these areas paying an extra €7,000 for the price of their new home. Regardless of the counties affected, the practice is totally unacceptable.

The Bill aims to address a serious loophole in the law which leaves consumers at a distinct disadvantage when purchasing houses using stage payments, to which they often have little or no alternative, a fact that has not escaped the average developer. While stage payments reduce buyers' bargaining power and add considerably to their costs, there is little they can do. The practice of stage payments is wholly one-sided and entirely anti-consumer. It is entirely inequitable that a consumer should pay up to 90% of the price of a house before he or she gains possession. The practice is driven by developers and defies all moral values.

As the direct result of stage payments being demanded in such circumstances, purchasers end up paying their mortgage repayments well in advance of moving into the house, which is entirely unfair and untenable. Paying the bulk of the purchase price of the house before it is completed, inevitably reduces the consumer's bargaining power with the builder and provides little impetus for the builder to complete the project on time and to specification. It so ties the purchaser to the developer or builder that the latter could be said to have a free hand, as the law now stands. It also involves transferring certain financial risk inherent in the stage payment system to consumers in addition to imposing unwarranted costs on them. This is unreasonable and incompatible with the ability of many consumers to carry such one-sided impositions.

The Bill does not seek to outlaw the provision in contracts for stage payments where a single house is being built to the specification of a consumer, particularly for once-off housing. However, in other cases, the practice of stage payments is one-sided and confers no benefit, but rather penalties on consumers. I hope the Government has the foresight and the willingness to accept this legislation.

Some 25,000 house purchasers and their families await the Government's response to this Bill, and they all have long memories. A general election is approaching and candidates will be running in Munster and the west, including Sligo. All those people will watch to see the Government's reaction to the Bill.

Acting Chairman

I thought there were candidates in every constituency.

Mr. Minihan

The Senator is only worried about the ones in Cork.

Mr. Bannon

More than two years ago, a report by Peelo and Partners showed that consumers are paying an extra €175 million per annum as a result of this outrageous anti-consumer practice that involves house buyers making mortgage repayments long before they get possession of their homes.

This Private Members' Bill has received widespread support from across the political spectrum in the Seanad and from groups including the Consumers Association of Ireland. This issue should transcend party politics and the Bill would bring real and tangible benefits for hard-pressed first-time buyers. I urge the Government to accept the Bill now so that consumers can get the protection they deserve when purchasing their homes. Fine Gael has published three Private Members' Bills on the subject of housing protection. We pledge to implement them when elected to Government — it is no longer "if".

Acting Chairman

The Senator's time — including injury time — has concluded.

Mr. Bannon

In addition to this Bill we published two other Bills, which the Government also unnecessarily blocked. Our Planning and Development (Amendment) Bill 2004 was designed to end the scourge of unfinished housing estates by ensuring that any developer, who did not live up to the responsibilities of the planning permission granted for a previous development, would not be granted permission for any future development.

Acting Chairman

The Senator must conclude.

Mr. Bannon

We are glad that the Government has included measures in the Planning and Development (Strategic Infrastructure) Bill. However, we will implement our Bill if it emerges that the Bill, when signed into law, does not have the desired effect in this area. Our Residential Tenancies (Amendment) Bill 2006 allows for the regulation of management companies and their agents in the face of reports that new homeowners are faced with poorly maintained communal areas, inadequate provision for sinking funds and a total lack of transparency of where their increasing management fees are being spent.

Acting Chairman (Mr. Kett)

The Senator has exceeded his time.

Mr. Coghlan

He is just going into injury time.

Mr. Bannon

The Government's record on housing is appalling and the stage payments fiasco is only part of the sorry mess the Fianna Fáil and Progressive Democrats Government has left throughout the country.

Acting Chairman

The Senator has gone two minutes over his time.

Mr. Bannon

This Bill will go some way to making life better for hard-pressed first-time buyers who deserve the right, enshrined in law to purchase a house in the most economical manner possible. I congratulate Senator Coghlan on introducing this fine Bill and I plead with the Government to accept it.

Mr. Brady

The Longford Leader will be all the better for the contribution of the past 12 minutes. I welcome the Minister of State to the House. I remember a time, more than 20 years ago, when stage payments were an issue in Dublin. Fortunately this is no longer an issue. The question is how we should approach the problem. We all agree that the practice must end. The Minister of State and his Department have been working steadily towards that goal for many years. It probably has not been as quick as everyone would like but the question now arises as to whether we will achieve the goal through legislation or by agreement. The Bill before us uses a jack hammer to crack a nut. Even as late as yesterday, progress was being made on this matter. We must acknowledge that the construction industry employs more than 200,000 people in this country, a situation created by the policies of this Government.

Unfortunately, when Fine Gael and the Labour Party had their chance, they were not in a position to do anything about improving conditions. Despite that, the Labour Party is hypocritically criticising an industry employing a huge number of people, many of whom are members of unions and, through no choice of their own, contribute to the party's coffers. It makes me smile to hear Labour Members rabbiting on — I ask Senators to excuse the expression — about the tent in Galway.

Mr. Bannon

It will collapse this year.

Mr. Brady

At least the people who go to Galway have a choice in doing so.

A significant amount of work has been done on this issue. The voluntary code of practice put in place by the Home Builders Association and the CIF enjoys an 80% compliance rate. The remaining 20% of builders leave a number of people open to being ripped off. As the Minister of State noted, the code applies to a wide range of organisations throughout the country. We are all in agreement that the practice must be stopped but it has been restricted to a relatively small part of the country. Throughout the country, 80,000 units are being built each year and in my own area, tens of thousands of units of apartments have been built over the past three years.

The Minister of State referred to the property services regulatory authority, which will have responsibility for the ongoing management of apartment complexes. A phenomenon has arisen in Dublin city and county whereby one-off houses are built in front and rear gardens and often paid for under the stage payments system. I am aware of a couple of instances in which three or four apartments have been constructed in a garden.

The practice of stage payments was the subject of a High Court case in 2001. The Government's ongoing contacts with the CIF is paying dividends and all sides now accept that the practice is not in consumers' interest. A house purchase is probably the biggest decision a person will make in his or her lifetime. We are all in agreement on that but it is a matter of choice as to how we address the issue. We could trundle through with legislation which we try to enforce in a small part of the country but in the vast majority of the country, the industry functions without the need for regulation. In most instances, builders charge a 10% deposit and the remainder on completion.

Despite the increase in houses built and, by extension, the profits made by many builders and developers, we have to accept that the boom cannot last because resources are limited in terms of space. There is sufficient serviced land to last an estimated six years, which is a relatively short length of time. We must look to the future by meeting the demand for housing.

There has been much innovation in terms of providing housing, particularly in respect of social and affordable houses. The latest partnership agreement, Towards 2012, specifically provides for 27,000 social units between 2007 and 2009, in addition to 17,000 affordable units. The Part V scheme for social and affordable housing has been of great benefit to inner city areas. I have witnessed huge improvements in Dublin people's living accommodation. Since 1997, €6.5 billion has been spent by local authorities on providing social and affordable housing. It was intended that Part V would come into effect over time and that been the case. A major difference is being made to Dublin's north side now that Part V units are being completed. As many of the sites in the docklands were developed prior to the introduction of the Planning and Development Act 2000, they have managed to avoid the Part V requirements. However, many more housing units will come on stream over the next 18 months to meet demand. By working closely with Dublin City Council, developers in the area will play an important part in that process.

The property services regulatory authority will have responsibility for property management companies, as well as auctioneers, valuers and estate agents. Oversight is needed in respect of these professions.

We will eventually reach an agreement to make stage payments an issue of the past in housing estates. It is wrong to introduce legislation at this stage. I am amused to hear the Labour Party jumping up and down and using the words "developer" and "builder" as if they were dirty when the vast majority are indigenous Irish companies which employ large numbers of Irish people. I make no bones about encouraging them and ask the Labour Party why we should not be trying to help the construction industry to employ as many people as it does. The Department of the Environment, Heritage and Local Government is taking the correct approach on this issue and the Bill should be withdrawn.

Mr. Scanlon

I welcome the Minister of State to the House. As previous speakers have noted, everybody welcomes this Bill because we are all aware of people who have had bad experiences with regard to stage payments. In the 1980s and early 1990s, this was the only way to build a house. People found that difficult because they had to take out full mortgages as well as pay rent. I am glad the Minister of State has reached agreement with CIF on phasing out the stage payment system over the next nine months.

I was shocked to hear that the practice is as widespread as it is. I am not aware of it in the north west and apparently it occurs mostly in the south of Ireland. It should be phased out because it is not needed at this stage.

Reference was made to affordable houses built under Part V. All former councillors will be aware that this provision cannot be imposed on a site until the area has been zoned. Area plans have been drawn up for small towns and Part V will apply. Some 20% of these developments are designated for affordable housing and a substantial number of houses will become available in the next 18 months. Many affordable housing schemes are under way in Sligo and have proved popular. People who would not qualify for a full mortgage have been able to acquire a house.

The county council housing lists are inaccurate. One must be on the county council housing list in order to qualify for rent allowance. Many of those in receipt of rent allowance have no intention of occupying a county council house. They may be building or buying houses. Those who wish to qualify for an improvement in lieu, usually young couples or elderly people whose houses are in bad repair, must also be on the housing list. Perhaps a survey could be done to clarify this. Housing lists could be exaggerated by as much as 50%.

I raise the matter of shared ownership on any occasion I can. It has been a beneficial scheme, especially in the north west where one can buy a three bedroom semi-detached house for €170,000. Many couples and young families have purchased such houses, particularly in the past four or five years. Those who bought a house last year now have additional equity of €30,000. This would not have been possible without the shared ownership scheme. However, when one purchases a house under this scheme, the seller may not receive the money until three months after the contract is signed. There should be a system to draw up a contract between the county council and the seller. This would safeguard the property for the buyer. Many people lose out because the process takes too long. Today I dealt with a case that has dragged on for three months. While most sellers are decent people, some will resist selling in this case. I ask the Minister of State to request his officials to examine what can be done in this regard.

There were not many apartments in the north west until recently. Management companies are a necessary evil. Who else but a management company will be responsible for the upkeep of the outside of a building? People in Dublin are used to management companies and the system works well. Some have purchased property without realising that fees are payable to management companies. In some cases that may be €400 per year but nothing prevents this from increasing to €1,500 per year. The lack of controls on charges should be examined.

Mr. Hanafin

Fine Gael's concern was answered in the Minister of State's contribution, which stated:

The Department has received a strong commitment to pursue the voluntary phasing out of stage payments from the Construction Industry Federation's branch in Cork, which is the main centre where such payments now occur. In a letter addressed to the Department, it has indicated that its members have made a strong recommendation to the Irish Home Builders Association, IHBA, at national level to the effect that it should immediately enter into discussions with the Department with a view to voluntarily phasing out stage payments within a relatively short timeframe. I understand that this recommendation has been endorsed by the national body of the IHBA and the necessary follow-up arrangements will be put in place without delay.

The Government's record on housing is exemplary. House prices have risen considerably and some have attempted to use this as a stick with which to beat the Government. It is a product of our economic success. This Government is committed to ensuring that house prices are affordable. In fact, people may be paying significantly less for mortgages as a percentage of net income than in the 1980s.

Another element that must be considered is supply. The land banks accredited with planning permission should be the subject of a "use it or lose it" timeframe. The market has not retrenched in any way but is not as buoyant as before. This was expected because prices could not increase by 15% per annum into the distant future. No tree grows to the sky. The rate of growth may decrease. If there is a threat in the future and affordability is in question, we should place an onus on builders to use available banks or lose the zoning status.

The Government's record is exemplary. The total number of houses completed in 2005 is 80,957 units, an increase of 5.2% on 2004 and more than double the amount in 1997. Ireland now produces houses at a rate of 20 per 1,000 residents, the highest rate within the EU and five times the rate of the UK. Almost one third of Irish homes have been built since 1997. We are now building almost three times the number of houses built ten years ago, three times the EU average and six times the UK average.

Our focus is on delivering infrastructure such as the extension of the service land initiatives and the more efficient use of housing land. A new housing policy framework, Building Sustainable Communities, was launched in 2005. The framework envisaged a substantial increase in investment, allowing for 50,000 householders to be assisted over the coming three years. There will also be a programme of reforms to improve the quality of the social housing environment. A more detailed document will be published in 2006.

While the rate of house price increases is problematic it has moderated considerably since the late 1990s, when price increases peaked at 40% per annum in 1998. According to the ESRI and Permanent TSB house price index, the year on year growth rate to March was 12.1%. Measures announced in budget 2005 helped first-time buyers to purchase their homes by abolishing stamp duty on second hand homes costing up to €317,000 and by reducing rates on homes of up to €625,000 for first-time buyers. First-time buyers save €11,500 on a house costing €308,000.

This Government has a good and strong record in ensuring there is affordable housing and ensuring that houses are built. The total capital spending on social and affordable housing output in 2005, including non-Exchequer finance, amounted to €2 billion and assisted in meeting the housing needs of over 13,000 households. This compares with 8,500 households in 1998. The extra capital funding in budget 2006 will allow for some 23,000 new social homes to be commenced between 2006 and 2008 and 15,000 affordable homes to be delivered. In total, 50,000 households will benefit over the coming three years from an Exchequer capital investment package of close to €4 billion.

Since 1997, more than 42,000 new social houses have been built either in the local authority or the voluntary co-operative sector and over €7 billion in funding has been provided under a range of social and affordable housing programmes. At the end of 2005 that investment met the needs of some 100,000 households. A total of €1.3 billion is being invested by the Government in housing in 2006. It is anticipated that the needs of over 13,000 households will be met in 2006, including some 5,500 completions under the main local authority programme. A total of 1,850 units will be completed by the voluntary and co-operative sector and there will be a continued focus on the regeneration and delivery of some 3,000 units of affordable housing.

Investment in housing under multi-annual plans for 2006 to 2010 will be close to €7 billion. A new agency has been established, the Affordable Homes Partnership, to co-ordinate and give impetus to the delivery of affordable housing in the greater Dublin area, where affordability pressures are greatest. Over 70 sites have been identified so far on State or local authority owned lands. It is estimated that in 2005 up to 1,350 units were provided under the initiative and up to 2,000 will be provided in 2006.

While many statistics have been quoted, the figures I have mentioned represent homes for people that were built and provided by this Government on an unprecedented scale. We will continue to work to ensure that people can have affordable homes and that they will have the jobs to afford their homes.

Mr. Coghlan

I feel as if I have been killed with kindness this evening.

Mr. Scanlon

The Senator is a nice man.

Mr. Coghlan

I thank the Minister of State and Senators O'Toole, Ryan, Kitt, Brian Hayes, Minihan, Brennan, Brady, Scanlan and Hanafin for contributing to the debate. There is no uniformity with regard to the extent of this payment system but there was uniformity, indeed unanimity, in the speeches about it this evening. Everybody said, in one way or another, that stage payments must end and that they would soon be a thing of the past.

However, I am slightly confused. The Minister of State put great emphasis on an agreed approach. I am grateful to the Minister for his letter but I had not received it when I spoke on Second Stage of the Land and Conveyancing Law Reform Bill. That might not have been the Minister's fault. In any event, I accept the points he makes in that regard. The Minister of State, in both his speech and his letter to me, put great emphasis on the Land and Conveyancing Law Reform Bill and its proposals to give a general power to the Minister for Justice, Equality and Law Reform to make regulations in the area of contracts. The Law Reform Commission report proposed inclusion of a regulation of stage payments in the context of a provision for regulation of terms of contracts.

Is the Minister of State placing too much emphasis on this great reforming Minister, as he sees him? I have not been talking to the Minister but Senator O'Toole apparently has been in contact with him. Perhaps on Committee Stage we can examine what can be done. I did not expect to be discussing this Bill again two years later. I am aware from the various discussions I have had with him during the intervening period that the Minister of State has meant well about ending this practice. I do not know what happened in the Department but the Minister is only saying now that he has a letter from a branch of the industry federation about the matter.

Given the lack of uniformity throughout this small country, this is something that should not have been tolerated and should have been ended by simple legislation. If this Bill were allowed to proceed to Committee Stage and if something is required legally from a conveyancing or a contract point of view to be included in it, we have indicated that we are prepared to accept from the Minister and the expertise of the Civil Service whatever is required to improve it.

All Members who spoke expressed themselves strongly in favour of ending stage payments. Senators Scanlon and Brady mentioned certain bad experiences which they had encountered. Senator Brady spoke about the normal practice in Dublin, where one pays 10% at contract stage and the balance of 90% is not paid until completion and conveyancing of the property. That is standard practice and how it should be done. Not only is the Law Reform Commission in favour of ending stage payments but the auctioneering review group, the Consumers Association, the Law Society and other groups mentioned by the Minister have expressed a strong view on the issue.

I wonder if we are trying to confuse ourselves a little. The Minister spoke about the national property services regulatory authority which is to be established by legislation we have yet to see. Again, the Minister is trying to throw it over to somebody whom he considers to be a reforming Minister for Justice, Equality and Law Reform, Deputy McDowell. However, this is about housing. Certainly there can be an input from Ministers at Cabinet level but it should not thrown on the shoulders of the Minister for Justice, Equality and Law Reform, no matter how broad they are.

I believe the Minister's heart is in the right place on this matter, despite Senator Leyden shaking his head. Let us send the right signal this evening to consumers and house buyers and let this Bill survive to Committee Stage.

Question put.

The Seanad divided: Tá, 18; Níl, 29.

Tá

• Bannon, James.
• Bradford, Paul.
• Browne, Fergal.
• Burke, Ulick.
• Coghlan, Paul.
• Coonan, Noel.
• Cummins, Maurice.
• Feighan, Frank.
• Finucane, Michael.
• Hayes, Brian.
• Henry, Mary.
• McHugh, Joe.
• Norris, David.
• O’Toole, Joe.
• Phelan, John.
• Ross, Shane.
• Ryan, Brendan.
• Terry, Sheila.

Níl

• Brady, Cyprian.
• Brennan, Michael.
• Callanan, Peter.
• Cox, Margaret.
• Daly, Brendan.
• Dardis, John.
• Dooley, Timmy.
• Feeney, Geraldine.
• Fitzgerald, Liam.
• Glynn, Camillus.
• Hanafin, John.
• Hayes, Maurice.
• Kenneally, Brendan.
• Kett, Tony.
• Kitt, Michael P.
• Leyden, Terry.
• Lydon, Donal J.
• Minihan, John.
• Morrissey, Tom.
• Moylan, Pat.
• O’Brien, Francis.
• O’Rourke, Mary.
• Ormonde, Ann.
• Phelan, Kieran.
• Scanlon, Eamon.
• Walsh, Jim.
• Walsh, Kate.
• White, Mary M.
• Wilson, Diarmuid.

Tellers: Tá, Senators Cummins and Ryan; Níl, Senators Minihan and Moylan.

Question declared lost.