Dáil Éireann Debate, Wednesday - 9 February 2005
62 Mr. Howlin asked the Minister for the Environment, Heritage and Local Government the average increase in the price of a new house and a second hand house in Dublin and the rest of the country during 2004; the anticipated level of increase during 2005; and if he will make a statement on the matter. [3895/05]
View answerThe rate of house price increase has generally declined in recent quarters and is now considerably lower than in the late 1990s.
Will the Minister of State repeat that please?
The rate of house price increase has generally declined in recent quarters and is now considerably lower than in the late 1990s. The figures for the third quarter of 2004 show this trend continuing with rates of increase well below those in 2003. The latest increases for new houses nationally are 10.6% and in Dublin, 9.9%; for second-hand houses nationally, 10%, and in Dublin, 9.1%. While my Department does not forecast house prices, several market commentators predict that the trend in prices will increase moderately this year. The likelihood of this is underpinned by the trend of housing output, with 2004 likely to be the 10th year of record housing output and indications of a continued high level of output in 2005 and subsequent years.
The Government will continue to promote moderation in house prices through effective policies, including measures to ensure adequate housing supply in keeping with demand in the context of balanced and sustainable growth of the housing market.
I invite the Minister back to this planet because whatever planet he is on, it is not the case that houses prices are going down, as he seemed to infer in his——
I did not say that.
I know what the Minister of State said. He said "The rate of house price increase". I know what he means by this, namely, that it is 10% now, for example, and was a higher percentage last year. However, the message the Minister is trying to communicate every time he refers to this is that house prices are coming down, whereas they are not.
I want to focus in particular on Dublin because, as we all know, the average house price in Dublin is at least €100,000 dearer than it is in general in the rest of the country, even for the smallest unit. Does the Minister accept that young families on normal middle incomes cannot afford to buy a home in Dublin and that what happens in the capital city has a doughnut effect, particularly in regard to young families who must buy in a ring around the city? I hear the Taoiseach is to build a new ring road even further out from the city to accommodate them because they cannot afford to buy in Dublin.
What are the consequences of this in terms of schools and key workers not being able to live in Dublin? Does the Minister have plans to investigate the impact of house prices, particularly in Dublin, and the demographic changes taking place in Dublin? The last census showed the degree to which the demographics of the inner suburbs are aging, with no young families because they cannot afford to buy or live there.
Consequences follow from this but what will be done? There is no foreseeable prospect of house prices in Dublin declining, although the rate of increase may slow, as the Minister stated. However, a 9% or 10% increase is still three or four times the rate of inflation and, on the basis of current house prices in Dublin, means that a house price in Dublin is rising between €30,000 and €40,000 per year. What will the Minister do about house prices in Dublin?
The average price of a new house in Dublin is €324,000 but that is the average price of all new houses. If one analyses the starter home end of the market, plenty of houses are available in Dublin, certainly on the north side with which I am familiar, in the €230,000 to €270,000 bracket. Affordable houses are being promoted under the various schemes, the details of which I will not go into, and it is only a few months since I opened affordable houses in Balbriggan priced at €140,000 for two bedroom houses and €160,000 for three bedroom houses.
Some people in a certain income bracket are under pressure and we are trying to help them through the various schemes. There was an over-concentration by first-time buyers on the new rather than the second-hand house market and this is why stamp duty was reduced in the budget. This has benefited many people by up to €12,000 so that instead of buying a new house 20 miles out of the city, many new buyers are in a more competitive position to buy in the older suburbs than they were some months ago.
The issue is not just about price but affordability. Figures show that houses are now more affordable than at the time of the 1992 financial crisis. Interest rates are historically low, disposal income is higher than ever and tax rates are low. People have the money and, by and large, are managing.
The key aspect for the Government is to encourage and maximise output. Although the final figures for 2004 are not yet available, the latest output figures for that year showed approximately a 12.5% increase over the previous year. Therefore, it seems the output for last year was approximately 75,000 to 77,000 new housing units, whereas ten years ago that figure was in the low 20,000s. By maximising and encouraging supply, it is now practically equal to demand. However, houses are available for the young couples to which Deputy Gilmore referred. There is a good supply of houses in the €230,000 to €250,000 bracket.
I was glad to hear the Minister acknowledge, following his first outburst when he pretended the price increase was less than in the 1990s, that there was a 10.6% increase in new house prices and a 10% increase in second-hand house prices. The Minister stated many times since taking up his current post that he is doing everything in his power to keep down the price of houses. How much of the increase in house prices is a direct result of Government policy?
For example, the now departed Minister for Finance, Mr. McCreevy, who got the yellow card and went to Europe, increased VAT on building materials by 1%, which added between €10,000 and €15,000 to the price of a house. In the same budget, the former Minister abolished the first-time buyer's grant. Instead of having me tell the Minister the figures, will he tell me how much of the increased cost of new houses relates directly to decisions taken by the Government since he took up his current position?
On that point, is the Minister concerned that the levies placed on units and the additional levies placed by local authorities on infrastructural projects, which are being put in place to compensate for the shortfall in Government funding for construction projects, are adding to the cost of houses? What is the Minister's view?
The householder is now paying benchmarking.
On what does the Minister base his claim that the reduction in stamp duty in the budget is causing house prices to reduce? Spokespersons for the auctioneers state that young couples are using the money made available due to the reduction in stamp duty to put deposits on houses. They claim that house prices have increased by several thousand euro as a result. Is the Minister seriously considering measures to reduce the price of houses? Does he prefer high prices because they might suit developers?
I am sure the Minister would concede that his use of statistics would make a mathematician blush. House prices are at their highest levels ever. Does the Minister concede that completion of local authority housing is at the lowest level it has been in a generation? Does he accept we are failing to meet our targets in terms of social and affordable house completions? Does he further accept the numbers on housing lists are at their highest level in decades?
I was not pretending anything. I simply stated that the rate of house price increase was at 10.6% for new houses and 10% for second-hand houses, whereas sadly, a couple of years ago house price increases were running at more than 30%.
From a lower base.
VAT on new houses is 13.5%. I accept there was a 1% increase in recent years, increasing the price by €2,000 on a €200,000 house. I also accept the first-time buyer's grant of some €3,800 was abolished. However, I cannot understand why people are upset and keep focussing on relatively small matters like this.
It is not small.
People cannot buy a house. That is the problem.
The stamp duty reduction gave many people a reduction of more than €11,500, which puts the 1% VAT increase into perspective. The 1% increase was buttons compared to the stamp duty reduction.
How much did it add to the cost of a house?
The first-time buyers are back in the second-hand house market in a huge way and are moving back into areas to which Deputy Gilmore referred, where there were elderly populations. If the type of people who bought new houses are now buying second-hand houses, this should relax the pressure on the new house market. Let us concentrate on the big picture which is that many people have saved €12,000 because of changes in stamp duty.
Deputy Timmins referred to levies. I believe that people who own land should pay a proper charge and not walk away with the profit that accrues from the sale of the land. The notion that the Government should build on the land and provide the drains, sewers, schools and transport, and the person who owns the land should put a fortune in his or her pocket and let someone else pick up the tab is nonsense.
I agree with the Minister of State if everyone gets the benefit.
It is right and proper that landowners who make a fortune should make a contribution to the services necessary for the houses that will be built.
The householders are paying.
Deputy Morgan referred to auctioneers. We saw one of them on television on the night of the budget saying that it is their job to increase the price as best they can. One must understand where these people are coming from. I met the gentleman afterwards and he said that the programme was edited badly and that he was embarrassed by what was shown.
The Minister of State will be hearing from him again.
He was honest about his job which is to maximise the price he gets for the seller. Once we understand that, we can be selective in listening to people.
First-time buyers of a second-hand house will be €12,000 better off in bidding for the house than they were before the budget.
The cost remains the same because prices have increased again.
The Minister of State is living in cloud cuckooland.
Deputy Cuffe is correct. The amount of social housing being built in percentage terms vis-à-vis overall house production has not kept pace.
The nutty professor regime.
At one time, we built approximately 6,000 or 7,000 local authority houses when the total house production was 25,000.
They were much poorer times than now.
The level of social housing output, by and large, decreased significantly in the late 1980s because there was no demand for it, there were empty houses in many estates in Dublin and, while the level of overall house production has increased significantly, the level of social housing output has not increased commensurate to that. When the Government gets around to dealing with the NESC report, that issue might be solved.
The last census indicated that the population increased by 18% in the age group between 25 and 34 years. These are the people who are buying homes. This is the key household formation age group. There is an enormous number of people in the market for buying houses. It is correct that we have gone through six, eight or ten years of pressure in the housing market, but the only way of meeting this demand is by increasing housing density and maximising the output of houses, which the Government has done, so that we can reach a position where supply equals demand. The figures for 2004 indicate that 75,000 or 77,000 houses were built, which is an enormous number. Most people agree that the number has now probably reached its peak. We need to keep to a substantial level over the next couple of years, but it may dip back a little. That is an enormous increase. Ten years ago, we were building just 21,000 or 23,000 houses.
One quarter of them are holiday homes.
That is a small segment of the market. At that level, we must be very close to the point where supply equals demand.
