Dáil Éireann Debate, Thursday - 23 November 2023
82. Deputy Catherine Connolly asked the Minister for Finance further to Parliamentary Question No. 100 of 5 October 2023, his plans for the phasing out of the help-to-buy scheme; the details of the analysis underpinning the decision to extend the scheme to the end of 2025; and if he will make a statement on the matter. [51364/23]
View answerI am back again on the help-to-buy scheme. I am specifically asking the details of the analysis underpinning the decision to extend the scheme and the plans for phasing it out. I ask that in the context of a scheme that was introduced with a value of €40 million. That was the annual estimate. That has risen to €181 million in 2022 and the total cost at the moment is bordering on €1 billion, at €890.8 million.
The scheme was introduced in 2017 with the purpose of assisting first-time buyers with the deposit required to purchase or self-build a new house or apartment to live in as their home. The relief is only available in respect of new builds, with a view to increasing the supply of new housing and stimulating demand. To date, the scheme has been a significant support for first-time buyers of new homes. As of 1 November 2023, some 42,885 first-time buyers, either singly or as part of a couple, had benefited from the scheme.
As the Deputy will be aware, the Finance Bill will extend the help-to-buy scheme for a further year to the end of 2025. The scheme is also being amended to enhance its interaction with the local authority affordable purchase scheme.
This amendment will enable the use of the affordable dwelling contribution received through the affordable purchase scheme for the purpose of calculating the 70% loan-to-value requirement, thereby facilitating access for a greater number of affordable purchase scheme purchasers to the help-to-buy scheme.
The Deputy has previously raised concerns regarding the potential for the scheme to exacerbate housing prices. As has previously been stated, policymakers were aware at the time the scheme was being developed that it was not without risk. Likewise, they were aware there was a danger that, against a background of constrained supply, the initiative could serve to increase prices for new homes, thus potentially undermining to some extent the affordability aspiration of the scheme. However, on all occasions when the matter was formally examined to date, concerns in this regard were not borne out by the review data.
Studies carried out by Indecon economic consultants found the main driver of house prices was the mismatch between supply and demand, rather than the existence of the scheme. Similarly, the review by Mazars in 2022 found that there is no definitive evidence that help to buy pushed up the price of new homes. In fact, Mazars found that the prices paid for new homes by people who received help-to-buy relief were slightly lower than new house prices in the economy in general, likely because of the €500,000 price eligibility cap.
There have been significant changes in the market since the Mazars report on the scheme was published. The increase in interest rates in the intervening period means further stability and certainty is needed for first-time buyers who may now face higher mortgage interest rates.
I thank the Minister for his reply. He quoted Mazars in relation to a lack of evidence. The report said there was no definitive evidence. It stated: "The scheme is poorly targeted with respect to incomes, location, house prices and other socioeconomic factors." Will the Minister comment on that part of the report?
The report also states: "As a result, it has socially regressive impacts, there is a considerable deadweight associated with the expenditure, and it is poorly aligned with spatial policy." It goes on and on, stating, "The sort of policy uncertainty that has arisen [as a result of] ongoing ... extensions without a clear picture of the longer-term ... environment is undesirable." It states: "A rational approach would not design the scheme as it currently exists[.]"
In other criticisms, the ESRI, referring to the extension of the help-to-buy scheme, states: "Given the robust demand for housing combined with long-standing supply ... it is likely that these demand-side policies [the help to buy and others] will increase demand for housing, putting pressure on house prices." I will come back in relation to the Parliamentary Budget Office.
I felt in the lead-up to the budget that providing certainty that the help-to-buy scheme would continue beyond 2024 for a further year to the end of 2025 was important for prospective homebuyers and would help stimulate supply, as builders and developers would know for sure the scheme would be there to support prospective house purchasers for the period in question. I believe that was the right policy decision. I also indicated in my budget day speech that, across next year, I will consider whether changes are warranted to the scheme.
On low loan-to-value ratios, it is important to point out that the proportion of claims in the lower loan-to-value bands are much higher for self-builds. Self-builds only account for about a quarter of all claims but for more than 40% of claims in the low loan-to-value bands. That point does not get the acknowledgement it should. It is a significant factor in the data the Deputy and others have relied upon in reaching their conclusion that many people are availing of the scheme who do not need it.
I am no financial expert but when the Minister quotes Mazars, he does so selectively. The Mazars report recommended phasing the scheme out, stated it was poorly targeted and included other comments I cannot quote in one minute. I would be delighted to tease out this matter further with the Minister.
We will give you some latitude, Deputy Connolly.
Thank you. The ESRI said the scheme is likely to contribute to higher house prices. The Parliamentary Budget Office stated one third of the recipients did not need help to buy to meet the 10% deposit and that, in 2021, 63% of the claims for the scheme were used to buy properties above the national average house price. I can only talk as an ordinary TD reading the reports and looking at what is happening with houses prices skyrocketing all the time. I ask the Minister specifically for timelines for phasing out the scheme and what plans are in place to design a more targeted scheme and take on a recommendation in the Mazars report to remove self-builds. I do not express an opinion on it. I am asking him, in view of the research to date, what are his plans.
In the format in which we are operating, it is only possible for any of us to quote certain extracts from the report. The report is published and speaks for itself. The Government has considered it.
In relation to phasing out the scheme, the House has just legislated for the extension of the scheme to the end of 2025, so that is the Government’s policy. For much of our history, we have had various schemes to help people buy their first home. I remember well in my parents' time there was a scheme whereby people willing to hand back a local authority home got a grant of €5,000 to help them buy a house. We are spending €5 billion of capital on public housing, cost rental and affordable purchase. It is appropriate we provide assistance to people who want to buy their first home. This is only in respect of new builds. It helps support supply because it assists developers in knowing prospective purchasers will get support from the State to meet the cost of purchasing the home.
