That Dáil Éireann resolves that the Government immediately reverse its housing policies which have proved totally counter productive and that it urgently moves to restore confidence in a housing market where under-provision is causing widespread misery and notes the growing crisis in housing provision, the growing number of homeless people, the £100,000,000 plus annual bill for rent subsidies, the failure of the ‘affordable housing' programme, the inability of employed young couples to purchase their own home, the loss of confidence in the housing sector by buyers, builders and lenders, the total inability of local authorities to deliver housing in sufficient numbers, the collapse of provision in the rental market and the consequent dramatic increases in rents and the catastrophic reduction in private housing building.
I wish to share my time with Deputies Farrelly, Durkan, Neville and McCormack.
Prior to 11 September we had a vibrant economy full of confidence for the future. Output was growing very strongly, investment was high, the population was expanding and demand and spending was growing. In every sector people were working longer and harder and investing more and more each year in an effort to meet the ever growing demand for goods and services from a wealthier and growing population.
This was true in virtually every sector of the economy with one exception, the housing sector. Housing bucked the trend and has been bucking the trend for almost three years. In this sector the slow down in investment long preceded 11 September and the Government cannot blame bin Laden or any outside influences for the crisis we now face. Because of the time lag in house production we will continue to face this crisis for some time to come. This is a Government-induced crisis, the result of policy initiatives each and every one of which has had an outcome precisely the reverse of which was required. When taken together, all these perverse incentives have produced massive uncertainty in the market and have stripped all confidence from buyers, builders and lenders, all of whom are leaving the market in droves. It took some level of incompetence from the Government to produce this turn around in such a short few years.
Even when confidence was high in the economy generally Government housing policy was counter-productive and inappropriate. Now that the economic climate is entirely changed these policies are catastrophic and must be reversed. Instead of being counter-cyclical in order to stimulate demand and supply they are reinforcing the downward trend in housing activity and, consequently, the downward trend in the economy generally. The evidence of this is all around us every day and everywhere, in every city, town and village and it is very difficult to understand how the Government can be so insulated from reality and so isolated from events which are evident for everyone else to see. Even if it is so entrenched in its ivory tower that it does not see it for itself, surely it has economic advisers and consultants to quantify the disastrous impacts. Surely it has enough friends in the building industry to whisper in its ear the reality of what is happening on the ground.
This is a Government-induced crisis and only a complete reversal of policy can help mitigate its effects. It is only mitigation we can now hope for. Because of the time lag in house production, the time between applying for planning permission and making a decision to invest and bringing a house to market, any change in policy now will not produce results for another three to four years in terms of output, just as we are beginning to see the real impact of Government decisions taken as far back as 1998, even though the signs have been there for anyone who wished to see them. There is no point in the Minister telling us about the high output last year. This had nothing to do with the Government, it was as a result of investment decisions made up to four years prior to last year. The Minister told us how high output would be this year. It is now anticipated that it will not even reach 40,000, which was a huge drop.
Planning applications are down 9% this year to September. Registration of housing starts is down 21% and that is just until September. Heaven knows what the drop will be by the end of the year. Those who have land are not applying for permission to build, those who have permission are not building, those who are building have slowed down the rate of output, sites are being closed down, jobs are being shed and some builders have gone into liquidation in recent months. All of this is happening against a background where it is stated Government policy to meet housing demand by increasing output to 50,000 units a year and where it exhorted the industry to gear up and engage specialists and skills to sustain that output over the next ten years. Those builders who did so and bought land at highly inflated prices, including local authorities, must now be feeling very sore about a Government whose perverse incentives guaranteed this objective could not be achieved. When it became obvious this could not be achieved, they were too intransigent to accept the evidence and reversed the policies which caused such problems.
As far back as the first Bacon report, against a background of overnight queuing by young couples, escalating prices and gazumping the problem was identified as under supply. While this was evident to the dogs in the street and it was the clear message of the Bacon reports, the only Government response should have been to increase supply. Why then did the Government do everything possible to dampen supply and when it became evident that supply was falling why did it persist in these policies? God only knows what perverse thinking produced a rule that ensured planning permission lapsed if an entire estate was not completed to external wall stage within two years of granting permission? The impact of this was immediate and predictable. Banks immediately were unwilling to extend financing on the basis of a time constraint permission. Costs increased and smaller permissions were sought for partial site development.
Almost every builder now faces a situation whereby if he wants to finish a site he will be forced back into the vagaries of the planning system, clogging it up further, slowing down output of housing, increasing costs to buyers and leaving half finished estates for years on end. Almost every significant planning permission granted since August 1999 will fall foul of this requirement and its effect on slowing down supply will be with us for years. Even when the remainder of the economy recovers, as the Minister for Finance suggests it might by the end of next year, we will not be in a position to produce houses because the planning permissions will not exist. This is the best case scenario because in good times builders might go to the trouble, expense and uncertainty of renewing planning permissions in order to finish estates.
In the current climate why on earth would they bother? It is far easier for them to build in Lisbon or London or sit on the land indefinitely until the climate changes. It is absolutely crucial to amend section 96 to ensure the normal five year period of planning permission pertains to all existing permissions. The reason for that measure has now gone and there is no point maintaining it any further. I ask the Minister of State to listen to that request because everyone in the building industry is saying the same thing. It is stopping the building of houses.
Equally inexplicable was the decision to remove mortgage interest relief on rental properties. Interest payments on borrowings are a deductible business expense throughout the tax code. Apart from the fact that it seems strangely inequitable that one type of business should be treated more onerously than others, it defies belief that the one sector singled out for this treatment was the very one for which we most need an incentive. What on earth was the Government thinking, that it allowed this totally bizarre measure go ahead? The effect was immediate, devastating and totally predictable. All new supply of rental accommodation ceased. Rents sky-rocketed by at least an amount equivalent to the loss in interest relief. For the first time in history rents are now 25% to 30% more than a mortgage on a similar house, ensuring that no young couple could ever hope to save for a new home. Those who might have rented in the past, and even those who aspired to home ownership at some stage, are now forced to put themselves on waiting lists of local authorities who do not and will not have the potential to fill the void left by private investors.
Every public representative at every level and in every party must have heard the heartbreaking stories of human misery caused by the lack of rental accommodation. It has affected the entire market from top to bottom but its impact has been most devastating for those who are most vulnerable at the very bottom of the market. Many single older people who felt they had secure rental accommodation and a home for life are now almost starving themselves to pay increased rents. There is nothing more heartbreaking than the countless families every public representative hears about, many single-parent families, who in order to avail of the safety net of rental subsidies must take their children from school in order to relocate to areas in the city where lower rents apply. If that was not enough, they must also give up their jobs or any hope of jobs in order to qualify for the subsidy and put a roof over their heads. The rental subsidy scheme is costing the taxpayer a massive sum of well over £100 million a year. It is causing as many social problems as it is solving and utterly unnecessary to have so many people depending on it.
Any thinking Government would recognise that home ownership is not the only or even the most desirable form of accommodation. Every modern economy needs a vibrant and professionally managed rental sector to cater for a mobile labour force as well as providing for the accommodation needs of those who can never aspire to home ownership, or choose not to aspire to it. There is no sense whatsoever in ensuring the private sector will not meet the demand. The removal of interest relief has simply resulted in a switch in the flow of available investment funds into either commercial or industrial developments, both of which are now over-supplied, or into overseas investment. It is estimated that a massive £900 million has gone into property investments overseas since this measure was introduced in mid-1998. In short, this has been a disastrous measure, both socially and economically, and if the Government does nothing else in the few months left to it, it must restore interest deductibility for the provision of rental accommodation.
Stamp duty is another area of Government incompetence in which its regime has increased housing costs and added rigidity to the market, thereby discouraging both trading up and trading down, preventing optimal use of the housing stock and inhibiting labour mobility. Stamp duty is a transaction tax purely and simply aimed at raising revenue for the Government which it is not even doing efficiently any more because it is now so penal. The minimum now required is to widen the bands to reflect higher house prices and abolish the ridiculous 9% rate altogether. Stamp duties are not just high, they are extraordinarily complex. There have been no less than four changes in as many years and, even within the industry, most do not know the precise rate which applies in any given set of circumstances.
No market and no business can operate successfully and prosper in a climate of such uncertainty, where the taxes applicable are constantly changing. If the Government wants a regime which encourages housing supply and the optimal use of housing stock, it needs to give some serious thought to how it proposes to achieve this, before it jumps in with any more ludicrous schemes such as those it has given us to date. Taken together, these schemes have sapped all confidence from the industry and left a whole generation with no hope of a home of their own.
Many problems are being encountered as a result of Government measures. For instance, the new planning Act was designed to streamline and speed up planning. In reality, the process is now slower than ever, due to lack of resources and the greater responsibilities being thrown at local authorities and An Bórd Pleanála, which is now holding up the roads programme as well as the housing programme. This, again, is entirely due to Government mismanagement. The implementation of the 20% social and affordable housing schemes, which had appeared to offer so much, varies from one local authority to another. It takes endless negotiation and is hugely time consuming for local authorities, which are already taxed to the limit in trying to deliver on all aspects of the national development plan. Even when money was plentiful, they could only deliver a modest increase in social housing. What prospects are there for families, now that the money has evaporated and the future is so uncertain?
If the Government wishes to consider the housing sector in terms of helping those most in need, I suggest that first-time buyers are most deserving. Innovative ideas are needed to help those who, otherwise, have no hope of getting off the housing lists. A lower, or zero, VAT rate on new houses in the social and affordable category is one option which is quite feasible within European law and which already operates in Britain and most European countries. A once-off tax credit of £5,000 for first-time buyers is another possible approach. Those first-time buyers who do not qualify for any of the schemes are being deprived of all hope. The serviced land initiative, under which some 100,000 sites were envisaged by the end of this year, has delivered no more than half that expectation.
I wish to remind the Government, yet again, of the social consequences of its ill judged policies. The generation which apparently had it all, which was told by the Government to break open the champagne and grew up in times of unprecedented growth, now finds it cannot aspire to home ownership. Unlike their parents and grandparents, they are deprived of this most basic need. For those in a position to even consider purchasing, the only available options may involve moving up to 100 miles from their families, friends and support networks. They are crippled with high mortgages and long commuting hours and we will live with the consequences of this dispersed method of settlement for many generations. Meanwhile, these young couples have zero quality of life and their stress levels are mounting even higher as every job becomes uncertain. Nevertheless, they are the lucky ones. For those forced into an ever contracting rental market or onto ever lengthening council waiting lists, there is even less light at the end of the tunnel. This is what this generation has inherited from the so-called champagne years.
If the Government has no concern for the plight of those seeking accommodation, perhaps it would consider the economic costs of its policies. Every single one of its policy initiatives has inhibited labour mobility at a time when it was never more important. Under-supply of housing will continue to put upward pressure on wages, even in bad economic times. Housing output comprises 11% of our GNP and represented £1.5 billion in taxes to the Exchequer in the year 2000. Can we afford to forgo that? There were 70,000 directly employed in the industry last year. I suggest the Government cannot risk those jobs. However, all this is now being jeopardised as jobs are being shed in the industry and the lack of confidence generated in the housing sector is spreading throughout the economy. It is time for the Government to admit it was wrong and reverse the policies producing precisely the opposite results to what is now required.