I move: "That the Bill be now read a Second Time."
I welcome the Minister of State, Deputy Damien English, to the House. I thank the staff of the Bills Office, the Seanad Office and the Leader's office for their unfailing courtesy in their dealings with me on this legislation. I thank, too, my assistants, Dr. Charles Larkin and Ms Ursula Ní Choill for their invaluable help. The background to these proposals is the twin crises in the financial sector and the construction sector in this country. My intention in bringing forward this Bill is to seek to address some of the issues arising out of those crises and thereby ensure the Seanad has an input into this important public debate. These matters have been a topic of conversation on the Order of Business on many occasions. There is a great commonality of spirit among Senators in this regard.
The problems we are dealing with are not new and have caused untold levels of hardship and humiliation at both the personal and national level. We have heard all the evidence at the banking inquiry as to how the financial crisis developed. The bank-State-property nexus that was the framework for that investigation highlighted over and over again the many distortions that existed in the market for residential and commercial property in Ireland and how a standard house went from costing two and half times average income in the 1970s to 12 times average income in recent times. Using Central Bank rules and the guideline that monthly mortgage repayments should not be more than one third of income, a house of €227,000 is all that is deemed affordable at present. However, the average house price in Dublin is €317,917. The consumer price index, CPI, has risen sixfold since 1976, but the price of a house has risen fourteenfold in the same period. Shelter, a housing charity in the United Kingdom, estimates that if house prices and chicken prices had been indexed together, a chicken would now cost over £50. In Ireland, while all other sectors of the economy have shown productivity increases and improvements, the residential and commercial property sectors have underperformed over time and combined to put housing out of the reach of more and more people. The question we must ask ourselves is whether we in this House and our colleagues in the Dáil can develop measures to deal with the dysfunctional housing market.
The Bill I have brought forward does not offer a quick-fix solution to the current problems. It is concerned solely with residential property and does not deal with the commercial property sector. The property sector requires a suite of programmes to fix the problems that persist. Many distortions have built up in the sector over several decades which have brought us to our unhappy present. My time on the banking inquiry showed me how important it is address policy towards the long term and acknowledge underlying issues early. The housing crisis is multifaceted. Affordability, availability of housing of all types, the ability to build and support social housing, and the epidemic levels of homelessness are difficult to address individually, let alone simultaneously. Any solution must bear in mind the big picture and acknowledge there is no panacea. Solving the problem is like eating an elephant; it must be done piece by piece.
The reality of the property market is that we have seen an upward trajectory in prices since the early 1970s, following a sustained period of modest increases. This was partly to do with credit availability factors, partly related to regulations and partly a consequence of fiscal expediency. The expansion of credit allowed prices to rise as the elasticity of income was not constrained. So long as asset prices increased in a virtuous cycle, we could expand the availability of credit. As long as credit was accessible cheaply from global sources, the conveyor belt was kept moving. Government regulations, with little mind to how they would work out in the long term and the impact in terms of increased costs and rent-seeking opportunities, allowed the price of accommodation generally to increase and created a situation where consumers and even some producers were disadvantaged. Finally, and most importantly for the average citizen, the fiscal system turned the property sector into a financial vehicle. From the point of view of taxpayers, it was tax efficient to buy a house, expand a house or buy another house, and the additional transaction revenues were lucrative for the Exchequer and easy to administer. Property-related tax expenditures were politically expedient and popular. The result was a willingness to ignore the ingredients of a healthy property sector, which are that housing should be abundant, affordable, adequate and appropriate.
The property market is now creaking under these collective bad decisions. We have an acute accommodation crisis in Dublin. Rents are beyond the reach of most professional wages, let alone unskilled and semi-skilled wage packets. New prudential lending rules from the Central Bank, which are necessary, further complicate the possibilities for people to purchase apartments or houses. On the supply side, there is limited development taking place. With supply constraints and a Central Statistics Office, CSO, figure for natural wastage by depreciation of 10% of housing stock, household formation demand will outstrip supply for the foreseeable future. I propose to address one aspect of this system, namely, the ability to finance mortgages and create a sustainable system of finance to ensure the provision of social housing and that people on lower incomes have access to mortgages. This country made a political decision in the 1930s to become a country of property owners. There are ways and means to continue that tradition, the proposals in this Bill being one component of that. The legislation is not a silver bullet. Much work needs to be done in other areas, but it is a step in the right direction.
The Bill proposes to create a national mortgage and housing corporation for the purpose of ensuring fair access to home ownership, addressing the accommodation shortage and ensuring the smooth operation of the property sector in Ireland. As of 2015, the affordability of accommodation for residential purposes in both the private rental and purchasing sector remains in doubt. In fact, Professor Ronan Lyons of Trinity College, Dublin has estimated that as many as 90% of households would require some form of subsidy to purchase a newly-built two-bedroom apartment compliant with Department of the Environment, Community and Local Government building regulations, Central Bank financing guidelines and the ready-reckoner rule that accommodation should cost no more than one third of disposable income. Models of Government-actor mortgage agencies in Canada and the United States show it is possible to modify market behaviour such that prices are tempered, social cohesion objectives are achieved and a more stable market is created.
The national mortgage and housing corporation is a body similar in design to the Government National Mortgage Association, Ginnie Mae, in the US and the Canada Mortgage and Housing Corporation in that country. The legislation draws heavily on those legislative models and most of it is orientated towards setting up the corporation. The corporation acts as an aggregator that uses links to the Government as a way to bundle mortgages together for the purpose of issuing covered bonds at a much lower rate of interest because governments can borrow at those low rates of interest. This system is in place already for Nykredit in Denmark, Ginnie Mae in the US and the CMHC in Canada. Rules governing the issuance of mortgages are strict to ensure the quality of the final asset is high. The process will ensure the price of funding will be exceptionally low. This reduces in part the cost of housing. As an additional component, the platform created in the Bill allows for constraints on prices in the housing market. In economics we call this the power of monopsony. The corporation and the platform will act as the dominant actor in the housing market for the purpose of investment and regulation. The result is that it can exploit the position to manipulate market prices such that it can begin the process of driving down housing prices. The basic analysis is that this will result in the redistribution of the consumer and producer surplus in the market. This additional economic credit accrues to the platform and the platform then uses that to engage in social cohesion actions for social housing and to facilitate low-income households to gain access to the property market.
In the main body of the legislation, I outline provisions to enable the national mortgage and housing corporation to perform mortgage aggregation and mortgage provision actions similar to those performed by Ginnie Mae and the CMHC. The rationale is that it would have access to especially low-cost funds due to explicit Government guarantees provided by the State. This does not require a drawdown from the Exchequer since it acts as a guarantee and, as such, results in a large non-explicit subsidy to the corporation for the purposes of financing. The design of the corporation and its subsidiary bodies includes fail-safes to protect taxpayers from bailing out the corporation. These rules are there to keep the corporation from getting into the same trouble as our now defunct banking system did.
This legislation needs to address regulatory problems. Ireland has ignored the regulatory impact of legislation and statutory instruments. Regulation adds thousands to the cost of a house in Ireland. Professor Ronan Lyons estimates that constructions costs are as high as €1,800 per square metre in the Republic compared with €1,000 in Northern Ireland. The lack of competitiveness in the construction industry is something we have not faced up to and this measure is designed to correct that. The legislation allows outside bodies such as mortgage brokers to package mortgages and sell them to the corporation. This would allow other mortgage originators to avail of low-cost financing through indirect market access as long as they operated within the parameters and rules of the corporation. The purpose of those rules in the Bill is to channel the mortgages into average and below average housing markets in order that building societies and banks do not invest in commercial property or push up the price of trophy homes as they did in the past. There will be explicit rules for the bank but that is a matter for discussion between the Minister and the Governor of the Central Bank. Those rules will act as a brake on house prices in Dublin with respect to the rest of the country. These proposals are compatible with EU competition policy and state aid and are the best way to proceed in terms of income distribution. It will have a large number of social benefits. Discussions between the Minister and the European Union would be positive because the failure of the financial sector in Ireland and the development of a hugely expensive construction sector could be tackled with the assistance of the European Union in these matters. We can be compliant with the rules.
By creating the national mortgage and housing corporation and constructing a lending platform that can aggregate mortgages and subsidise social housing and low-income access to housing finance, we can begin to correct some of the worst excesses of the property market for the average citizen. This sounds like a radical action. It is radical but some radical action is necessary. The monopsony power of such an entity could be used to drive down prices. We should try to find a way to fund social housing in a fashion that is less dependent on the Exchequer. By making the cost of financing cheaper and putting in place support structures for those at lower incomes, we can try to achieve a goal of the 1930s for people to own their own houses. That is what I propose. This legislation can begin to fix a sector of the economy that has brought destruction and misery to Ireland. In that spirit I commend the Bill to the Minister and to the House.
