How to Make Housing Affordable.
In ‘The Real Cost of Housing’ I looked at the effect of taxation and levies and its role in the current state of the housing sector.
In this article, we examine other ways to make housing affordable, especially for first time buyers.
Help to Buy
In December, the government brought in a limited help to buy scheme based on the amount of tax paid by an applicant in the previous 4 years. The Revenue website describes the measure as;
The Help to Buy incentive is designed to assist first-time buyers with obtaining the deposit required to purchase or self-build a new house or apartment to live in as their home.
The incentive provides for a refund of income tax and DIRT paid over the previous four tax years to first-time buyers who purchase or self-build a new house or apartment to live in as their home
This is a modest relief has the well-intentioned aim of assisting first time buyers. However, as it is a purely demand side incentive, the benefit of the scheme went immediately to the developers. The result was that house prices increased by the value of the incentive immediately.
The same effect was observed in the UK. There, a more substantial and clearer help to buy scheme has existed since 2013 where the government takes a 20% stake in the property, the purchaser only must raise a 5% deposit and a 75% mortgage.
The UK help to buy scheme was found to have increased asking prices for housing and development land. Anecdotally, this increase is more than the 20% support.
In the UK, this controversial scheme has helped over 300,000 people to own their own. Whether they would have been able to afford it on their own in the absence of the scheme is an answer we can only speculate.
A Better Way
A better way to apply this type of assistance is to limit its application so that it does not have the self-defeating effect of inflating the market.
If for example, a help to buy scheme was limited to families earning, say, less than €50,000 P.A. and was applicable to specific purpose built schemes, it would achieve several objectives in one measure.
It would increase home ownership among those that would not otherwise be able to afford their own home.
It would decrease dependence on scarce public resources by helping to decrease the demand for publicly provided social and affordable housing.
Lastly, it would not add to house price inflation as the help to buy schemes have done.
As in the UK, if a 20% stake was held by the state in these properties it could be bought out by the occupants in time or recouped if sold, so technically there is not net cost to the state.
The Social & Emotional Factor
Most people want to own their own home. It is something that is central to our being. Having somewhere to call home is at the heart of who we are, where our children can grow up in security and comfort, where we can grow old with dignity in a community we can trust.
This basic human need is not going to be a reality for many people with in a totally market based model.
That alone will have far reaching social and emotional consequences of future generations that cannot be quantified or related in any meaningful way.
Relying on government to provide social housing to those that cannot afford it has created intractable social issues in the past, and it will take too much time.
We need to find ways to deliver owner occupied housing in proximity to services and schools at affordable prices.
A New Co-Operative Approach
One way to do this is to encourage co-operative housing with the land provided by or supported by local government through housing agencies.
If quality housing can be provided under €200,000 per unit in this way through smaller and wide scale projects, it would make it affordable for most people on low to medium pay to afford their own home and live comfortably.
Another benefit to society of affordable housing is lower wage demands and a more competitive economy.
The price of housing is directly related to our national competitiveness. We are a small open trading nation and cannot afford over priced housing. We are all aware how we have paid dearly because of the mistakes of the past.
It is therefore well beyond time for a new and workable strategy to provide affordable owner occupied homes.