Help-to-Buy (HTB) Scheme Will Make Housing Less Affordable

Dr John McCartney, Director of Research, Savills Ireland commented:

“The centrepiece of this year’s Budget is a Help-to-Buy(HTB) scheme which will give first-time buyers an upfront tax rebate equal to five percent of the value of the property when they purchase a new home.  By restricting the scheme to new builds the Government says it will stimulate supply.  True – giving people more money to compete for limited new builds will drive up prices and help restore developer profits.

Unfortunately, this also makes housing less affordable.  Alternative approaches, such as cutting VAT on new homes, would equally have encouraged development – but at a lower price point.  However, the Government bottled out of that option because of optics – it would simply have looked too much like a handout for developers.

Three points are worth considering here.  Firstly, since we need private sector involvement in housing delivery, there should be no shame in incentivising developers to operate in accordance with the public interest.  It is a pity that our minority Government does not feel empowered to articulate this argument.

Secondly, cutting VAT on new homes would arguably have been self-financing.  After all, with building so subdued, the Exchequer is hardly benefiting from this source of revenue at present.

Thirdly, and let’s be absolutely clear, HTB is just as much of a handout to developers as a VAT cut.  The only difference is that the money briefly passes through the hands of FTBs.

The new Government deserves kudos for the constructive approach it has taken to resolving the housing crisis through Rebuilding Ireland.  However, rather than building on that progress, Budget 2017 represents a wasted opportunity.  House buyers will be no better off because of this scheme –prices will just increase to offset the tax rebate.  Some developers may be able to get building, which is a positive.  But a more courageous approach focused on cost reduction would have achieved the same thing, along with more affordable housing.”