Even before the Government formally announced its Construction 2020 strategy earlier this week, commentators were quick to speak about against many of the 75 policy initiatives proposed. Taoiseach Enda Kenny went on to announce a suite of measures aimed at stimulating the lagging construction sector, which has fallen in excess of 90 per cent since the peak. In particular, the plan is to triple housing output by 2020. If successful, this could create or perhaps more accurately, return up to 60,000 jobs in the sector. This would go a huge way towards reducing the live register, which is estimated to include at least 100,000 construction workers from all aspects of the industry. If the proposed developments are done in a targeted way, they could alleviate the chronic storage of family home type units in urban areas and provide more suitable rental accommodation in a way that satisfies both the demands of todays tenants and the need for high density in key areas.
Among other initiatives, the stimulus package includes €50 million for social housing provision and this figure is additional to earlier provisions. The most practical application of further funds regionally will likely be to facilitate the hand-over of so-called ghost estates nationwide to the relevant local authorities. The next step will be to complete these partially-completed estates and make the houses and apartments suitable for social tenants. This will provide quicker access to housing in areas that have seen an increase in homelessness recently. Furthermore,
it will allow local authorities to work through their growing housing lists while simultaneously reducing the State’s outgoings in terms of rent allowance and other subsidies currently paid to private landlords. In fact, the main disadvantage will to private landlord who will find, particularly outside of Dublin, that many private tenants will look towards buying as market conditions improve while many of the social housing tenants will be housed in newly available local authority housing. Landlords in regional areas might well find the strength of the rental market somewhat diminished.
But the Construction 2020 strategy had little focus on the rental market. In fact, It became increasing clear this week that despite this sector being such a big part of our country’s economic downfall, it now represents the hopes of the nation once again as Mr Kenny emphasised the driving role the construction sector will play in our future economic development. Denying charges that the plan could potentially lead to another bubble, the Taoiseach spoke of his confidence that the new measures would prevent the mistakes of the past being repeated. I am not sure that I agree with that entirely. While I certainly do not agree with Sinn Fein’s Gerry Adams who voiced his opinion that it does not make sense at all to deal with the housing crisis, it may well transpire that for the Dublin market, the ‘cure’ may well turn out to be more dangerous for would-be buyers than the disease. Particularly in respect of one of the most controversial initiatives, which involves a State guarantee for first-time buyers for a portion of their mortgage.
From the Government’s point of view I actually accept the logic, notwithstanding lessons learned from previous State guarantees. It is the simple negotiation tactic of giving something that costs little or nothing to give – but is valuable to receive – in the hope of gaining a greater advantage, in this case, increased market confidence. Essentially, the Government are giving something notional, a guarantee, and hoping that it will never be called in (because that worked so well for us in the past!). If the market rises, that is, in theory, exactly what will happen. But the Government is not in negotiation with would-be buyers; they do not need to give this particular concession and of all the concessions that they might have offered to incentivise buyers, this is arguably the least effective.
The thinking behind the initiative appears to have been that the banks and mortgage lenders need a push to lend and that buyers are short of their cash deposit requirement. In my experience, banks are tripping over themselves to lend to so-called strong applicants, it is the epitome of cherry-picking. Also, the first-time buyers I speak to have been saving for years, most have well in excess of the 10 per cent deposit required. In fact, many have in excess of 20 per cent and despite Mr Noonan’s assertions earlier this week, every lender in the market today is happy to lend 90 per cent loan-to-value or LTV for first-time buyers. This particular government initiative will apply to new housing only and it makes me more convinced than ever that it is the wrong incentive for the right people. It simply does not address the real issues faced by property buyers in todays market. There is no doubt that buyers outside of Dublin require some incentive to consider purchasing from the stock of new housing over-supply, however, a mortgage deposit scheme is not the right one. I do not believe that any such incentive is required for the Dublin market, if anything, we need more houses as quickly as possible and if any artificial mechanism was to be out in place financially, it should be a measure to halt artificial inflation driven purely by a lack of supply.
The good news is that it is all to play for. The proposals are exactly that, proposals. If past performance is anything to go by, this particular Government could be accused of lazy policy making – which in the past meant leaking controversial developments and using public opinion as the key decision-making factor – this initiatives will likely change before appearing in the Finance Bill so now is a good time for would-be buyers to speak up.