The Government is not going to allow a situation where people are allowed to borrow "ridiculous amounts of money" to buy houses as happened during the so-called Celtic Tiger period, Minister for Housing Simon Coveney has said.
He was responding on Monday to two new reports which show house price inflation picked up significantly in the first three months of the year, making the return to double-digit growth more likely.
Two quarterly reports, from property websites MyHome.ie and Daft.ie, linked the latest price acceleration to the Government’s new tax incentive scheme for first-time buyers and a loosening of the Central Bank’s mortgage lending rules.
MyHome’s report, produced with stockbroking firm Davy, suggested annual house price inflation is running at 9 per cent nationally and at 10.2 per cent in Dublin, where supply shortages are most evident.
House price inflation in the capital had all but stalled this time last year, dropping to 1 per cent.
According to MyHome, the average asking price nationally was €239,000, up €12,000 on the previous quarter, while the figure for Dublin was €347,000, a rise of €19,000.
Asked if we were now heading for another “boom and bust” cycle, Mr Coveney said: “No, absolutely not and we need to make sure that doesn’t happen.”
Speaking on RTÉ's Morning Ireland he said the core issue was there was a dramatic supply shortage in a number of parts of the country and it was the focus of Government policy to change that in a major way.
The Government was focusing on significant public monies to getting house prices moving in the parts of the country that badly needed it, Mr Coveney said.
“Last week, we announced €226 million of targeted infrastructure funding to open up large housing sites that will deliver 23,000 houses in the next three to four years. But…it would be wrong of me to say that there aren’t real pressures on the system - of course there are. And we’re not going to fix the housing pressures overnight.”
Mr Coveney said the issue dated back to a housing collapse seven or eight years ago when “virtually two-thirds of the builders in the country went out of business”.
“We had no banking system and we are rebuilding, I hope now, a more sustainable construction industry after that,” he said.
The Minister said there was “huge pressure at the moment” in cities in terms of lack of supply and that as a result of that the private rental market has been under a lot of pressure.
“Many people who would like to buy homes can’t because there aren’t enough for sale and that’s driving prices up. But also we are seeing strong economic recovery and so more people are now wanting to buy,” he said.
“There’s a lot of pent-up demand because people haven’t been buying houses for the last seven or eight years and undoubtedly that is pushing up prices. The only way we can respond to that is to facilitate and support significant increases in supply, whether that’s getting vacant properties back into use or whether it is new build and that is happening at the moment,” he said.
Mr Coveney said all the trends in terms of supply were moving in the right direction. “Planning permissions are up 26 per cent, commencements are up 44 per cent, completions are up nearly 20 per cent. But we are starting from a base that’s far too low and that’s the problem.”
He said in the last quarter of 2016 there were only 297 new homes purchased by first-time buyers, out of over 3,000 purchases by that cohort.
“So the vast majority of purchases for first-time buyers and for everybody else are actually second-hand homes at the moment.”
He said the whole purpose of the Government’s help-to-buy scheme, introduced in January, was to get builders building starter homes again for first-time buyers and that was happening.
“If anybody suggests to me that as a way of keeping house prices down we should continue to lock first-time buyers out of the house-buying market, which was the case, then I can’t support that,” he said.
Mr Coveney said both the Central Bank and the Government had spotted the same problem, which was that first-time buyers were not able to put a deposit together in order to get a mortgage and had found themselves locked into the private rental market.
“We’re not going to allow a situation that happened during the Celtic Tiger, so-called Celtic Tiger period, where many first-time buyers were allowed to borrow ridiculous amounts of money. Instead we are helping people to get a deposit together to buy homes and as a result of that we are seeing a lot of new starter homes being built at the moment, which was not happening this time last year,” Mr Coveney said.
Meanwhile, Sinn Féin's Pearse Doherty called for the help-to-buy incentive to be scrapped, saying the scheme had been an "influencer" in the dramatic rise in house prices. Mr Doherty told RTÉ's Today with Sean O'Rourke there was no curtailment or cost controls on the tax incentive scheme and tthat many of those approved for the scheme already had enough money to pay for their 10 per cent deposit on a new home.
“This is only about pushing up house prices, putting more money in builders’ pockets and incentivising them to build more houses,” said Mr Doherty. “When is the construction industry going to say that is enough for us? When families are priced out of the market?”
”The point is these are young couples entering into 30 year mortgages. They’ll be financially strangled for most of their adult life as a result of this.”
Responding to Mr Doherty, director of the Construction Industry Federation Tom Parlon argued that those approved for the help-to-buy scheme had not yet entered the market and thus could not be influencing the rising prices of homes.
Mr Parlon admitted there was a “supply issue” but said the only way to resolve this problem would be to build more houses. He added that the “positive vibe” of the scheme was encouraging builders and developers to invest as it would lead to more people buying homes.
The author of the MyHome report and chief economist at Davy, Conall Mac Coille, said Ireland's strong recovery, the Help to Buy scheme, looser credit conditions and the lack of housing supply were all likely to make it a "frothy year" for Irish house price inflation.
“Credit conditions are clearly supporting the market,” he said, noting the average mortgage approved to first-time-buyers in February was €206,500, up by 15.2 per cent from €179,000 last year,” he said.
He said average borrowing for house purchases was five- to six times average income, whereas in the UK it was 5.7 times.
Back in the boom, we had hit eight or nine times average incomes which was “off the scale”, he said.
If the figures continued to rise over the coming years, then there would be concern, he said.
