Doubts rise over home buyer grants as house prices shoot up

Further doubts have been cast over the wisdom of Government plans to grant-aid first-time buyers as two more reports show house prices continuing to shoot up even without buyers having extra money to bid with.

A new Daft.ie survey records a 7.6% increase in house prices nationally in the past 12 months, while the latest Myhome.ie prediction to the end of this year is for prices to have risen by 5% over the course of 2016.

That means house prices are rising at three to four times the rate of inflation, with both buyers and market observers predicting another 5% increase next year.

Ronan Lyons, Trinity College economics lecturer and author of the Daft.ie report to be published today, warns that financially aiding people to get on the property ladder will only push prices up further as they will simply bid more vigorously against each other.

“It is tough to argue that there is a compelling case for help for first-time buyers in the upcoming budget,” said Mr Lyons.

“Politically, it may be necessary to be seen to be doing something to help first-time buyers. However, once the budget passes, it will be time to focus on the far more important business of lowering construction costs in order to make new homes affordable for those on average incomes.”

Conall MacCoille, chief economist at Davy and author of the Myhome.ie report also out today, similarly urges greater focus on boosting the supply of homes.

A survey carried out in conjunction with the report found that, when asked what the Government should do to address the housing crisis, the most popular answer, given by 48% of respondents, was measures to help homebuilding.

Next most popular at 41%, though, was tax reliefs for homebuyers — an indication that Housing Minister Simon Coveney’s plans to introduce a help-to-buy scheme in next week’s budget would go down well with many of those in the market for a home.

However, Mr MacCoille warned: “Political support doesn’t necessarily mean it’s the right thing to do.”

By contrast, just 11% of those asked believed that Central Bank lending rules should be relaxed — that is in line with recent IMF warnings.

“Buyers now seem cognisant that should lending rules be relaxed, not only will they individually be able to borrow more, but so will their competitors,” Mr MacCoille said.

One stand-out statistic from the survey is that 88% of respondents said renting was not a viable long-term solution to their accommodation needs, indicating that there will be no let-up in demand and that prices are going to be under continous pressure unless the supply of homes can be dramatically increased.

Mr Lyons says the rise in asking prices is not the only sign that the market is under strain. Transaction prices — the actual amount paid for homes bought — are on average 2.2% higher than listed prices nationally.

Transaction times, meanwhile, have shortened. Daft.ie says that, in Munster and Connaught/Ulster, half of properties listed are sold within four months, while in Leinster it is shorter and in Dublin, half are sale agreed in just two months.

Myhome.ie put the national average for all properties sold in the last three months at four months.

“Competition between buyers for the diminishing pool of homes for sale is clearly intensifying,” said Mr MacCoille.

The reports point firmly to supply side measures as the way to keep property prices in check, with Daft.ie noting that while building activity has picked up, it falls far short of the number of housing units required.

However, despite the growing questions over the effectiveness of Mr Coveney’s help-to-buy scheme, it appears it will be a definite feature of next week’s budget, with the only remaining grey area being whether it will apply only to new-builds or to all homes.