Budget 2017: Simon Coveney defends Help to Buy scheme for housing

Housing Minister Simon Coveney has pushed ahead with the Help to Buy scheme for first-time buyers despite continuing claims by critics that the only thing it will achieve is higher house prices.

Mr Coveney defended the scheme, which has been under largely negative scrutiny since the summer, saying it was the subject of “lazy commentary” and was not being considered in conjunction with other measures targeting housing supply.

“We’re trying to close the viability gap between what it costs to build a house and the capacity to actually buy a house,” he said.

“At the moment, developers don’t believe that if they build the houses in the numbers we need, that first-time buyers will be able to buy them.”

The scheme will allow first-time buyers to claim up to €20,000 back in rebates from income tax paid over the previous four to five years and to use that money towards a deposit on a newly built home.

The €20,000 ceiling is equal to 5% of the price of a €400,000 home — the maximum values allowed under the scheme. Houses up the value of €600,000 will be eligible but the benefits will be capped at the €400,000 mark.

Banks are being asked by the Central Bank to accept the scheme as an IOU where payment of a deposit falls due before the rebate is paid by Revenue and to process the mortgage in the meantime.

Mr Coveney said he estimated that 4,000-6,000 first-time buyers would benefit next year from the scheme which will run for three years.

“That is only a small part of the story but it is a targeted and important part of the story because first-time buyers are locked out at the moment,” he said.

Fewer than 25% of houses sold last year were bought by first-time buyers when in normal circumstances they should represent 55% of the market, he said.

“When I hear this academic discussion about whether or not this will increase the price of houses that are on sale for first time buyers, that is an academic discussion unless those houses are actually there, and today they’re not.”

Critics remained unconvinced, however. The Association of Chartered Certified Accountants, the Society of Chartered Surveyers Ireland and Savills Ireland were among the industry watchers calling for Vat reductions for the construction industry as a more effective way of addressing the supply shortage.

John McCartney, director of research at Savills, said Budget 2017 was a wasted opportunity.

“House buyers will be no better off because of this scheme as prices will just increase to offset the tax rebate,” he said.

“A more courageous approach focused on cost reduction would have achieved the same thing, along with more affordable housing.”

Other measures targeting supply that were announced or confirmed yesterday include streamlining the planning system to reduce processing times for large housing developments from 78 weeks currently to 25 weeks.

A €200m local infrastructure housing activation fund is also to be used to help open up lands for large-scale private housing. It aims to reduce development levies and facilitate the building of 15,000-20,000 new homes by 2019.

Changes to the moribund living city initiative are also being introduced, including extending it to landlords, encouraging people to buy vacant and derelict inner city properties for conversion or restoration to homes.

The main item of interest to existing homeowners is a two-year extension of the home renovation incentive scheme which allows tax relief on home improvements and extensions, although it is of limited use to apartment owners who are left without any assistance to trade up.

Measures to boost the supply of rental properties include an increase in the tax-free income that can be earned from the rent-a-room scheme from €12,000 to €14,000, and an increase in mortage interest relief from 75% to 100% in 5% increments over the next five years.

Housing package

¦ Up to €20,000 tax rebate for first time buyers to buy newly built homes.

¦ Increase in Housing Assistance Payment to aid an extra 15,000 households.

¦ Two-year extension to home renovation scheme.

¦ Full mortgage interest relief for landlords letting to social welfare recipients, 5% for other landlords.