Officials warned Government its 'affordable' home plan would drive up prices

Officials warned Government its 'affordable' home plan would drive up prices

The €75m scheme was given the go-ahead in the last Cabinet meeting before Christmas to get it up and running in 2021, despite three warnings from officials that they had concerns it would not have a beneficial outcome. Picture: Eamonn Farrell/RollingNews.ie

Civil servants repeatedly warned the Government that its shared equity “affordable” home plan would increase house prices.

The €75m scheme was given the go-ahead in the last Cabinet meeting before Christmas to get it up and running in 2021, despite three warnings from officials that they had concerns it would not have a beneficial outcome.

The Government believes that the State taking up to 30% equity in a home with a first-time buyer will help people get on the property ladder. However, it has been flagged by Government officials and the opposition that if developers know such a scheme is in train, they will make houses more expensive to purchase, due to the State's involvement.

The correspondence, released under a Freedom of Information request to Sinn Féin housing spokesman Eoin Ó Broin, shows that officials had concerns around the new affordable housing policy announced by Fianna Fáil Housing Minister Darragh O’Brien.

Robert Watt, the most senior official in the Department of Public Expenditure and Reform (DPER) wrote in one email: "In the context of an affordable scheme, there is little evidence to suggest an absence of mortgage finance. If there is a lack of supply it is not because of a lack of 'effective demand'. The property industry want an equity scheme because it will increase prices."

In another email DPER official Niamh Duff, wrote: "What we have seen to date, the proposed shared equity scheme does not appear to include any eligibility parameters, meaning the provision may not be targeted to those most in need."

David Moloney, the assistant secretary at DPER, said he was aware the Department of Finance and Department of Housing have "spoken to banks and developers who apparently suggest that it will unlock supply. We think it will push up prices in a supply-constrained environment, most likely at a time when prices are starting to rise anyway, according to ESRI."

All three emails are dated late September.

Mr Ó Broin, who has long flagged concerns around the scheme, said the emails prove the initiative will only drive up prices.

“The information contained in the FoI files indicate that the Government was aware that Minister O’Brien’s developer-led shared equity affordable housing plan would increase house prices," he said.

“Senior officials from the Department of Public Expenditure and Reform warned that the scheme was a demand-side measure which was unnecessary in the context of the housing market here given the ongoing undersupply of homes and the proposal wasn’t sufficiently analysed.

“Minister O’Brien ignored these warning and ploughed on with a scheme that was proposed by developers and he packaged it as Fianna Fáil’s plan to put 'the dream of homeownership back in reach'.

“This is a fantasy. Shared equity loans do not make homes more affordable. They simply saddle working people with more debt.

“This scheme should be scrapped. Minister O’Brien needs to go back to the drawing board and introduce proposals that make homes cheaper," said Mr Ó Broin.

A spokeswoman for the Department of Housing said: "Observations were sought from all departments prior to the Cabinet meeting.

"There is wide Government support for the scheme. The final details of the scheme are being negotiated with stakeholders and will be informed by our state aid engagement with the EU Commission. 

"It is intended that the scheme, which will be finalised in the coming months, will be open to all new-build homes and in response to observations from DPER it will be subject to regional price caps and targeted at first-time buyers."

Another concern about the scheme is that in an event of a property crash, the Irish taxpayer will be liable for the money lost.

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