Government's help-to-buy scheme 'fuelled property inflation'

Sinn Féin housing spokesperson Eoin Ó Broin said the report demonstrates why the help-to-buy scheme must be scrapped.

The Government’s help-to-buy scheme has fuelled property inflation, as a third of claimants did not need help to raise the 10% deposit required to obtain a mortgage, it has emerged. 

The finding came from the Oireachtas Parliamentary Budget Office (PBO), which conducted an analysis of the scheme from its inception in 2016 to the end of 2021. 

The PBO said its findings “suggest the scheme is poorly targeted" and that 63% of help-to-buy claims last year were for properties valued above the national average price.

“Increasing purchasing power for households, while housing supply is constrained, will very likely lead to higher house prices,” the PBO said.

"Such rises in house prices are likely, in turn, to exacerbate affordability problems down the line. This is of concern in areas where the help-to-buy scheme claims are highest, most notably Dublin, the Dublin commuter belt, and Cork.” 

Sinn Féin housing spokesperson Eoin Ó Broin said the report demonstrates why the scheme must be scrapped in the upcoming Budget.

“More than half of the money to date has gone to households on or above €100,000 [earnings per year],” he said. 

Nearly €200m of taxpayers’ money has gone to people who did not need it to buy their home. 

"The Government could’ve used that money to drastically reduce homelessness.” 

According to the Central Statistics Office, house prices in Ireland have risen significantly in recent months, with annual inflation at 14.8%. Since house prices reached their lowest level in 2013, the cost of buying a home has more than doubled.

The number of approved claims from the introduction of the help-to-buy scheme to the end of 2021 was 30,963.

Successful applicants can avail of the scheme to purchase a new property or a self-build, with a maximum amount of €30,000 available.

By the end of 2021, the estimated cost of help-to-buy claims was €559.7m — some 47% above estimates. 

The PBO said this overrun was exacerbated by the widening of the scheme in 2020, but nevertheless said it “raises concerns on the methodology used to forecast the costs of the scheme”.

It calculated that 33% of recipients already had the 10% deposit needed for a home by examining the loan-to-value ratio of mortgages, and could then use the scheme to boost how much they had for a deposit.

"This increased the purchasing power of first-time buyers, which fuelled property inflation and created a deadweight loss," the PBO said.

“Help-to-buy should not be viewed as the sole contributor to property price inflation but should be considered a partial cause of it.” 

In a statement, a spokesperson for the Department of Finance said that a formal review of the scheme has been under way and was due to be completed yesterday.

That review was to assess the cost-effectiveness of the scheme and examine whether there is a continued need for it.

The spokesperson added: “The future of the help-to-buy scheme beyond its current sunset date of December 31, 2022, is a matter that will fall to be considered by Government in the context of the Budget 2023 process.”