Housing and home ownership: What should we do?

According to today’s Behaviour and Attitudes survey, just one person in 10 who are aged in their twenties, thirties or forties believes the Government is doing enough to help people buy a home. It’s a damning indictment, and not at all surprising.

The challenges in housing are of course far wider than buying homes. The mortgage crisis rages on, rents are soaring, homelessness is out of control, social and affordable housing is rarer than hens’ teeth and security of tenures being consciously and substantially eradicated by government policies.

Nonetheless, for many in the age cohort surveyed, the biggest challenge is still buying a home. I met three siblings recently who perfectly illustrate the problem.

The oldest bought an apartment in the mid-noughties and is in substantial negative equity. He and his wife have two kids, so they rent the apartment out and rent a small semi-D for themselves.

Because of their rental income, they pay €4,000 in additional taxes each year. This, coupled with wage stagnation, childcare costs and increasing rents means they are stuck. Ireland’s tenancy laws give them virtually no security of tenure, so they end up moving home with their kids every few years.

They are saving, but far too slowly to deal with the negative equity and put a new deposit together. Increasing apartment prices, if they hold, mean the couple might get out of negative equity and back to zero in their late forties. By then, they’ll have paid over €100k in direct taxes on the apartment, in stamp duty, property tax and tax on the rental income.

The middle sister bought a new house two years ago, for €250k. It’s a well-built semi-D, exactly where she wants to live. She’s delighted, and will have her mortgage paid off in 23 years. She got tax relief as a first time buyer and enjoys mortgage interest relief. The same houses on her road are now selling for €400k.

The youngest sister and her boyfriend rent an apartment and have been saving for several years. They didn’t quite have the 10pc deposit together when prices hit their lowest point in 2012. Since then the places they’re looking at have jumped 50pc in price.

The tax deals for first-time buyers are set to expire. They won’t be able to buy anything suitable for less than about €300k, and rising, and have no idea how long it’ll take to put together the new higher deposit. As renters, they have virtually no security of tenure, and are having their rent pushed up regularly.

As it happens, all three siblings studied hard, work hard and save hard. Adjusting for their ages and experience, their wages are reasonably similar. But they and their children have, and will always have, utterly different standards of living due to one thing – the exact year they were ready to buy their first home.

And it’s not just about price – as can be seen from this example, the person paying the highest amount of property-related tax is the brother in negative equity, with the least amount being paid by the middle sister.

Government has many oversight and coordinating roles in housing. Some can be directly controlled, like planning, regulation and enforcement. Others are trickier, but equally important – like ensuring house prices remain reasonably stable. When prices fluctuate widely, builders get scared off, as do potential buyers, with this uncertainly translating into higher prices. And we get a society in which your standard of living is largely determined by the year you bought your first home.

House prices in Dublin have risen nearly 50pc in just two years. Apartment prices nationally peaked in February 2007, and by November 2012 had lost nearly two-thirds of their market value. In the last two years they’ve increased in price by 40pc.

I heard one government TD admit on radio recently that if house prices had risen 50pc in just two years then this Government has learned nothing – it’s hard to disagree.

In light of government failure, the Central Bank is stepping in with its proposed 20pc deposit criteria. The objective is worthy – deposits that high would help guard against future negative equity traps, anchor lending and therefore house prices, in real cash rather than market expectations.

The long-term benefits are clear – lower and more stable house prices, which benefit everyone. However, on its own, and implemented all at once, the policy would stop many from buying homes who are viable borrowers.

One part of the solution is to link the required deposit to the loan-to-income ratio. Last year, the Central Bank stated that a ratio of 3.5 is reasonable.

So a couple with a gross income of €80k should be able to borrow €280k. Others advise that a ratio of 2 to 2.5 is more prudent. The same couple would then borrow no more than €200k, at which level the required deposit could be lower than the 20pc.

While the Central Bank has a role to play, there is a lot that this or the next Government can also do. A levy on zoned land would force those who own it to either develop it or sell it to someone who will. A derelict buildings levy would do the same for many more sites around the country.

The Competition Authority should be resourced and mandated to take a close look at potential anti-competitive behaviour in the construction industry to drive down costs and thus house prices.

Longer term zoning time frames would increase the amount of zoned land, driving down the price of it, and thus of house prices. It would also give local authority planning teams greater freedom for strategic planning, and encourage investment in infrastructure to support development.

Another way to help potential buyers is to reduce their rent. Changes to tax treatment of rental income introduced by Fianna Fail should be reversed. Unlike any other business, landlords are now taxed on their revenue less some, but not all, of their costs. It’s one of the changes leading to such high levels of default and arrears in the investment property sector.

These are just some of the changes this Government, or the next one, should make. From time to time we hear someone suggest that maybe we shouldn’t be so fixated on home ownership.

They point to countries like France and Germany, with cultures of long-term renting. They suggest this may be the way for us to go.

It is not. Home ownership has deep roots in Ireland, as it does in many other countries. It provides an important level of security, equality and social cohesion. It should not only be protected, it should be encouraged and nurtured.

Just one person in ten aged in their twenties, thirties and forties believe this Government is doing enough on that front. The policies are known, but no plan has been put in place and there appears to be no will to seize the opportunity. Perhaps the next Government will fare better.

This article originally appeared in the Sunday Independent on 25 January, 2015