Why boosting the Help to Buy scheme misses the bigger problem with housing policy
There were calls during the week to expand the threshold for the Help to Buy (HTB) scheme. The initiative gives prospective house buyers a tax rebate of up to €30,000 when buying new build properties.
The scheme only applies to homes valued at up to €500,000.
Why the scheme functions this way is simple.
1:
It's meant to incentivise the construction of new homes. If people have more buying power when getting a new build, in theory, developers should construct more of them.
2:
The cap is to make sure developers don't start pulling the proverbial. HTB is meant to be targeted at struggling first time buyers, not well-off folks getting larger, more expensive homes.
At least, all of this is the theory. In practice, there are lots of problems with the scheme, which we'll get into later. But in concept at least, that's how it's supposed to work.
Which makes a request during the week from Savills slightly odd.
The real estate agent called for the government to increase the HTB threshold to €621,000. This would allow people to buy more expensive new build properties, while still getting the €30,000 tax refund.
Savills said increasing the threshold is needed because, in Dublin, the average price by first-time buyers for new properties is €515,000.
'This means more and more new homes are simply out of reach under the current help-to-buy limit,' the company said.
It argued the threshold should be raised by 24% to €621,000. The company said this would take account of inflation since 2017, the year HTB was introduced.
It's a call the government could pay heed to. After all, it has extended HTB until 2029 against the advice of
multiple experts and economists
.
But experts have said it shouldn't, and increasing the threshold would just be
a waste of taxpayer's money
.
A popular scheme that misses the mark
So, what's the problem here?
The most obvious problem is cost. HTB is already much more expensive than ever envisaged.
When introduced in 2017, it was expected the scheme would cost about €40 million per year.
By 2021, actual spending had ballooned to €190 million annually.
It's almost certainly running above €200 million now. Increasing the threshold would mean raising this spend even higher.
The real cost of 'help'
The increase in spending would be ok if the scheme was effective. To see if that's the case, we come back to the fundamental question – what is the point of HTB?
The cuddly language used around the scheme normally emphasizes how it is a financial support to first-time house buyers. How it helps them get on the property ladder.
But that wasn't the point of HTB. If it was, it would be available to anyone buying any property, not just new builds.
The point of HTB, at least originally, was to stimulate housing construction.
The idea was that by making it easier for people to buy new-build homes, developers would construct more.
That's why HTB doesn't apply to second-hand properties.
Stimulating supply, or just spending?
So, if working properly, HTB should increase the overall supply of properties, easing Ireland's housing supply shortages.
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Seems simple. But is it doing that? Are we getting a good return on the hundreds of millions of euro we spend every year?
The answer is – we don't know.
Because, unfortunately, there is often a fixation on whether HTB is driving up house prices or not.
There's a decent chance it is. A few different studies
have said they suspected it
. But it's incredibly hard to prove a direct link between a single thing and house price movements. The fact that it's a question at all around HTB is a bad sign.
But that constant fixation has distracted from the main point of HTB – is it delivering more homes?
Well, let's see what an
Oireachtas review had to say
.
'There is no clear method which could show the number of additional units arising from the HTB scheme, as opposed to those which would have been delivered anyway.'
Well, pretty black and white.
So, if HTB costs lots of money, and we don't know it's effective, why are we still pouring hundreds of millions a year into it?
The most obvious answer is because people like it. Users of the scheme like getting a tax refund. Politicians can point to it and say they're helping to get people on the property ladder. And developers / estate agents / etc are obviously happy that buyers are given extra firepower to pay more for a property.
Darragh O'Brien, the previous Housing Minister,
responded last year to calls to scrap HTB
. He said doing so would 'damage home building and home buying'.
But there's no evidence HTB helps home building.
And if it was scrapped, would demand for new housing drop to a point where developers would struggle to sell new homes? Judging by the queues outside new build developments, there's little evidence of that either.
But this exposes a dissonance at the heart of Irish housing policy. And it's something which can be genuinely hard to wrap your head around. What's good for the individual, is not necessarily good for the broader group.
Multiple studies have pointed out
that lots of people using HTB don't really need it. Somewhere between a third and half the number of claimants would likely have been able to buy a property anyway.
Who's Really Being Helped?
So if that's the case, why are we giving them a tax rebate?
Some would argue that it's a way to give back to hard-pressed workers.
But if that's the goal, why give a tax refund to this one particular group? Lots of workers are hard-pressed – those who are in a position to buy a home without needing HTB are far less likely to fall into this category.
There is also an argument that recipients are happy as it dramatically lowers the amount they need upfront for a deposit.
But then that begs the question – why have rules around deposits at all? Why do we normally get people to pay this money up front?
The answer, of course, is that because tighter lending limits were introduced to stop a return to Celtic Tiger-era style lending.
We all saw the result of 100% mortgages – disaster.
HTB is essentially the government helping a group of people sidestep the deposit rules. A group where many don't need the help at all.
The people who really need the help are the ones who can't really avail of HTB – single applicants and those on lower incomes. The scheme is one which disproportionately benefits people who are already better off.
While it might be great for those who get it, it's not doing much for wider society.
There's no evidence it helps get more homes built, it costs far more than budgeted, and many applicants could do without it.
Any calls to pour extra cash into this particular money pit should be taken with several healthy bags of salt.
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