On Monday night, the first televised debate of this year’s general election campaign took place when RTE hosted candidates from six parties for a discussion on the topic of housing.
There were testy exchanges between Government and opposition candidates, with much focus on the Help to Buy scheme and the First Home equity scheme, two measures which are designed to help first-time buyers.
Although the Government says the schemes are enabling more people to buy their first home, critics have said that the schemes are counterproductive because they push up house prices – but are they right?
Evaluation
Most experts agree that the Help to Buy and First Home equity schemes are a factor in house price increases.
The Central Bank and Economic Social and Research Institute (ESRI) have each warned of the impact of the schemes on house prices in the past, while two experts who spoke to The Journal also say proposals to expand the schemes would contribute to even more inflation.
However, house price increases are caused by various factors, and it’s difficult to say with precision how much the two schemes contribute to house price inflation.
Analysis
In the opening stages of last night’s debate, Housing Minister Darragh O’Brien was asked by host Katie Hannon about claims that the Help to Buy and First Home schemes were contributing to house price inflation.
The minister claimed that “any independent analysis” of the schemes has shown that they are not inflationary.
Sinn Fein’s housing spokesperson Eoin O Broin was later asked by the debate host about his party’s plans to scrap the schemes if elected, and repeated the claim that they are driving up house prices.
“The real problem with the so-called Help to Buy scheme is that it does push up house prices, and the ESRI and the Central Bank have told the Oireachtas Housing Committee that,” he said.
The Help to Buy scheme was introduced in 2016 and assists first-time buyers by offering them a tax rebate of up to 30,000 euros if they purchase a new build home worth up to 500,000 euros.
The First Home Scheme was introduced in 2022 and gives first-time buyers an option for the government and certain banks to pay up to 30% of the cost of a new build home in return for a stake in the property.
Claims that the schemes have contributed to house price inflation have been used as a stick to beat the Government with before, and have resurfaced in the election campaign because of separate plans by Fine Gael and Fianna Fail to expand them both.
Fine Gael unveiled a pledge yesterday to increase Help to Buy grants by a third – to 40,000 euros – and to expand the First Home scheme to second-hand properties.
Fianna Fail’s manifesto likewise includes a pledge to expand shared equity to second-hand homes, as well as a proposal to “protect and extend” Help to Buy.
In 2021, the Economic and Social Research Institute (ESRI) told an Oireachtas committee that the shared equity scheme would “very likely lead to higher house prices” because of an ongoing shortage of housing.
The Central Bank issued a similar warning later in 2021, suggesting that the scheme would create further demand for houses by potentially adding more households to the market when they otherwise would not be able to afford a home.
Meanwhile, a 2018 study from the London School of Economics found that a similar Help to Buy scheme in the United Kingdom “stoked the inflation of house prices” there.
Experts have also said that in a constrained housing market, incentives like Help to Buy and the First Home Shared Equity scheme do lead to house price inflation.
Two experts who spoke to The Journal in response to Fine Gael and Fianna Fail’s election pledges warned that the two schemes would contribute to house price inflation.
Lorcan Sirr, a senior lecturer at TU Dublin, said the two proposals amounted to “classic auction politics, using young people as a tool”.
He said both measures would be inflationary, with the boost to the Help to Buy grant likely to have the more immediate impact, as developers could price in the increased grant straight away.
Barra Roantree, assistant professor in economics at Trinity College, said both measures “are likely to put upward pressure on house prices”.
“Both will benefit some potential homeowners, but neither do anything to address the fundamental issue, which is that we aren’t building enough homes,” he said.
However, the problem is that it is difficult to say with precision whether this is the case and how much the two schemes contribute to an increase in house prices.
House price inflation is influenced by a number of factors, but the most significant are the amount of new houses available to buy at a given time (supply) and the number of people who are trying to buy them (demand).
Since the Government took office in June 2020, the average cost of a new home in Ireland has increased from around 256,000 euros to around 345,000 euros.
During the same period, the number of second-hand homes available to buy fell from 19,510 in June 2020 to fewer than 11,400 in June 2024.
Other factors have been cited by experts as causing house price inflation in recent years, including wage growth, the loosening of Central Bank mortgage rules from January 2023, and savings built up by prospective house-buyers during the pandemic.
It is true that Help to Buy and the First Home Shared Equity Scheme have been in place during that time, but it should also be noted that Help to Buy existed when house prices fell after Covid hit in 2020.
Another expert, economist Ronan Lyons, recently outlined that even in 2019 – before the pandemic and when Help to Buy was already in place – house prices in every part of Ireland began to stabilise and actually declined in some places.
“Given what happened next, this important fact can easily be forgotten: before Covid-19, Irish house prices were falling modestly, because supply had caught up to demand,” he wrote in June’s Daft report on house prices.
Kevin Delappe, director of Brocke Delappe estate agents in Dublin, said he believed “we have hit or very close to an affordability ceiling at the moment”.
He said the two initiatives represented welcome support for first-time buyers and would give them more options, but the effectiveness of the proposed extension of shared equity could be limited by “the realities of the second-hand market”.
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