Notes on the Front

It was said of the French Bourbon kings that they learned nothing and forgot nothing.  Fianna Fail are the modern-day Bourbons.

‘Fianna Fail is pledging to give first-time buyers €1 for every €3 they save for a mortgage as part of a radical new plan . . . The new SSIA-style savings scheme would be capped at €10,000 per person and run in conjunction with the Help to Buy scheme.’

Fianna Fail proposes to pump demand in a housing market that is already unaffordable to most prospective house-buyers, especially in Dublin and increasingly in other urban areas.  What can we expect from this policy?

First, this will inflate prices.  Already, industry analysts are predicting a return to house-price growth of between two to four percent, arising from ‘post-Brexit certainty’.  Putting cash into buyers’ hands will drive up prices as developers increase the sale price to grab some of that subsidy.  This is Economics 101.  This is not dissimilar to the subsidies that were introduced prior to the crash and we know where that led.

Second, it means that prospective house-buyers will face higher debt levels as they jump the hurdle of the Central Bank’s deposit requirement.  Higher prices mean more borrowing and higher household debt.

Third, it will drive up housing costs.  Higher prices will mean higher mortgage payments, especially with banks charging the highest levels of interest rates in the EU (bar Greece).

And here’s the kicker:  it will cost the state €250 million per year – or €1.25 billion over the next five years.

So Fianna Fail proposes to increase public spending by €1 billion plus – all to increase house prices, household debt and housing costs.  To say you couldn’t make this up doesn’t really capture the full absurdity of this proposal.

There is an alternative – one that has been raised by a number of groups in ICTU’s Raise the Roof coalition.  The Government could build houses on land in public ownership and sell directly to house purchasers at cost – either through local authorities or a dedicated agency.  Prices would be lower which would put downward competitive pressure on private house sales.   This would also lower debt and monthly housing costs (i.e. mortgages).  And the price tag?  Nothing.  You build the house for x amount and sell it for x amount (or possibly with a slight surplus that could be re-invested into more public house building).   

But neither Fianna Fail nor Fine Gael are interested in alternatives.  They are sticking rigidly to the private market, tweaking it with demand-side subsidies, which will only inflate prices and push house purchasing beyond the reach of ever growing numbers.

We need a third choice to implement rational, economically-efficient and socially equitable solutions to the housing crisis.