Axing HTB scheme is fraught with risk

With Budget 2018 just under four weeks away, the Government’s decision date whether to keep or scrap the Help-to-Buy (HTB) scheme looms closer every passing day. Prompted by a cabinet reshuffle, a review of the scheme was initiated following concerns that the HTB scheme is behind the re-acceleration in the growth of residential property prices in Dublin, without delivering any meaningful increase in the supply of new homes.

Leaving aside the merits of the scheme for the time being, first and foremost the scheme appears to be a victim of its own success. Thus far, the HTB scheme has been popular with first-time buyers with statistics from showing that, as of September 2017, Revenue has received 9,629 applications of which 3,265 have progressed to claim stage. Builders are also highly supportive of the initiative. By helping prospective buyers overcome the high deposit hurdle, builders have greater confidence that there will be buyers with sufficient funds for the homes that they seek to build. Thus, the scheme has achieved that rarity in Irish housing policy making – a policy that has achieved broad take-up in the market.

Contrasting the scheme’s fortune with other contemporary Government initiatives such as the Repair and Leasing Scheme (RLS) and the Home Choice Loan Scheme (HCLS), we see that both of these can be categorised as resounding failures in terms of their up-take and satisfying their initial objective. The RLS was introduced in 2016 to incentivise the refurbishment of vacant properties so that they could be used for social housing with €140 million earmarked for this endeavor. The scheme aims to refurbish 3,500 properties by 2021, with 800 of these targeted for delivery this year. Unfortunately, just seven property owners have signed deals so far this year. Similarly, the HCLS, which is a mortgage for first-time buyers who cannot get a mortgage or sufficient finance from a bank or a building society, has seen just 21 mortgages been drawn down since it was launched in 2009 totaling just €4 million in funding. In contrast to the HTB scheme, neither of these schemes have been muted for abolishment.

While the current indications are that the cost of the HTB scheme will come in at the budgeted cost of €50 million for 2017, part of the reason for its review appears to have been prompted by fears that the spend will go over this figure, perhaps even reaching €80 million. In light of the preceding discussion on the difficulty in gaining traction for such schemes, the potential for budgetary overrun should be seen as a marker of the scheme’s success rather than a negative.

Furthermore, by partially funding deposits for a new home rather than the entire cost of construction of the home itself, the HTB scheme allows the Government to achieve a much greater bang for its buck. For example, if the Government were able to deliver housing at the optimistic price of €200,000 per unit, €50 million would result in the delivery of just 250 houses to the market. In contrast, the €50 million allocated to the HTB scheme has an impact on 3,500 new homes, based on an average deposit contribution of €14,000 as witnessed in the HTB scheme thus far.

The critical critique of the HTB scheme is that it contains an embedded inflationary element by giving extra funds for purchase to those first-time buyers who already had the intention and capacity to buy a new home before the scheme was introduced. To estimate what percentage would have purchased in the absence of the scheme is of course not possible. What we can say is that a €50 million nationwide stimulus in a market which saw over €5 billion worth in sales in 2016 in Dublin alone is not of an order to be inflationary in a significant way. Or to provide further context, €50 million was also the quantum spent by the Government on providing emergency accommodation in Hotels and B&B’s last year, an absolutely necessary spend in the current climate but ultimately a stopgap measure.

The most disappointing aspect of this entire episode was the decision by the Government to review a scheme that was just six months into its implementation, having been earmarked to run until the end of 2019. When planning for the delivery of long-lived assets such as housing, a similarly long-term horizon must be taken to establish confidence in the market. A review of the scheme arising from a change in the ruling party would be cause enough for criticism, but that this review has been initiated by the existing Government following a cabinet reshuffle illustrates a lack of understanding of the importance of continuity in housing policy.

While other replacement policies have been muted as replacing the current HTB (such as an equity loan scheme as implemented in the UK), a survey of policy history highlights the difficulty in achieving take-up of schemes in the market place. With the HTB clearly popular amongst first-time buyers and builders, the scheme appears to have hit on a winning formula for delivering new homes. To waiver from this path at this juncture is fraught with uncertainty, we will see in just a few weeks whether the Government will waiver or stay the course.


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