Property insights with Johnny Gannon, Fair Deal Property
After years of being the dominant purchaser in the new homes market, the State appears to be taking a step back. But if private housing is to fill the gap, Government must address a problem that has constrained the market since 2008: access to affordable development finance along with the supply of sufficient credit to middle-income earners.
Housing Minister James Browne has announced that certain turnkey social housing acquisitions will end after December 2027. Developers working with the State from the design stage can still deliver social homes, but late purchases of developments intended for private buyers are being curtailed.
Meanwhile, media reports this week suggest that senior Department of Housing officials have asked major approved housing bodies to “plateau” delivery at approximately 5,000 homes annually.
These moves point towards greater reliance on private housing. But can the market respond?
The uncomfortable truth is that housing finance has never fully recovered from the banking collapse of 2008.
Before the crash, development funding flowed through Ireland’s retail banks. Much of that lending was dangerously excessive. Nobody wants those mistakes repeated. But the subsequent withdrawal of credit left a hole in the housing market that has never been properly filled.
Almost two decades later, we are still living with the hangover of 2008. Developers struggle to secure affordable capital, while aspiring homeowners face borrowing limits shaped by the same crisis.
The crash may be history, but its consequences still influence who gets to build a home and who gets to buy one.
Developers now face expensive loans, substantial equity requirements and considerable risk before selling a single house. Financing costs can swallow much of a project’s potential profit, leaving sites unviable even where demand is strong.
That helps explain the attraction of State-backed purchasers. Selling fifty homes to one housing body provides certainty, reduces sales risk and makes lenders more comfortable. Remove that guaranteed buyer without fixing development finance, and some schemes simply will not proceed.
If Government wants private purchasers to replace State buying, it must restore the flow of affordable development capital.
Rather than using so much public money to acquire completed homes, why not deploy more of it to help get homes built?
State-backed lending guarantees, lower-cost development loans and carefully structured equity partnerships could reduce financing costs for residential construction. Government could share a defined portion of development risk, with strict safeguards, without committing to purchase the finished homes.
As developments sell, public loans could be repaid and capital recycled into the next projects. This is about using the State’s financial strength to unlock viable supply.
Financing construction is only half the equation. Families also need the means to buy what developers build.
The recent €5,000 increase in Help to Buy, bringing maximum support to €35,000, is welcome. Yet stronger support is needed. Raising the scheme’s €500,000 property-value ceiling is essential in markets such as Galway city, where development costs have pushed many new homes beyond eligibility.
Mortgage rules deserve a fresh look. First-time buyers are generally limited to four times gross income; second and subsequent buyers to 3.5 times, subject to exceptions.
Those safeguards are the legacy of the 2008 financial crash. But should creditworthy purchasers of new homes be allowed greater flexibility, potentially up to five times income, where repayments pass rigorous affordability tests? Targeted guarantees could also be considered without compromising financial stability.
We must protect banks from another collapse. But we cannot allow the fear of 2008 to indefinitely close the door on homeownership for working families.
The hangover from the great financial crisis has now lasted almost 20 years. It’s time the cure was finally found.
The Government’s latest pivot is an opportunity, not a solution in itself. Success will not be measured by how many homes the State stops buying, but by how many more homes are built and how many working people can afford them.
The real test is whether a nurse and a Garda working in Galway can buy a home that might previously have gone to an Approved Housing Body. If they cannot the plan will have backfired and less homes will have been built as result.
The State is stepping back from buying houses. Now it needs to step up for the people trying to buy them.
