David Murphy: Was Help-to-Buy any help?

Last October the Government launched a Help-to-Buy scheme for first time purchasers of homes.

So was it really any help?

When it was unveiled by Finance Minister Michael Noonan in the Budget he said there was "an acute shortage" of new houses being built and he was introducing the scheme to address the problem.

The subsidy consists of a rebate from the Revenue Commissioners of up €20,000 for first time buyers.

The scheme will run until the end of 2019.

While it does give first time buyers a subsidy it is designed to stimulate the construction industry to build more homes.

But it has resulted in higher prices according to Central Bank Governor Philip Lane, who addressed the Oireachtas Finance Committee this week. 

And a recent survey by myhome.ie and Davy found the annual rate of house price inflation has risen to 9% nationally and to over 10% in Dublin.

Davy chief economist Conall MacCoille said the scheme "will add fuel to the fire" in the property market. 

"In the short term, the measure is likely to push up house prices, helping builders' profit margins. However there is likely to be little material impact on housing supply as land prices quickly rise," he stated.

One of the criticisms of the Help-to-Buy scheme is that it was introduced without any cost benefit analysis.

The Department of Finance has now commissioned an independent study into the subsidy.

But it appears the costs of the scheme will greatly exceed original estimates.

It was expected to cost €50m for all of 2017. However, by mid-March it had received claims for an estimated €56m and has already paid out €10.2m so the cost for the full year may exceed the estimate.

So what are the effects of introducing a subsidy of this kind without analysis in advance?

Philip Lane said "it will of course drive up prices" but he added it would result in a "supply response" as higher prices encourage the construction industry to build more homes.

There is another problem. By giving a grant to buyers of new properties it may help some people who may not ordinarily be able to afford a home to get on the property ladder.

However, there is also a cohort who were already able to afford a home but who now have received €20,000 extra to spend.

So the benefit of the subsidy has not been limited to those who were struggling to raise a deposit.

For some purchasers the more onerous restriction is that banks cannot approve mortgages which exceed three-and-a-half-times the incomes of the buyers.

So is there more supply as a result of the Help-to-Buy scheme?

It is too early to tell.

According to CSO figures, planning permissions were granted for 12,481 houses in 2016 compared with 10,250 in 2015, an increase of 22%. 

This is a reversal of the trend which saw planning permissions decrease from a high of 26,814 houses in 2009 to a low of 5,389 in 2012.

There is still a severe supply issue. The amount of developments receiving planning permission has been rising recently so it will be difficult to pin point whether the Help-to-Buy scheme was responsible for an increase in activity when the subsidy is analysed.

Perhaps the biggest criticism is the design of the scheme.

If the Department of Finance underestimated the cost of the subsidy and its benefits have yet to materialise how can the Government be assured that the substantial cost would not have been money better spent elsewhere?

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