RECENT INTERNATIONAL MEDIA reports have given Ireland a funny characterisation.
Basically – that of a country with too much money, courtesy of the incoming €14 billion windfall Apple tax payment.
A few examples are available here, here and here.
Of course there’s some nuance here – most of the country’s political parties have already made pledges on how they’d spend the cash.
What these pieces really mean is, the challenge is how to ensure the money will be spent well in a country where infrastructure in multiple areas is creaking at the seams and a lack of affordable housing is the scourge of a generation.
There are too many ideas to look at in detail here, so we’ll focus on what may be the worst one – sinking a chunk of the Apple tax cash into the Help to Buy scheme.
A detailed explanation of how the scheme works is available here. But basically, the important thing to know is that it’s a tax rebate of up to €30,000 available to first time buyers if they purchase a new build home worth up to €500,000.
It’s quite an expensive scheme, with annual costs of about €200 million a year.
But now that Ireland is in line for the €14 billion Apple tax windfall, money isn’t a concern.
Fine Gael has promised to use some of this extra cash to increase Help to Buy grants from €30,000 to €40,000.
Fianna Fail has also promised to continue the scheme, although it has not mentioned increasing the threshold.
Fine Gael and Fianna Fail have also both committed to expanding the Shared Equity scheme. This works differently to Help to Buy, with the state taking an equity stake in a property to make it cheaper for someone to buy it.
Functionally, it achieves a similar purpose – making it easier for people to buy homes and increasing demand. But as there’s so much less research done on this compared to HTB, we’ll focus on the former for now.
On the surface, HTB is immediately appealing – more money for first time buyers. People need to buy homes – this makes it easier for people to do that. It even works via tax back, so people are getting back after paying in – what’s not to like?
HTB was first introduced in 2017 and has been in place ever since. If Fine Gael gets its way, it will be extended out to 2030.
It’s worth noting that under Fine Gael’s plan, not all of the Apple tax cash would be used for HTB. It would go to plenty of other areas, such as house building.
But using even part of it on HTB is problematic. The scheme has plenty of detractors, this column previously among them.
A key argument against the policy is that it raises house prices.
This seems like it would be the obvious outcome. It increases buying power, raising demand, without it being clear if it is stimulating supply.
But the issue as to whether HTB pushes up house prices is a tricky one with plenty of nuance. England has a similar scheme, and studies there have shown that it might be responsible for price rises.
Trying to find out exactly what causes property prices to rise or all is such a complicated business that it’s almost impossible to say with 100% certainty.
However, at least in an Irish context, whether HTB pushes up house prices or not is something of a red herring.
The real problem with the scheme is that it’s a pointless waste of money.
The original aim of HTB was largely twofold.
One, stimulate new house building.
Two, help people who couldn’t get a deposit together, but could otherwise afford the mortgage repayments, to buy.
The first reason has been largely left to the wayside. Both Fine Gael and Fianna Fail have both framed the measure as a support for first time buyers.
Referencing the policy, Taoiseach Simon Harris said: “We will not go into government in any scenario where the rug is pulled from under first-time buyers.”
While in its manifesto, Fianna Fail said: ‘Where people cannot afford to buy their own homes, we will continue to give as much support as possible by continuing Help to Buy’.
The problem is that a slew of studies have found that a significant chunk of the people using HTB don’t actually need help pulling a deposit together. The people in this group are referred to as ‘deadweight’.
Organisations which have found this include
The ESRI (Economic and Social Research Institute)
Consultancy firm Indecon (commissioned by Department of Finance)
The Oireachtas Parliamentary Budget Office (in two reviews – one in 2019, one in 2022)
Consultancy firm Mazars (commissioned by Department of Finance).
For example, the Parliamentary Budget Office found that about a third of recipients of the scheme fell into this ‘deadweight’ cohort.
The Mazars report went even further, saying as much as half of the money spent on HTB was ‘deadweight’.
‘In other words, they play no part in achieving an objective of the scheme,’ the report found.
This is the true problem with the scheme.
Political parties say HTB is needed to ‘support first time buyers’. But about half of the people using HTB could buy a house anyway, with or without it.
Some commentators could say that the ‘squeezed middle’ first time buyer deserves a break. But that isn’t the point of HTB – if you just want to give people money, there are other ways of doing it.
If you truly want to help people struggling to buy a home, HTB has been proven over and over to not be a good way of achieving that goal.
Yet another study published by the Central Bank in September found the people using HTB tend to be higher earners and end up buying more expensive houses than other first-time buyers.
This is in line with what all the other reviews have found.
Basically – HTB has consistently been found to not go to the people who really need it.
If as much as half of the money goes to this deadweight category, and the policy costs at least €200 million every year, that would be half a billion euro wasted between now and 2030.
In reality, that figure will likely be even higher, as the cost of HTB is rising by the year.
And even for the group which doesn’t fall into that deadweight category, there’s still the underlying concern that HTB just contributes to demand without doing much to increase the supply of new homes.
The Apple tax money should be treated as manna from heaven – a miraculous windall which should be channelled into something long lasting.
Most parties, including Fine Gael and Fianna Fail, have recognised this by pledging to spend it on infrastructure.
But just because it’s a lot of money, doesn’t mean it should be thrown around willy-nilly.
Spending about €1 billion over the next five years on a policy where about half that money will likely be wasted, and the benefit of the rest is unclear at best… well, it’s probably one of the worst ways to spend such a gift that one could think of.
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