Housing plan Q&A: Will new reforms help the current crisis?

The package of housing reforms announced last night will probably prove to be narrowly effective, but the Government’s fundamental problems on housing remain. Will the new reforms help, or do they risk a backlash, division in Government, and ushering in a range of new political risks for the coalition?

Just what have they decided, and what does it all mean?

So, bulk buying is off the cards now, right?
Yes and no. A certain type of bulk buying, in a certain area, is (or will be shortly). But in other areas, and among certain housing types, it's still allowed.

First of all, what's banned now?
Almost immediately, two changes will come into effect. Tonight, the Dáil will vote to impose a higher stamp duty of ten per cent on purchases of ten or more houses or duplexes. Apartments are exempt (more on that later).

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These stamp reforms are the only taxation element brought to the table by Minister for Finance Paschal Donohoe.

Today, Minister for Housing Darragh O'Brien will send a circular to local authorities mandating that houses and duplexes in new developments must be made available for sale by individual, non-commercial buyers. Again, there are exemptions for social and affordable reasons, and the condition will lapse for any units not sold in two years. It's understood Ministers were told yesterday that O'Brien is considering, on the advice of the Attorney General, whether additional legislation is needed to "bolster" this guidance – that could be one to watch.

That's it for now?
There's a second stage to the planning reforms. The Government will introduce amendments to the Affordable Housing Bill, currently working its way through the Oireachtas, over the summer which will mandate local authorities to make a certain percentage of new builds available for purchase by "owner-occupiers". Originally intended this would apply to first time buyers only, and it's not clear why this change was introduced at the last minute.

It was originally intended that this would only apply to houses and duplexes, but after Green Ministers raised concerns at cabinet about the exclusion of apartments from the measures, O’Brien has committed to examining whether this could be extended to include apartments.

So, will it work?
It depends what you mean by "work". From the Government's point of view, these policies were designed to tackle a very specific problem – the purchase of houses which had been designed for and marketed to owner-occupiers by investment funds. Gazumping, effectively, of punters by funds. And they'll probably curtail that, but not for a while, as the rules only apply to new planning permissions.

However, that’s only half the story.

What's the other half?
The current debate over funds isn't really about one transaction, or one particular type of deal. It has reignited and animated the entire political debate about housing, which had lain dormant (to a degree) during the height of the Covid crisis.

The political risk associated with failures in housing policy has crystallised rapidly. The themes of insiders and outsiders, winners and losers, which dominated the last election cycle have returned, and been given a new lease of life, in the form of “funds versus people”. What’s clear from a close reading of the Government decision is that funds are going nowhere. While Government actions might target some aspects of how they work, they’re centrally involved in housing policy – especially for apartments and the private rental sector, a rapidly growing market segment.

Why is that?
Apartments are particularly attractive to investment funds, and Ministers were told yesterday that their construction is especially reliant on financing from these funds. "In order for apartment complexes to be built it is necessary in virtually all cases for an institutional investor to commit through a binding contract to purchase all or part of an apartment complex on completion," a memo for cabinet reads. Ministers were told institutional investors will only fund this development if they can easily sell apartments on, which could be hurt by an extra stamp charge.

Builders say apartment construction is basically non-viable without funds involved.

Ministers were also told that there is a ministerial policy objective to “ensure that own-door housing in lower density housing estates are not bulk-purchased for rental purposes by commercial institutional investors in a manner that causes the displacement of individual household purchasers”.

So these two dynamics – wanting to preserve funding for apartment blocks, and encourage home ownership in less dense areas, were core to Government thinking.

What are the politics of all this?
The reforms tackle a specific problem, but critics argue they do nothing to address more endemic problems around affordability, and risk damaging urban sustainability by incentivising renting in city centres and home ownership on the edge of town. They also preserve the role for investment funds in the wider market.

As we’ve seen, that’s basically a government goal, but it means there will be a steady supply of examples where funds purchase homes, which will ram home for some people the idea that the Government is prioritising financial interests over homes for people. There is a huge market for rental investment, as shown by a story in our property pages today about a bidding war for a €1 billion, 2,000 unit private rented sector “platform”.

These reforms, while they may be narrowly successful when viewed on their own terms, leave the Government open to the charge of a missed opportunity. The visible relief of big property companies, expressed in rising stock market prices this morning, won’t help this impression.

The Government will call foul, and argue (with some justification) that things aren’t that simple, pointing to their affordable housing and land development agency bills as evidence they want to solve more systemic problems. But the political risk is in the here and now.

Within the coalition, the apartment exemptions are causing particular problems among the Greens. Sources in the party say that there was an agreed position among some members of the parliamentary party, that densities or housing types – such as apartments – could not be excluded from the reforms. It seems these concerns were raised by ministers, but for whatever reason, the Greens lost the argument around the cabinet table. However, as comments from MEP Ciarán Cuffe this morning show, there is a sizable rump of dissatisfaction within the party over how things have played out. Mr Cuffe said he is "disappointed" with the reforms, and that he understands "several of my parliamentary colleagues in the Oireachtas are of a similar view".

It's not confined to the Greens, either. James Geoghegan, the Fine Gael candidate in Dublin Bay South, put down a motion supported by party colleagues last week arguing the concentration of build-to-let is "distorting competition, inflating rents and locking a generation away from home ownership". He said on Wednesday he supports the Government policy, but that he would like to see a "rebalancing" to include apartments to some extent in rules curtailing bulk purchase. He said the market needs to be "rebalanced… either through planning or legislation, because the only way a citizen can be protected against that amount of finance is to legislate for it".