Help to Buy is marketed as a scheme that assists first-time buyers to bridge the gap between their savings and the 10 per cent deposit required by Central Bank mortgage rules. It has survived for almost a decade despite widespread criticism by experts, and its continued existence reflects the power of Ireland’s construction lobby and the political cynicism around housing.
The first criticism of Help to Buy is that it has become a money pit. Initially conceived as a modest scheme that would cost €130 million over its 2016 to 2019 lifetime, Help to Buy has been extended multiple times, and will now remain in place until at least 2029. It has gained weight since its introduction, with the maximum subsidy rising from €20,000 (or 5 per cent of the home purchase price) to €30,000 (or 10 per cent of purchase price). Consequently Help to Buy has become much more expensive than originally envisaged; Claims amounted to €225.5 million last year, and the cumulative sum of claims approved has reached almost €1.3 billion.
This might be palatable if Help to Buy was well designed and working effectively. However reports by the Parliamentary Budget Office (PBO) (2019 and 2022), Mazars and the Central Bank give rise to many concerns.
Evaluations highlight that the scheme carries considerable ‘economic deadweight’. According to the PBO a third of recipients did not need Help to Buy to achieve their 10 per cent deposits. Meanwhile Mazars, which was commissioned by the Department of Finance to review the scheme, found almost half of the funds spent played no part in achieving its objectives.
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A further critique is that Help to Buy is socially regressive. Both Mazars and the Central Bank found that it mainly benefits richer households. This is not surprising as higher incomes are almost a prerequisite for considering home purchase in Ireland. However the Central Bank’s analysis showed that the average income of Help to Buy households was €15,500 greater than that of other first-time buyers.
Help to Buy also funds more expensive homes. The PBO established that 63 per cent of claims relate to properties whose prices exceed the national average. Meanwhile the Central Bank found that Help to Buy properties were €62,800 more expensive than those purchased by other first-time buyers. Reinforcing the perception that this scheme finances luxury rather than supporting necessity, the Central Bank noted that homes bought using Help to Buy were also bigger.
Mazars, the consultant employed to evaluate Help to Buy, found it unfit for purpose and recommended its withdrawal in 2024. Instead the Government doubled down and extended it for five years
Despite these problems, successive governments have persevered with Help to Buy. This is because it stimulates home building. Indeed, the words of then minister for finance Michael Noonan when he announced the scheme reveal that this is its real purpose; “There is an acute shortage of new houses being built in Ireland and I am introducing a Help to Buy scheme to address this problem.”
Unfortunately, the way in which Help to Buy achieves increased supply exacerbates rather than mitigates our housing problems. People believe and have been led to believe that increasing housing output will automatically bring down house prices and rents. But this is not necessarily so. Construction activity follows the profit margins that are available, and the outcome for consumers depends on whether these margins are driven by low costs or high selling prices.
With a low cost base, developers can earn a profit while delivering homes at an affordable price. However the policies required to suppress development costs involve difficult, slow-acting interventions that lack voter appeal. Examples include planning reforms which reduce delays and deliver more predictable outcomes for developers, regulation of professional services such as solicitors, architects and estate agents, the encouragement of competition to drive down professional fees, and financial sector initiatives to reduce development finance costs.
Although Irish governments have done some of this, they have favoured the easier approach of subsidies such as Help to Buy, the First Home Scheme and the local authority home loan. These ‘supports’ enable consumers to pay higher prices, and this is what creates the development margin that draws out more supply. Clearly, higher prices are hard-wired into this process.
The International Monetary Fund, the European Union and the National Economic and Social Council have all warned that Help to Buy could drive up prices. However senior figures from the property industry have denied this, referencing the Help to Buy and First Home Scheme price caps as a safeguard against inflation. Clearly, such caps can contain price growth only if they are set at an appropriate level and implemented firmly. Neither seems to be the case in Ireland. The Help to Buy cap stands at €500,000. This is well above the €417,680 median price paid by first-time buyers of new homes, and is exceeded in only two local authorities – so it is hardly binding. Nevertheless, estate agent Savills is campaigning for it to be raised to €621,000.
Last week The Irish Times reported that agents Sherry FitzGerald offered to circumvent the Help to Buy cap by unbundling the cost of flooring from the official price of a new home in Wicklow. The company said it had begun an internal investigation. Days later, the First Home Scheme price caps were raised, chasing up the market for the fourth time in three years.
Mazars, the consultant employed to evaluate Help to Buy, found it unfit for purpose and recommended its withdrawal in 2024. Instead the Government doubled down and extended it for five years. This is because it ticks two political boxes. Firstly, Help to Buy is popular, as it is perceived as free money. But the benefits to consumers are illusory because the subsidies result in higher house prices, and everybody pays more tax to fund them. Secondly, by drawing out more supply, the scheme helps the Government to meet its housing targets. Somehow, this has become an objective in itself. But, as we have seen, increased housing output achieved in this way will not deliver the lower prices that consumers expect.
Dr John McCartney is a lecturer in property economics at TU Dublin and adjunct associate professor at UCD.
