# Is setting aside 30% of new housing developments for First Time Buyers a good idea?



## Brendan Burgess (18 May 2021)

It appears that what is proposed is as follows: 

1) 10% of all new housing for social housing
2) 10% for affordable housing
3) 30% for First Time Buyers 

*Case 1 - new housing development of 100 houses in Maynooth at €300k each*

Most of the buyers were probably First Time Buyers anyway.  

It will stop institutional buyers from buying the lot.   But if they can buy 50%, then they will just buy 50% of two developments, rather than 100% of one development.

It will make it more difficult for individual investors to buy and so will take houses off the rental market.  

*Case 2  -  Upmarket housing estate where houses are €600k+ *

I can't see how it works for these.  I can't see how it helps. 
Most of these buyers were trading up. By trading up, they are selling or renting their original home. 
So restricting 50% of them to First Time Buyers doesn't help. 

On balance, it will probably reduce supply. If I owned a site, I would be reluctant to develop it while these rules were in place. 

It will probably help the first time buyer kids of wealthy parents.  They will be able to buy upmarket houses at a discount. But I doubt it will help most First Time Buyers. 

Brendan


----------



## Brendan Burgess (18 May 2021)

We should do something to help First Time Buyers. Or maybe we should do something to help Owner Occupiers generally. 

Here are some ideas which would make it more profitable for developers to build starter homes rather than very expensive homse 

1) Abolish VAT or refund it to owner occupiers. Investors would pay for it as normal. 
2) Charge stamp duty as follows: 
Up to €300k: 0% 
€300k to €600k : 5% on the entire amount. So a €300k house would cost 15% 
€600k + : 10% 
3) Refund the development levies to owner occupiers


----------



## Brendan Burgess (18 May 2021)

4) Increase the supply of land and bring down the price of land by zoning, servicing and getting planning permission for starter homes on state owned or controlled land.  

A developer would be able to buy a ready to go site so they would have to take the financial risks over a period of only the year or two it would take to build the houses. 

At present, a developer has to buy a piece of land and finance it for the ten years it takes to get zoning and planning permission. It's capital intensive and he has no idea what the market will be like when he is ready to sell the houses.

Brendan


----------



## odyssey06 (18 May 2021)

Brendan Burgess said:


> *Case 2  -  Upmarket housing estate where houses are €600k+ *
> 
> I can't see how it works for these.  I can't see how it helps.
> Most of these buyers were trading up. By trading up, they are selling or renting their original home.
> ...


Possibly they just wouldn't build that kind of estate anymore but would build townhouses \ apartments or something that would appeal more to FTBs?
What size development is needed for these new laws to kickin, e.g. would a small development on a plot of say 6 houses still be subject to this?


----------



## NoRegretsCoyote (18 May 2021)

Brendan Burgess said:


> We should do something to help First Time Buyers. Or maybe we should do something to help Owner Occupiers generally.
> 
> Here are some ideas which would make it more profitable for developers to build starter homes rather than very expensive homse
> 
> 1) Abolish VAT or refund it to owner occupiers. Investors would pay for it as normal.


VAT is not like a sales tax like in the US. Developers can claim VAT rebates on many of their inputs. They wouldn't be able to claim these back if there was no VAT on new housing, so not at all clear that this would take much off the end price.



Brendan Burgess said:


> 2) Charge stamp duty as follows:
> Up to €300k: 0%
> €300k to €600k : 5% on the entire amount. So a €300k house would cost 15%
> €600k + : 10%


Likewise, 1% stamp duty isn't going to make a material difference to a FTB. Likewise, 5% on the full amount >€300k creates no-trade zones. In general high stamp duty gums up the market. Liquidity is a good thing. If you want to tax property just raise LPT.



Brendan Burgess said:


> 3) Refund the development levies to owner occupiers


Why? There are costs associated with providing services to new properties that don't vary with whoever moves into the house. Any refund scheme would also have to have clawback arrangements that have compliance costs.


People weren't obsessed with tenure in 2006 when 85k houses were being built every year. The issue is just supply, supply, supply.


----------



## Cervelo (18 May 2021)

NoRegretsCoyote said:


> VAT is not like a sales tax like in the US. Developers can claim VAT rebates on many of their inputs. They wouldn't be able to claim these back if there was no VAT on new housing, so not at all clear that this would take much off the end price


I think what BB is proposing is not that there would be no vat but that the vat rate for first time buyers is at 0%
The developers would still be able to reclaim any vat paid during the construction and the FTB would see a reduction in the purchase price


----------



## NoRegretsCoyote (18 May 2021)

Cervelo said:


> I think what BB is proposing is not that there would be no vat but that the vat rate for first time buyers is at 0%


I think under EU law VAT has to be levied on a non-discriminatory basis.


----------



## Protocol (18 May 2021)

Brendan Burgess said:


> 4) Increase the supply of land and bring down the price of land by zoning, servicing and getting planning permission for starter homes on state owned or controlled land.
> 
> A developer would be able to buy a ready to go site so they would have to take the financial risks over a period of only the year or two it would take to build the houses.
> 
> ...



Yes, we need to cut land + finance + profit margins.

The hard construction costs to build a 114 sqm house in Dublin are 179k.

The balance of the 371k costs are too much, and include:

Land = 61k
Finance = 16.7k
Developer's margin = 42.7k

These three costs add up to 120k.


----------



## NoRegretsCoyote (18 May 2021)

Protocol said:


> Finance = 16.7k




Finance is going to be expensive because Irish house prices in the not-too-distant past fell by 30% in the time between starting a project and selling them to people, leaving most developers in the country in default on their debts.




Protocol said:


> Developer's margin = 42.7k


I mean doesn't every business look for a margin?


----------



## jpd (18 May 2021)

Of course, maybe not that much though. If the profit margins are that high, it should attract more developers into the business and reduce the margin to more normal amount - as long as the other inputs are available (land, labour)


----------



## Purple (18 May 2021)

jpd said:


> Of course, maybe not that much though. If the profit margins are that high, it should attract more developers into the business and reduce the margin to more normal amount - as long as the other inputs are available (land, labour)


The margin increases as the risk increases. Because the developer is financing the project over such a long period there is substantial risk, as well as accumulating interest costs. Therefore cutting the timeframe reduced the cost, reduces the risk, increases turnover and so lower margins are acceptable.


----------



## NoRegretsCoyote (18 May 2021)

jpd said:


> If the profit margins are that high, it should attract more developers into the business and reduce the margin to more normal amount - as long as the other inputs are available (land, labour)


Well I don't see how making something less profitable is going to get you more of it.


----------



## Purple (18 May 2021)

NoRegretsCoyote said:


> Well I don't see how making something less profitable is going to get you more of it.


When supply is constrained then super normal profits can be earned. As supply increases margins drop. T'is Leaving Cert Economics.


----------



## Brendan Burgess (18 May 2021)

Purple said:


> T'is Leaving Cert Economics.



What about Leaving Cert. English?


----------



## Purple (18 May 2021)

Brendan Burgess said:


> What about Leaving Cert. English?


Wharabout et?


----------



## NoRegretsCoyote (18 May 2021)

Purple said:


> As supply increases margins drop.


Correlation does not equal causation.

That's first-year college


----------



## Purple (18 May 2021)

NoRegretsCoyote said:


> Correlation does not equal causation.
> 
> That's first-year college


Did you study one liners in college? 

The demand curve and rules around it and all that stuff is, like so much in economics, a statement of the bleedin' obvious.


----------



## odyssey06 (18 May 2021)

The Journal are reporting that the set aside wouldn't be just for FTBs but for "owner occupiers"









						Up to 50% of future housing estates to be set aside for owner-occupiers, Ministers announce
					

The proposal would apply to all those buying a home for residential purposes.




					www.thejournal.ie


----------



## Brendan Burgess (18 May 2021)

That makes more sense. But it still does cause a problem for the rental market.

Brendan


----------



## Sarenco (18 May 2021)

odyssey06 said:


> The Journal are reporting that the set aside wouldn't be just for FTBs but for "owner occupiers"


What happens if an owner occupier subsequently wants to rent out the property, perhaps because his employer has temporarily posted him abroad?

If the property can never be rented out, that would significantly reduce its value.  I would also wonder how such a restriction would be constitutional.


----------



## jpd (18 May 2021)

and it does not solve the real problem, which is that we are not building enough houses

The reason we do not build enough houses is that the Irish economy is not productive enough to enable workers to earn enough to afford the cost of building houses in Ireland. Paying workers more, or giving them subsidies which comes to the same thing, will not change this. We need to reduce the amount of profit going to those who own the land and other assets (finance, public sector service costs - roads, water, waste removal & treatment, etc) needed to build houses


----------



## Mocame (18 May 2021)

NoRegretsCoyote said:


> I think under EU law VAT has to be levied on a non-discriminatory basis.


Social housing is exempt from VAT in several EU countries (eg. France) so as far as I know exceptions are permitted


----------



## odyssey06 (18 May 2021)

Mocame said:


> Social housing is exempt from VAT in several EU countries (eg. France) so as far as I know exceptions are permitted


You probably needed to have that exception in place from the get go.


----------



## Brendan Burgess (18 May 2021)

Mocame said:


> Social housing is exempt from VAT in several EU countries



Hi Mocame

Is it just social housing or is it all housing? 

It makes no difference if there is VAT or not on social housing. As the government is the payer and the recipient.

There is no VAT on housing in the UK. 

If there is a legal barrier to reducing VAT to 0%, the government could give buyers of homes for owner occupation a grant equivalent to the VAT.

Brendan


----------



## NoRegretsCoyote (18 May 2021)

Mocame said:


> Social housing is exempt from VAT in several EU countries (eg. France) so as far as I know exceptions are permitted


My point was that I don't think it would be legal to give a rebate to FTBs but not non-FTBs.


----------



## Nowronganswer (19 May 2021)

Second hand homes are the same price as new homes. I bought my house second hand it was only 4 years old but was lived in. Didnt get the help to buy scheme even doe I qualified, new homes in the same area going for same price as i paid so people getting the 10%help to buy but i get notting.


----------



## Mocame (19 May 2021)

To my knowledge lower VAT rates in France apply just to social housing - details are here:  https://www.avalara.com/vatlive/en/country-guides/europe/france/french-vat-rates.html

Historically we had lots of tax subsidies for home owners and first time buyers.  For instance, stamp duty was lower for first time buyers in the 1990s and 2000s, mortgage interest relief was available and provided at higher rates for the first couple of years of the mortgage etc.  I personally don't see why these types of measures could not be reintroduced - the issue is whether they would have any meaningful impact on affordability or whether they would just be captured in higher profits for developers.


----------



## Brendan Burgess (19 May 2021)

Hi Mocame

The main issue is what can we do to build more houses?   

If we give FTBs some advantage over STBs, that might help FTBs but at a cost to people who want to trade up.  It probably won't result in more houses being built. 

If we give social housing an advantage over FTBs , that helps social housing clients at the expense of people who pay their own way.

If we give investors an advantage over FTBs, we improve the supply of rental property.  If we reverse this, it will be good for FTBs but will push rents up. 

Imagine if funds flooded into this country and built thousands of new apartments and houses to rent that would not otherwise have been built. That would be a great thing overall. 

Brendan


----------



## Protocol (19 May 2021)

There are too few large-scale builders, this is the after effects of the hollowing out of the industry during 2008-2012.

How many firms can build 1,000+ houses per annum?

Two? Cairn and Glenveagh?

@Purple?

If we want to build 50,000 per annum, we need maybe ten firms of scale.

How do we encourage scale? Surely long-term contracts / stability is part of the solution?


----------



## Purple (19 May 2021)

@Mocame, I received a £3,000 first time buyers grant when I bought my first apartment. It probably added £8,000 to the price.


----------



## Purple (19 May 2021)

Protocol said:


> @Purple?
> 
> If we want to build 50,000 per annum, we need maybe ten firms of scale.
> 
> How do we encourage scale? Surely long-term contracts / stability is part of the solution?


I have no faith that any sector which is not open to real competition will ever be efficient. Innovation is uncomfortable and difficult. People and organisations which haven't done it from the beginning of their career or their business only start doing it when they are forced to by market forces. When you can go whinging to the government with your begging bowl looking for handouts or special treatment you'll always try that first.


----------



## Nowronganswer (15 Jun 2021)

Brendan Burgess said:


> Hi Mocame
> 
> The main issue is what can we do to build more houses?
> 
> ...


If we give FTBs some advantage over STBs, that might help FTBs but at a cost to people who want to trade up.
We bought a secondhand home 4 years old in a new estate but got noting back from the government that's not fair


----------

