"Developers will get sweeteners to sell homes below value"

As reported in the Indo

"Mr Kelly is concerned that many apartments currently being built are being put on the market at prices in excess of €300,000 - out of the reach of many first-time buyers.

However, the Government is willing to refund developers "in return for accelerating the delivery of new homes at increased volumes and at prices that are more affordable," say sources familiar with the plan.

For example, it is envisaged a landlord who sells a €300,000 home in Dublin next year for €270,000 would be compensated by the State."

My initial reaction to this was negative. The government should not be interfering in the housing market. But the reality is that it's a reduction of government interference.

With huge VAT, development levies and social housing levies, this is simply a means of reducing the prices of houses. It's not a sweetener to the developers as such, it's just cutting the government's take on each new house built.

It would be better to abolish the levies and reduce the VAT, but if they won't do that, this is the next best thing.

But it should be paid to all builders of new houses. How could they establish market value?

And it should not be limited to sales to first time buyers.

Overall, it would be just simpler to give a holiday for the levies and a reduction in VAT. That would also save the massive amount of admin.

I kinda agree Brendan, but if levies and VAT were reduced, then there would be no guarantee that the reductions would be passed on to the buyers - the builders could just hold prices firm and pocket the difference. I also agree that it's going to be interesting how they will determine market value - it could be very subjective with the builder saying one thing and the government saying another. The idea to force the use of land banks to be built on within a short time frame seems to have gone - this in itself would release a lot of land to be built on, which would bring prices down without doing anything else.

I also think the government also needs to look at its own land holdings. There are must be many buildings / derelict sites all around Dublin city that could be developed / turned into apartments. Some of these would be old buildings and could really rejuvenate parts of the city.

Finally, I think grants should be examined for city centre business premises to convert upper floors into apartments. Again, there could be hundreds of apartments created with relatively little effort this way and it would bring a lot of people, who wouldn't then need a car, into the city which would free up the roads too.

Of course this is State interference. It will impact on the prices of existing properties including the many thousands of first time buyers who bought during the boom and are stuck in apartments in negative equity.

I also don't understand why they would give the cash to the builder. Why not give the difference to the buyer in exchange for a small equity holding in the property? I don't think they should but the idea of paying developers cash on the difference between some subjective notion of market value and what banks are willing to lend is beyond stupid.

It's an absolutely daft idea.

A property is worth whatever somebody is willing to pay for it - not what some builder or bureaucrat says it's worth.

This has all the hallmarks of Minister Kelly's approach to Irish Water - give everybody a "grant" while simultaneously taking it all back as a tax with huge administrative costs in between. Daft.

If the Government wants to expedite the supply of new housing in the short term then they should implement a site value tax and cut their own take in terms of levies, etc.

Cash bungs
VAT
Development levies
Social housing levies
Grants
More taxes.

We haven't learned a thing.

Silly silly idea.
If your selling a 2nd hand house due to trading up, moving elsewhere....you now have to compete against Developers who are being subsidised for lowering their prices!!!

Impose a draconian tax on land banks which will be cancelled if buildings are brought to market within X timeframe. If Developers feel they can't make a profit, let them sell on the land to someone else who can

Delboy said:

If your selling a 2nd hand house due to trading up, moving elsewhere....you now have to compete against Developers who are being subsidised for lowering their prices!!!

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It could be argued that at the moment prices of second hand houses are artificially high because the government increases the costs of building new houses by around 30%. So removing that additional cost would increase the supply and bring down house prices - both new and second hand.

Brendan

Brendan Burgess said:

It could be argued that at the moment prices of second hand houses are artificially high because the government increases the costs of building new houses by around 30%. So removing that additional cost would increase the supply and bring down house prices - both new and second hand.

Brendan

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True, but I don't think the Govt want to see house prices come down. If they did NAMA might not make a fantasy 'Profit' they keep referring to.
They're trying to tweak around the edges to get some prices down but like the FTB grant, a scheme like this will just get swallowed up in Developers profits

Agreed Brendan but this proposal is not about reducing the cost of new builds. On the contrary, this proposal would artificially maintain the price of new builds above a market-clearing price.

Delboy said:

True, but I don't think the Govt want to see house prices come down. If they did NAMA might not make a fantasy 'Profit' they keep referring to.

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I don't for a second believe this is an issue of any concern to the Government. It just looks good as another conspiracy theory!
At face value this proposal appears unusual and in line with Sarenco's comment akin to the Water Grant debacle. However all we are getting here is the outline of the proposal rather than the justification analysis behind that proposal. Assuming that this is not just a Eureka moment at a Government brainstorming session then there must be a genuine rationale and justification that led to this proposal. If we can't see that rationale then how can we possibly understand the logic behind it?

44brendan said:

I don't for a second believe this is an issue of any concern to the Government. It just looks good as another conspiracy theory!
At face value this proposal appears unusual and in line with Sarenco's comment akin to the Water Grant debacle. However all we are getting here is the outline of the proposal rather than the justification analysis behind that proposal. Assuming that this is not just a Eureka moment at a Government brainstorming session then there must be a genuine rationale and justification that led to this proposal. If we can't see that rationale then how can we possibly understand the logic behind it?

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I think you may be giving Alan Kelly and this Govt a tad too much credit!!!

I would guess that the rationale is as follows:

The only way to increase supply is to reduce the cost of building houses.
We can't do that because it would mean reducing VAT and various other levies and the EU might not let us reduce VAT.
The other problem with doing that is that the builders might simply pocket the cash and not reduce the prices of housing, because prices are determined by a whole host of factors including the supply of second hand homes.
So give the money we get in VAT and levies back to the developer and it amounts to the same thing.
Now that won't look very good to the public.
Make it a condition of the grant that they reduce the price below the market rate.
So we are only cutting our tax take if the developer agrees to cut the price by that amount.

Brendan Burgess said:

The only way to increase supply is to reduce the cost of building houses.

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Fully agree

Brendan Burgess said:

We can't do that because it would mean reducing VAT and various other levies and the EU might not let us reduce VAT.

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But they could and should do a feasibility study on reducing levies. You made this case yourself previously on your post on the "cost to developers of building houses".

Brendan Burgess said:

The other problem with doing that is that the builders might simply pocket the cash and not reduce the prices of housing, because prices are determined by a whole host of factors including the supply of second hand homes.

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Always a risk. However, the market is the market! If we accept the concept of a free market we must also accept the fact that every supplier of a product has the ability to increase prices to a level that the market will bear. The only alternative to this is to offer some incentive to the builder to keep prices at a lower level or in some way tax profit on excessive prices. This proposal appears to be the carrot rather than the stick approach.

Brendan Burgess said:

So give the money we get in VAT and levies back to the developer and it amounts to the same thing.
Now that won't look very good to the public.
Make it a condition of the grant that they reduce the price below the market rate.

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But what is the market rate and who decides it? This is the point made by a number of posters. I.e. Selling below "market value" gives a benefit to those who can avail of this limited availability. Who should benefit from this and why should those who benefit get a more favourable treatment than many others in similar circumstances at the expense of the taxpayer?

Brendan Burgess said:

The only way to increase supply is to reduce the cost of building houses.

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I would suggest that another way to increase supply would be the imposition of a site value tax that discourages land hoarding and incentivises development.

This "stick" could be twinned with a "carrot", such as a reduction in levies, etc.

I thank Kelly has gone mad. Every second day a new hair brained scheme.

Here's a novel idea. I've a house with a garage conversion, sitting idle, it needs major renovation, I want to rebuild from scratch, into a two bed, two story luxury flat, top notch. 100K or thereabouts. Will I do it, will I heck, can't get planning (already got planning and let it lapse, 'pretend' house extension, as is usual for every third house in the estate), they talk about increased densitites but won't allow us to go legit. The cost is affordable to me, but it will add no value to the house so a disincentive, and finally, the government has heaped on so many taxes the effort (return) doesn't seem worth it. (good rent two as it's 15 minutes from the city center)

Then there's possible renovation projects, did them before, conversions of inner city type old buildings. Would rejuvinate many areas, I see them all the time, this is what should be incentivised.

Land banks should be forced to be used. I agree with you Sarenco there.

Bring back the bedsits (I wrote loads on this at the time) to ease the crisis, and encourage improvements

Alan Kelly should consult with actual landlords and see what we have to say.

If I hear that Bernard McNamara is getting 30K from the government I shall tear my hair out. Mark my words, there has been and will be millions yet to be spent on the '----' he built.