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

Brendan Burgess

Brendan Burgess

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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
 
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
 
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
 
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.
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
Click to expand...
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?
 
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.
Click to expand...
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%
Click to expand...
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
Click to expand...
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.
 
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
Click to expand...
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
 
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.

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
Click to expand...

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.
 
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)
 
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)
Click to expand...
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.
 
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)
Click to expand...
Well I don't see how making something less profitable is going to get you more of it.
 
odyssey06 said:
The Journal are reporting that the set aside wouldn't be just for FTBs but for "owner occupiers"
Click to expand...
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.
 
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