Central Bank rules fuelling homes crisis - draft report
Report demands an ‘urgent review’ of mortgage rules to solve the problem
A powerful committee set up by the Dail after the election to address the housing and homeless crisis is demanding that new Central Bank mortgage lending rules for first-time buyers be "urgently reviewed" as part of a series of recommendations aimed at kick-starting the building industry and tackling the level of homelessness.
In a first draft report, which has been seen by the Sunday Independent, the Oireachtas 'special committee' has said that the Central Bank must "without delay" review the new rules which were introduced last year to control the level of lending in the housing market.
The report also contains a recommendation that the VAT rate on construction costs be reduced by 4.5pc, on a trial basis, to encourage the immediate building of houses.
The report summarises the evidence received and heard by the committee to date. It runs to 196 pages and outlines policy objectives and recommendations on social housing, the private rental sector, private housing, mortgage distress, housing financing, Nama, homelessness, social inclusion and special housing needs. It also highlights legal issues.
The committee held its first meeting on April 20 and circulated a draft report to members last Friday. The report will be discussed by the committee at a meeting this Tuesday, but the first draft report indicates that TDs have the controversial Central Bank mortgage rules in their sights.
Under the rules, non-first-time buyers are subject to a limit of 80pc loan-to-value (LTV) for mortgages on principal dwelling houses; for first-time buyers of properties valued up to €220,000 a maximum LTV of 90 per cent applies; for first-time buyers of properties over €220,000 a 90pc limit applies on the first €220,000 and an 80pc limit applies on any excess value over this amount.
As a result of the new Central Bank rules, many first-time buyers, including couples with young families, are not in a position to raise the deposit required to buy a house.
But by reducing the size of mortgages people can take out, the Central Bank has successfully stabilised the price of land.
The Central Bank is currently reviewing the rules but has indicated that it would require compelling evidence for it to alter them in any major way. The outcome is due in November.
However, in relation to the new mortgage lending rules, the report states: "The Committee believes this is something that must be reviewed urgently by the Central Bank, and the Committee recommends that this is done without delay."
It says that restrictions should continue to apply to buy-to-let properties, but that incentives on mortgage and tax relief should be examined to encourage landlords to release accommodation to rent.
The report's other significant recommendation relates to the issue of construction costs. The committee recommends that the rate of VAT be reduced by 4.5pc on a trial basis, in order to encourage the immediate building of houses.Alternatively, the rate should remain at 13.5pc, provided the 4.5pc difference is ring-fenced for social housing projects and a possible National Building Programme.
In its recent report on House Building Costs, the Society of Chartered Surveyors estimated the level of VAT on a newly-built, three-bedroomed home as being over €39,000. A VAT reduction of 4.5pc would result in a saving of approximately €13,000. The committee was told that the reduction in VAT on the tourism sector resulted in a boost in revenue for the industry.
Based on the possible savings in house prices as well, the committee "is more inclined to recommend the reduction of the rate in VAT from 13.5pc to 9pc, albeit on the trial basis so that it would incentivise building".
The committee further recommends that funding be obtained from the Housing Finance Agency to build houses. It also says a series of grants should be made available to encourage the renovation of properties in urban centres so they may be used as residential accommodation.
It also recommends that the Government "examines and utilises" all off-balance sheet options for the additional development of houses, and says consideration should be given to whether this should operate through approved housing bodies or whether the State acts as guarantor.
The Irish League of Credit Unions has the capacity to make funds available at 3.5pc, with the main obstacle being Central Bank rules. The Committee was also told of finance available from the European Investment Bank at 2pc, via the Housing Finance Agency.
The committee recommends that a series of grants be made available to encourage the renovation of properties in urban centres so they can be used as residential accommodation. The expansion of the Living City Initiative to include landlord-owned residential property, and urban centres outside of Dublin, Cork, Limerick, Galway, Kilkenny and Waterford, is also recommended.
The committee states that the Single Stage approval process for social housing should be "extended to a higher threshold" to accommodate demand - and a review of this process should examine why local authorities "do not appear to be engaging" in this process.
The committee recommends that acquisition costs be alleviated through the making available of serviced land for social housing use. "The Public Private Partnership may serve as a particularly useful vehicle in this context," the draft report states.
It emphasises the need for a National Building Programme and consideration of how this may be structured, whether through the local authorities, Nama or the approved housing bodies. It recommends that the Department of Housing, Planning and Local Government, in conjunction with local authorities, approved housing bodies and Nama, leads a housing programme that focuses on building housing, with a "streamlined administrative process".