Irish Property Market chat II - *read mod note post #1 before posting*

It's on page 43

https://cdn.thejournal.ie/media/2025/01/draft-pfg-0fe27752-8d6e-4a16-945d-c8bdbf98088b.pdf

First Home Scheme

• Work with the banks to expand the First Home scheme to first time buyers of second-hand homes.

• Extend the scheme to 2030.

• Increase the First Home scheme targets in keeping with the increase in starter home targets.

Social housing in Ireland is a system that's well beyond the point of being maladaptive. It was all well and good when it was about clearing tenements, but that's now decades in the past.

Yes, it will lead to higher prices….which is why they want to do it. The state has been doing things like this for over a decade because higher property prices and higher rents has always been the goal.

A positive is that It does help more FTB get on the housing ladder.

There are more FTBs than their are affordable new homes for private sale

Providing a subsidy that helps young couples buy their first home isnt a bad thing, regardless of whether its a new or old housing stock.

Well yes, but they wouldn't have the problems were it not for inflationary policy in the first place. You'll forgive me an analogy, but if I let rats into your house and then offer a discount on rat-poison, I'm not really doing you a favour…

I think someone said something like this a few weeks ago, so we don't need to go through this again. If HTB, HAP or any other schemes were withdrawn, it would take millions (if not more) out of the market. This would have a deflationary affect on prices. The previous person to bring this up seemed to think that the prices would stay the same in the absence of these schemes.

Personally, I find this a strange and perplexing idea, but perhaps I'm mistaken.

It’s so important to put a subsidy in context of the size of the market to understand its impact.

The total annual HTB claims in 2023 were €160m…with overall transactions at €23.0bn…so of all the money spent on Irish property in 2023, approximately 0.5% (yes, one half of one percent) related to HTB.

For some further context. Banks are on course to lend an ADDITIONAL €800m to buyers this year primarily to due to wage inflation. So purely the annual increase in wages is pumping 5 times the amount of money this year into property as the entirety of HTB. It really is utterly irrelevant in the overall market context. If it were removed completely tomorrow, it would be fully replaced in its entirety by wages going up in c. 2 Months. So there would be no perceptible impact on prices.

I’ve never looked into HAP but understand it is much more material.

The market is based on sentiment though, and ability to pay.

The fact that HTB exists in market serves to push all prices up, even if in the end the HTB bidder does not win. Every property they bid on and lose they will have pushed up the price, even if it's not reflected in HTB drawdowns.

Its a similar principle to HAP scheme and it's impact on market rents - market rents will shoot up to absorb HAP even more than HAP scheme actually pays in the market, because we are in a supply shortage.

Again this is just one of these scenarios pushed out when the reality doesn’t align to what people want to believe.

The general economic principle you’re trying to push here is that €160m of additional cash in the market actually creates many many multiples of this in terms of actual spend because of all the failed bids.

Firstly HTB is currently exclusively for new builds. 99% of which do not have a ‘bidding’ mechanism. So you cannot attempt and fail to use HTB, pushing up the price for someone else, as you could in a second hand home. But anyway, ignoring this ill humour the thought.

HTB gives on average €21k to c.7k households per year. We know from CBI data that the average buyers have household income c€100k. Wage inflation is 5.3%. So the average borrower is getting €21k of extra credit every year…compounded. And it’s not just 7k households. It’s every single household looking to buy. If HTB €160m is somehow creating many multiples of itself in inflation. What about the €800m of additional lending every single year (which can actually be used for both new home and bidding on second hand homes)? If the same multiplier effect was occurring with this €800m (why wouldn’t it)…just imagine the levels of inflation…every year, compounded.

Just put very simplistically, the Irish residential property market is a c.€20bn per year. The banks are lending c12bn per year and growing this nearly €1bn every year. To suggest this market is underpinned by €160m of subsidy which hasn’t increased in years is frankly absurd. The €160m of HTB is roughly equal to 2-3 months of GROWTH in new bank lending.

I can’t put it any more clearly than this. If you want to believe HTB is a very significant factor in Irish house prices in the above framing, you should really critically ask yourself, am I just being stubborn and believing this because I want it to be so, and because I have always believed it until now. I have never looked at the data, it now contradicts my perception but it is difficult to change my initial theory so I will seek increasingly obscure theoretical mechanisms by which my initial, largely unconcisdered view, could still be true. This is unfortunately a very common human bias.

I never claimed there was no impact on prices of any houses. It’s merely the aggregate impact on the market that is ridiculously overstated. Im not going down the butterfly road of ‘buy a Volkswagen polo in Dublin and the entire car market goes up 5%’. If you believe it yourself, I strongly suggest you find a slightly smaller market to apply your theory, as you have found the route to infinite money. Tiny subsidy, massive inflation.

A reasonable range of impacts of HTB is 0.5%-2.5% on the overall market (the higher end of this is a huge stretch and assumes a 5x multiplier effect but anyway). New builds in the region of 1-5%.

If you take the high end aggresive assumptions you’re looking at about 3 months inflation at current rates. So we’re back to October 2024 prices if it was removed - yay, problem solved.

The HTB being a major impact on the market is an impressive political tool used by Eoin O’Brien that has widely been swallowed up by the masses without any intellectual challenge.

Unfortunately once these ideas gain traction they become almost like a religion. Anyway, I will leave it there. For those open to/capable of seeing, it will be blatantly obvious. For those too far down the garden path, nothing will ever be enough.

The point of the subsidy is not simply to make the house cheaper for the end buyer (although it will do that to a degree) but to change who the end buyer is.

Even if the selling price was a full 5% higher (I.e. average subsidy), if it means the house is bought by an FTBer instead of investor. That is a win.

I don’t agree with your logic that it’s inevitable it would be increased therefore bad. That logic can be applied to anything.
‘No tax increase/decrease because it will go further’. No the subsidy should be judged on its current merits and expansion applauded or criticised on its merits.

Don’t forget the government have essentially been phasing HTB out in a gradual manner by not indexing the grant not the price limits during a period of 25%+ total inflation.

The expansion to second hand is a bad idea in my opinion and clearly an election auction politics promise, but as long as they hold the value and price limid they are substantially reducing the HTB every year in real terms.