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Central Bank flags serious concerns over Darragh O’Brien’s ‘cheap’ homes scheme

Letter to TDs warns plan could push up house prices and won’t help with supply

Housing Minister Darragh O’Brien.
                  Photo: Shane O'Neill

Housing Minister Darragh O’Brien. Photo: Shane O’Neill  

March 15 2021 02:44 PM

SERIOUS concerns with Housing Minister Darragh O’Brien’s big plan for affordable housing have been formally raised by the Central Bank in a letter to TDs and senators.

The Central Bank is warning that the proposal for a shared equity scheme could actually lead to an increase in house prices and may not increase construction rates.

The Irish Independent previously reported on private concerns within the Central Bank relating to the shared equity element of the proposed Affordable Housing Bill. However the decision to go public with concerns is a further blow to Mr O’Brien’s plans.

It has joined many other bodies in sounding an alarm that the plan could raise house prices. They include think-tank the ESRI and one of the property groups which lobbied the Government for the scheme.

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Despite being asked for its views on the Bill as a whole, in the letter the regulator focuses solely on the shared equity scheme and not on other parts of the Bill, because it says the scheme has “the most direct connection to the mortgage market”.

Central Bank Director of Financial Stability Vasileios Madouros writes that the scheme “could result in upward pressure on house prices” if the housing supply is halted, resulting in higher levels of demand for homes.

Warnings are sounded about borrower protection in availing of the scheme and ensuring that they understand the “new” and “relatively more complex” differences to current mortgages available, especially interest and equity repayments.

Mr Madouros also warns that there is a need for “further consideration and clarification” in regard to how borrowers will be able to switch their mortgages if they avail of the shared equity.

He writes that the scheme itself will likely not contribute to the actual building of houses.

“The proposed scheme – in isolation – is likely to have a limited impact on the ultimate supply-side problem in the Irish housing market,” he says.

The regulator urges measures which would contribute to the supply side of the market, including some of those included within the Affordable Housing Bill.

It adds that some of the plans within the Bill are “longer-term” and urges for a “targeted scheme” that would aid buyers in purchasing homes.

The Bank ends its letter on a warning note, saying that those who are considering “detailed parameters” of the shared equity scheme should be “mindful of the potential implications of increased demand for house purchases in a supply-constrained market”.

The letter was written to the Oireachtas Housing Committee in response to a request for views on Mr O’Brien’s Affordable Housing Bill.

The committee has concluded its pre-legislative scrutiny of the Bill and will now move to compile a report.

Sinn Féin housing spokesperson Eoin Ó Broin has reiterated its calls for the Housing Minister to scrap the scheme and allow the rest of the Bill to proceed.

Other parts of the Bill, such as cost-rental housing, have been largely welcomed.

“In their first full public commentary on the Government’s shared equity loan scheme, the Central Bank have outlined a series of potential risks for families, banks and the housing system arising from the proposal,” Mr Ó Broin said.

“It is also clear from the Central Bank’s submission that many of the key details of the scheme have not yet been defined, making any assessment of the scale of risk impossible at this point.”

He said that it would be “irresponsible” for the minister to proceed with the scheme.

“In light of this, it would be irresponsible for Government to proceed with the scheme at this point. Minister for Housing Darragh O’Brien should remove the pro-developer shared equity loan scheme from the Affordable Housing Bill and allow the Oireachtas to proceed with the affordable cost rental scheme and local authority-led affordable purchase scheme,” Mr Ó Broin added.

Mr O’Brien has previously maintained that the scheme will not push up house prices, saying that regional caps and “strict controls” will ensure this does not happen.

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