But first, this is about affordable housing, sustainable good for families, good for individuals and good for communities, and some of the responses to it politically, I'm not talking about the disarray because they are perfectly entitled and right. And I welcome their input into some of the responses politically from the left and hard left has been bordering on hysterical on this when they've been talking about the issue of house price inflation, 75 million euro in the mortgage market of 11 billion, less than one percent.
And they're targeted measures. I want people to own their own homes. I want to help them to do that. And I'm determined to do it. And that's why this bill, coupled with the Land Development Agency Bill, will actually do that or others may want to, you know, pontificate and delay and delay. I don't want it. We can't afford any further delays in dealing with our housing crisis.
Sentiments expressed there by Housing Minister Darro O'Brien on this show last Friday while discussing his department's affordable housing bill. Those sentiments are clearly aimed at my next guest, amongst others, as something he is keen to address Sinn Fein need for a Midwest spokesperson on housing, local government heritage owner Dobrin own.
Good morning and welcome. Good morning to you. Mark Colvin, you put your hand up to say you are amongst those identified as hysterical on the left are hard left.
But I think in all of the times I've appeared on your shows, one thing I can't be accused of when it comes to discussing housing is of being hysterical. The concern here is that the shared equity loan scheme is not about making homes more affordable. In fact, the scheme was designed by two property industry lobby groups last year. And I know because they did a round of meetings with housing spokespeople, myself included, to argue for this scheme, it is based very, very closely on a similar scheme that's been in place for over 10 years in England and Wales and all of the academic research from that scheme.
And it shows that in high demand areas, it pushes up house prices. In London, it has been responsible for a six percent increase in house prices. Large numbers of people who avail of the scheme don't actually need it. They already have sufficient mortgages and deposits to buy homes, but a section of people who do available to end up with very, very significant and unsustainable levels of debt. O'Brien originally wanted the scheme to be between 200 and 300 million.
We know that from Eiffel's I've received from the Department of Public Expenditure and Reform, they pushed back because of fears of house price inflation. But the minister is currently in negotiations with the Banking and Payments Federation to increase the fund to 150 million. And if this fund is allowed to to get onto the statute books, the experience in England shows once it's there, it's very hard to unwind. So the motion we've tabled for debate this week does two things.
It says scrap this scheme because it would push up house prices and saddle working people with debt and use that money to 75 million that has been allocated into the direct delivery of good, quality, affordable homes at prices people can afford. If you look at the range of organisations who are now speaking out against the scheme, it's not just opposition politicians like myself. The Ezri, the former secretary general of the Department of Public Expenditure Reform. We know the central bank has significant concerns.
And at the weekend, the Institute of Professional Valuers and Auctioneers, another organisation that you can't accuse of being hysterical, they're in the business of buying and selling homes every day. They're saying it would push up house prices. So, look, this is a developer led scheme. This is bad Celtic Tiger era housing policy, and it should be scrapped.
And that's that's a little bit because the minister said, look, it's one percent of, you know, an 11 billion mortgage market. And if I do the sums on it, 75 million, that's the figure that's there at the moment. And you figure that up to one third can be the shared equity part owned by the state. But let's not even give a third. Let's say it's an average of out of a 400000 euro house. It's 100000 euro.
You know, on that basis, it's only going to affect 750 houses.
And well, first of all, you know, let's keep doing this for a moment.
Take that 700, 75 million and build houses, socialises as you want and giving the rock bottom price of a quarter of a million per house to build. I mean, you're only talking about 220 houses. So so popular schemes, if you like.
The minister is only a drop in the ocean and your alternative is only a drop in the ocean.
May alternative, of course, as you know from all our conversations, would be for us to spend more than 75 million annually on genuine, affordable, that money.
You want that money diverted. So all I'm saying is exactly, OK, go ahead and divert. But the most you're building your most optimistic dreams. And if you're building apartments, you won't do them for two twenty. But if you're building a house on a greenfields somewhere, that's enough.
Boy, you might get it done for 220.
No, that's that's not a proposal. That's two things. First of all, the figures for mortgage lending that the minister talked about is all mortgage lending and only about half of that is first time buyers. But what you then need to look at is this scheme will be a particularly focussed on on areas where people aren't able to buy. So it will be the high demand areas like Dublin and and the other big cities and towns. On top of that, the minister wants to double the size of the fund this year to 150 million with inclusion of the banks.
So it's going to be a much larger portion of the first time buyers market in the likes of Dublin, etc.. The service fund, which I want this money diverted to that fund, doesn't pay the full construction cost of homes. What it does is it pays about 50000 euros of the cost. The remainder comes from private banks or private sources, and houses are built and sold at 250000 jurors or less. So actually, the the state contribution to those properties is 50000 euros.
So if you get five times more houses than what you've just outlined, and that is delivering a very small number of good quality starter homes and apartments, for example, at the moment in Ballymun.
And then ultimately, of course, in absolute own own, you talk about apartments that how are you going to build an apartment even with the state's contribution of. To service the site, because that's what it's going to be used for. In other words, to get to prep for building. Sure.
How are you going to build these apartments for 250 grand public? Because we know the department has more. Can I tell you?
I can I can show you how it's done today in Ballymun or Coolen cohousing. I have a development department on Parsons. No, no, no. They have a development with apartments on site and they will cost 250000 dollars or less the core cost of construction.
Now, hang on a second. Just let me ask you the question about Akula, because we've had them in talking about their housing developments. How how high rise are the apartment blocks? Because the higher you go, the more it costs per unit.
They do, but you're up to four or six stories. You can deliver good quality apartments with the service satphone for 250000 euros less and on are showing that. I think the development of Ballymun is four stories. But my point is still the same, that there are two ways of addressing the affordability crisis for working people. One is you deliver homes to buy and to rent a price that they can afford. And that's what we should be focussing on. Large volumes of those through increased capital investment by the state now.
Or you can keep ever greater levels of debt on working people. That's what our O'Brien is doing. And the reason he's doing it is because two large lobby groups for the property industry have put forward a proposal and have convinced him that this is the way to go. We had a scheme like that before. It's called a shared ownership scheme. At the end of the Celtic Tiger, it was a 50 50 scheme. Half of the people who availed of that scheme ended up in significant mortgage distress.
Many of them ended up losing their homes or having to convert them into social homes. It was a reckless scheme that was driven, of course, by developers desires for increased house price, profit and not genuine affordability for working people. Fearful that housing or repeating those mistakes.
Yeah, in on Friday when the minister was with us, I put it to him those kind of points that developers traditionally have always sucked the good out of any benefit that the state bestowed, whether it was Section 23 or Section 27. You know, initially the whole idea is you got a tax break, but then the developers spotted that and then they absorbed the tax break and it pushed up the price of housing. And that's historical. You know, there's no argument about that.
He said that they would be looking at things like quality of build, making sure that they weren't selling shoeboxes and that this scheme would only be applied to housing that had all the the requisite needs of a for example, a family growing up, enough storage space, all of those kind of things. Very good onto the building regs anyway, very good insulation and so on and so forth. Do you not have confidence in the minister and his department's ability to police that?
Well, look at the building standards of the building standards. And no matter what property has been built to purchase, it has to be built to those standards. I would like to see more control officers and local authorities to do more inspections, but that is where it's at. The issue here is the right to own.
Let's just be precise about this. There's a ceiling, I think, of 400 grand in the at the proposed scheme. Now, what you get in, say, central Dublin for 400 grand? I don't know, because even the city council trying to build on Domenick Street could not achieve anything like 250000 per unit, but there's a ceiling on that.
So if the developers told you've got to build no more than that price to qualify for the scheme and you've got to do X, Y and Z, it's got to be so many square feet at a minimum, not a maximum. That's not it's got to be always.
But that's not the way the minister scheme works. But with respect, the way the minister scheme works is is is the private developers are doing what they're doing. And if I want to buy one of those properties and I have mortgage approval and a deposit for hundred thousand, I can avail of a top up loan with a very significant interest rate that will kick in from year six and will rise over the 20 years and an increase in the level of debt servicing.
I can get a secondary loan and that's essentially the problem. Double-Blind is allowing large developers to dictate the price of homes that working people can buy. And I don't know about you, but the vast majority of people cannot afford a home of 350000, let let alone 400 400000. And if a Coulomb and other organisations like them today are building and selling houses and apartments for 250000 years or less, that is where government should focus its money and that is where government should focus its attention.
We cannot go back to the days of saddling working families with heavy levels of debt. And what the minister didn't tell you is, is the interest charge that would be added to the equity loan will increase over time. So while he's claiming that you don't have to pay this debt down like a mortgage, and that's true if you don't pay it down. Like a mortgage, the interest rate will increase exponentially year on year and the total level of debt, you know, no.
So are you talking about the interest or the interest rate? Because the interest rate, I presume, is fixed, is it?
No. And see, this is the problem part. So the way it works is as follows. There would be no interest payable on the on the equity share until year six. So there is a dispute ongoing between the banks and government as to whether the entry level interest rate would be one and a half percent or three percent, but then year on year it is going to increase. So, for example, by, let's say, year 10, it would be four or five percent to your 20s would be higher because they want to incentivise you to pay this down early.
The problem is, if you don't want to be precise about whereas you said interest rates are increasing exponentially and that's a doubling, you know, two becomes four, becomes eight, becomes 16, becomes 32 because so so that's not what's up. The bank, you know, it's not going to be donating every every year.
Let's be very let's be very clear. Not every year. But let's be very clear. What the banks want is an entry level interest rate of three percent increasing over time to six or seven percent by year 15 or 20.
That is a very, very significant increase in the interest burden of saying if you don't pay it down, the total amount of debt you will impact will be substantial. And that is high risk. We know what happened. It was the policy of Fennville during the Celtic Tiger. Lots of people ended up in mortgage distress. Lots of people ended up losing their home. Let's not go back to those bad old days.
Explain to me explain to me, therefore, where the banks are coming in here, because absolutely. Presumably if I borrow my money from the bank, I get the rate that they're offering at the time, you know, the 300000, let's say, separate stages, kicking in a hundred.
Absolutely separate to that. So I get I get say it's 2.5 with the bank at the moment.
Rates say four for a variable mortgage. I get 2.5.
And you're saying that after six years, who is insisting? I mean, this is state money. So where is the bank coming?
And I don't get. Me exactly. Let me explain because again, the minister in explaining this, so the original idea of the scheme was that it would be a fully state funded shared equity loan. However, that let's just just.
But let me let me give you the facts. And this is all a matter of public record. The minister, the Department of Housing, the Department of Finance, and currently in negotiations with the Banking and Payments Federation, that they would double the money that the state has put into the shared equity loan from 75 million to 150 million. They will call the special purpose vehicle that will lend this shared equity. And therefore, both the banks and the state have to read the details of the scheme.
This is what's causing the central bank so much concern. Double-Blind wants the entry level interest rate to be one point five percent for the shared equity loan. The banks, because they want to ensure they get paid early, are insisting on a higher level. So what that actually means is not only will you get your standard mortgage at the standard fixed rate, complied with the central bank's rules. But when you go across the road to this special purpose vehicle to get your shared equity loan, you will actually be borrowing money both from the state and the banks, and they will have a joint equity share in your property.
I mean, that's just the most obvious way to the central banks mortgage lending rules.
And that's what the Federal Reserve, because that's not part of the scheme as we speak, is that right? It's sitting they're negotiating with the Banking Payments Federation. That's what you said, that at the moment of 75 mil. And they're looking to make it 150 mil talking to this crowd.
It it is part of the scheme. The legislation, the draught legislation we're dealing with makes provision for this involvement. And I have very detailed analyses from the Department of Public Expenditure and Reform, which shows there's a very advanced level of negotiations. Now, ultimately, that has to be subject to central bank approval. So whether it happens or not will in the end be decided by the central bank. But as of today, what we are looking at is a shared equity loan facility jointly funded by the banks and the state, jointly run by the banks in the state and with very significant interest charges.
And let's not forget, it's not that you're borrowing 100000 euros or 50000 euros. The state is taking out a 25 percent equity stake in your home, let's say. And as the price that the market value of your home increases, the amount that you owe back also increases. So, in fact, when you take out this loan, nobody will be able to tell you how much actual debt between the ultimate equity value and the interest charge. This is this is just the worst kind of developer led policy.
And when we know we can build and sell homes for 250000 or less, why would you even contemplate such a risky scheme if you don't want to if you take your mind in the investment. Oh, you're taking if you like.
And, you know, a good critical look at this. And that's absolutely as it should be. You could take a benign look at it and say, look at the beginning of. House owning our apartment, owning lives, generally, they're a bit shook for cash and then as their fortunes improve and so on, they might have a bit more to spare. So the idea and this is the way it was sold to me originally, that the state puts in this money, but eventually, with the encouragement of this interest rate kicking in, that the state expects to get its money back because people say, well, we're not going to pay that to the state if we can afford to pay back at the money.
So the state gets the money back and then the state gives it to more people. So the money goes round and round and round. That's how that's a benign view of it.
So what we need is the minister maybe he was sold a pup is B, we need to be guided by the evidence and we have two bodies of evidence.
The first is from the last similar scheme, the old shared ownership scheme. And as I've said, it was high risk. People bought homes that were overly priced and half of them ended up in significant mortgage distress. Likewise, if we look at what's happened in England, six percent house price increases in London where it did stimulate extra supply of homes, it was in the wrong place along the western border. And large numbers of people who didn't need it got it.
And those who weren't able to buy without this are now in significant risk, depending on what happens in the economy into the future. So I suppose, sure, you can take a punt on this if you want, but I'm not going to gamble. And I was housing minister, but I wouldn't be gambling with the future of hardworking people. I'd be doing everything I can to ensure the homes that they buy or indeed rent are genuinely affordable. And there are better models to do that than the one the minister and his industry lobby Fringe are proposing.
All right. Well, it's very interesting. And you are, of course, going to be able to have a good look at the bill as it goes through and perhaps even with the support of various parties. Amend that bill before it becomes law. But, Alan, thank you very much for a very interesting conversation about the proposal from Housing Minister Dhara O'Brien on that shared equity scheme.