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Phenomenon of setting out to financially help people only to leave them worse off is so commonplace in Irish economic policy that I have given it a name: the failure premium
Phenomenon of setting out to financially help people only to leave them worse off is so commonplace in Irish economic policy that I have given it a name: the failure premiumAs the State should know by now, giving a subsidy – whether it’s stamp duty relief or help to buy – to the buyer of a scarce asset ends up being an immediate subsidy for the seller.
Photograph: GettyHow else can we explain the re-emergence of a proposal to abolish stamp duty for first-time buyers that was operational in Ireland until 2010, when the exemption was abolished? A policy thatonce again pulled out at its think-in on Monday, dangled to the waiting public to see whether we liked it and tossed back in the recycling The excitement of Irish budget season, I suppose, is that we never know exactly which policy might be fished out for us next.
There is quite a collection down there waiting to be blindly selected. , which takes a Government equity stake of up to 30 per cent – oof, I mean the Home Choice Loan, announced with jubilant fanfare in 2009 to lend to buyers the banks had turned away during the crisis, and which went on to issue a grand total of ... only 21 loans before expiring?
Beauty queens, corporate titans and Michael Flatley gather for Trump’s meandering addressOr perhaps it could be the Rebuilding Ireland Home Loan, or the old Shared Ownership Scheme or the Starter Home Purchase Scheme, which was formerly known as the Local Authority Affordable Purchase Scheme. Or mortgage interest relief, which was reworked, expanded and later wound down over the years before eventually being abolished?
What about the first-time buyer’s grant – no, not the one announced this week, and not even the one that ended in 2010, butone – which we abolished in 2002 because the minister for housing said that it “returned little benefit to consumers” and had “simply been absorbed in the increased profits of builders”?
Forgive me if I have become dizzy – I keep trying to follow the money, and it keeps arriving back where it started, and so do I. Because all of these schemes, loans, grants, and photoshoots with grinning ministers all do the same thing: attempt to give money to a property buyer, while pretending to not understand that it is the property seller who will ultimately receive it. The phenomenon of setting out to financially help people only to leave them worse off is so commonplace in Irish economic policy that I have given it a name: the failure premium.
This is the surcharge that the State and its taxpayers pay, over and over, because it never built or provided any underlying assets itself. Ireland’s Government, unable to govern, chooses to subsidise instead. In this instance, it’s helping, or talking about helping, people to purchase homes instead of actually doing the thing that needs to be done – building any.
Of course, as the State should know by now, giving a subsidy – whether it’s stamp duty relief or help to buy – to the buyer of a scarce asset ends up being an immediate subsidy for the seller. Imagine you find a three-bed house that you want to buy, priced at €400,000. Under the kite briefly flown this week, before Simon Harris yanked it out of the sky, the first-time buyer would save around €4,000 in stamp duty.
Wouldn’t that be good news? Well, in theory, the policy could never actually work like this, because that buyer is not bidding alone. Every other first-time buyer is also circling that house, like a shark in blood, all armed with an additional €4,000. And while Ministers may forget that these policies come and go, the sellers don’t.
Because in a highly constrained market, the starting price would simply go up by €4,000 too. Given the plethora of similar policies in the annals of Irish property market history, this is not an abstract framing. When Help to Buy was rolled out in 2016 with a €20,000 rebate for first-time buyers, developers began revising prices upwards on property listings online within hours of the budget speech.
New homes increased in price by as much as €45,000, in real time, on MyHome.ie, in the time it took the minister to sit down, according to the Irish Independent. Good news travels fast, it seems. So who benefits from all of these policies? It’s not the “buyer” that’s in the policy name.
And it gets worse. As a homebuyer, you actually pay twice: once as a citizen, through the tax that you put into the subsidy to give to the property buyer and again through the increased price of whatever was being subsidised. In some cases, the asset owners’ giddiness creates inflation even greater than the actual size of the subsidy. Is anybody surprised by this?
After decades of dusting off the same tired, exhausted policies – surely by now they deserve to be left alone to retire in peace – did anybody actually expect the State to come up with solutions, in a year which has seen Ireland’s property market ranked “If the political elite insist on recycling these same policies, at the very least could they stop also recycling the rhetoric. Simon Harris, assuring us that this budget is for “the people who get up early in the morning”, can’t have spent much time deliberating on how that message would land – or deliberating at all, given it seems to have been recycled from Leo Varadkar.
Varadkar’s defence of the deserving strivers – which seemed to put them in opposition to the rest of us, who presumably lay dormant in bed – went down just as well with everyone other than those already voting Fien Gael At least Varadkar, in his search for recyclable policies and slogans, went further afield than Merrion Street. Because this phrase quite famously came from Nicolas Sarkozy, who built his 2007 presidential campaign onWe can only hope the next one does more than subsidise developers and owners, and instead puts that money into the only thing that will actually lower the price of a house: another house.
Creating the State infrastructure needed to build houses, however, involves more work than a rebate and a photo shoot. But it has the rare advantage of not having been tried in any kind of meaningful way in at least the last half century. Ireland’s failure premium: All the property schemes do one thing. It’s not help buyersPeople who get up early were left disappointed by Varadkar.
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