Housing boom hits first time buyers…

AS house prices soar in Northern Ireland, first time buyers are being priced out of the market. The LibDems suggested some ideas the other day to deal with this growing problem. A rise in the stamp duty threshold and restrictions on the sale of properties to those from outside the area has been mooted in the Yorkshire Dales.

James Stinson reported today in the Irish News:

Northern Ireland is turning into a region of haves and have-nots – those that have a house and those that can’t afford one.

It has always been the case that those in work, and those who work in the public sector especially, are more likely to own their own house while those on benefits or low incomes don’t.

However, this divide has widened significantly in the last five years.

As the relatively well off have become more affluent they have helped drive up average house prices, leaving fewer people at the lower end of the wages ladder able to buy their own home.

According to the Council of Mortgage Lenders first-time buyers now make up 30 per cent of the total house sales market – down from 60 per cent just three years ago.

Bank of Ireland economist Alan Bridle said affordability remains a key issue in the house price debate in the north.

“The first time buyer issue cannot be divorced from North- ern Ireland’s socio-economic structure of relatively low wages in the private sector, a deficit in high income graduate positions and higher than average dependency on benefits,” he said.

  • Roger W. Christ XVII

    State intervention in house prices themselves has basically no effect. If you cut stamp duty for example, or apply tax discounts to mortgage interest, the value of all of the houses in the market will simply increase by the amount of spending power created by the measure. That is because all of the potential buyers have the same increase in the money available to fund a purchase and they will simply bid the value of the prices up to that point.

    What the state can do is control property speculation by coming up with a way to regulate properties which are held for the prospect of future capital gains but not actually lived in by anyone. Additionally further punitive taxes can be applied to people investing in property particularly residential property. Finally house building undertaken or underwritten by the state can help to loosen things from the supply side.

  • PaddyCanuck

    In Canada, they have a couple of things which help the first time buyer.

    First we have the CMHC. It is a government ran insurance system which assumes risk that the banks will not take for a small percentage of the houseprice. It allows you take up to a 100% mortgage, no down payment, which is a big foot up for first time buyers.

    Second, you can withdraw up to 20000 dollars each (for a couple) , from your pension plan, tax free, for a down payment. You have to promise to pay yourself back over 10 years.

    Third, a 40 per cent tax break on prpperty taxes (rates), for first time buyers.

    It all helps.

  • Alan

    Paxman will brilliant on this. He knocked the Lib Dem spokesperson for six by suggesting that the vendor should pay the stamp duty.

  • Alan

    will ? sorry was brilliant on this

  • mnob

    The only way to control house prices is to increase interest rates (yes I did say that).

    In the last 20 years the %age of income spent on mortgage payments has halved, as average earnings have increased and interest rates have fallen. This allows people to trade up to larger houses on the back of equity rises caused by low rates, and also makes second homes and investment properties much easier to fund.

  • George

    On increasing stamp duty, it may deter the investors but the first-time buyers will still be in the market trying to buy and if the banks will give them the mortgage they’ll pay the extra.

    Also, many investors were forced out of the market in the Irish Republic by increases in stamp duty at the beginning of the decade and this didn’t change anything for first-time buyers.

    All that happened was that the rate of construction dropped, no good when you are trying to increase the housing stock to bring down prices.

    Stamp duty on second-hand homes up to 317,000 euros was abolished in the Irish Republic and what happened, the price of second-hand houses went up by the equivalent amount almost overnight.

    The old first-time buyers’ grant was abolished because basically the equivalent money was factored in by the builders and added on to the price of the house.

    Seeing as Northern Ireland doesn’t have control over its own interest rates (as high on the Bank of England’s priorities as Ireland is on the CEB’s), the only way it can stem house prices is to let supply meet demand.

    This naturally means making land available for development to build more houses but to do this NI has to get its antiquated sewage system upgraded.

    This means very high water rates I’m afraid unless people are happy with pumping raw sewage into the sea which is already happening in parts of NI due to the pressure on the water infrastructure.

    Only because the Republic has been per capita building seven times the number of houses as the UK in the last couple of years, 80,000 in 2004, has the rate of annual price increase finally dropped below 10%.

  • mnob

    George.

    You want to build more houses which will bring the price down which will attract more buyers which will mean more houses need to be built ….

    You also want the taxpayer to fund this process by putting in the necessary infrastructure. Are you Fred Frazer in disguise ?

    As I said the housing market is booming *because* of the affordability of houses. Not the other way round.

    New housing build is carefully controlled in Northern Ireland by a small number of developers who own or have options on most building land and can tweak the supply and demand to maximise their profit. One effect of having more land zoned for housing would allow them to play one landowner off another to reduce the amount they pay for land to maximise profits.

  • George

    Mnob,
    totally disagree, there is a housing boom because of the demographics, ready availability of mortgage credit and the shortage of housing stock. It has nothing to do with houses being cheap – they aren’t. They are very expensive.

    The only way that NI can slow down the price rises and stop a crash in the long run is:

    less people looking for houses (demographics)

    less numbers looking for mortgages (higher rates and/or tougher criteria for mortgage qualification)

    Supply meeting demand (building more houses).

    You could buy a great 150 square-metre penthouse propery in the centre of Berlin for the same price as your average house in Northern Ireland. Why?

    aging population (demographics)

    20% unemployment (large numbers unable to meet mortgage criteria of having 20% of the capital up front)

    Supply greater than demand (up to 20% of housing vacant)

  • DessertSpoon

    I never understand that if you can afford to pay the rent why banks don’t think you can afford the mortgage.

    I don’t see how increasing interests rates would help unless you divorce the mortgage rate from the UK interest rate and let Banks set their own, they could be sky high then. Can’t see it happening though.

    No best bet is to hang on and wait till the old folks snuff it and hope they’ve left the house to you and that it hasn’t increased in value so much you have to sell it to pay the death duties which is another ridiculous tax!

  • Alan

    All first time buyers are in favour of cheaper housing until they become mortgage owners.

    Demographics and control of the supply of land through zoning is crucial to maintaining a *good enough* supply of housing. It is also important that we build homes where we want them to be built and not just where speculators own land or can build cheapest.

    Keep an eye on the demographics into the future too. Twenty years from now we will have a greatly reduced number of first time buyers and prices will tumble. They’ll be giving them away in cereal boxes! Well almost.

  • fair_deal

    Pre-fabricated housing can now be produced to lifetime standards, is quick easy to build, cheaper than exisitng methods, offers opportunities to light engineering companies (a strength of the local economy) and is much easier to adapt to changing housing needs over time than other types of housing.

    It has been included in the plans of the Office of the Deputy Prime Minister to address housing issues in England and Wales but as per feckin usual none of the NI departments or agencies have shown any particular interest.

  • Young Fogey

    A few thoughts:

    We also need enough homes to be built. The restrictive planning system in NI and other parts of the UK makes it very difficult to build homes, and other social goods like roads. Because of changes in the family structure and, in NI, what is still a fairly rapidly growing population, we need more homes, and contrary to the planners’ dreams, not single person wants to live in a small one bedroom flat. Changing the planning system, of course, would require a government with the guts to take on not only the eco-warriors and the Guardian reading bourgeoisie, but the NIMBY Daily Mail types who make common cause with them on this issue.

    As per usual, the middle-aged middle-classed who dominate the political left in the UK dress up system which suits them and penalises the less well off as ‘progressive’, and attack anyone who dares disagree with them as ‘right wing’. We need planning reform now.

    Planned communities, as Alan suggests, have their place, but do remember the planners can create ugly, soulless communities as well as any rapacious developer, as a quick trip around Rathcoole, Twinbrook, Ballybeen, the Creggan, etc., etc., will attest. As in most political issues, the balance between the common good and individual desires is difficult to strike. In my view, our planning system weighs much too heavily in favour of what is perceived to be the former and most people end up losers.

    A drastic rise in interest rates might cool off the rise in house prices, but will increase the amount people actually pay for their housing in any given month. Ultimately, the only beneficiary would be the Bank of England and perhaps some of the shrewder bond issuers. By making it more difficult for people to release the equity in their homes and more expensive for business to raise capital, it would have a disproportionately negative effect on other areas of the economy. Thankfully, the Monetary Policy Committee are not going to embark on such a risky course.

    Pre-fabricated homes, again, have their place, but the bulk of the cost of housing is driven by the price of land, not the cost of construction.

  • fair_deal

    young fogey

    There are equity share arrangements that can address the cost of land issue in terms of the provision of affordable housing at least.

  • Young Fogey

    Not to the extent of making more land available for building on and making the planning process quicker, there aren’t.

  • mnob

    George,

    I never said houses were cheap, I said the cost of servicing a mortgage is. On average it is 12% of earnings now as opposed to 25% in the early eighties. That is what is fuelling the rises.

    Also after the recent stock market performance people perceive property as the next big thing and are investing in it as never before. Its a sure thing apparently, housing is a safe bet and prices will go up and up for ever(hmmm … heard that somewhere before). If and when the bust comes things might become interesting, and we might be wondering why we changed a long term planning strategy to cope with a short term problem.

    To those who comment about Rathcoole etc. I would suggest you go visit. They have good public transport, large areas of green, shops and amenities accessible to all. Compare that with the new developments in Glengormley, Carrickfergus, Lisburn etc. and *then* come back and comment.

    Its strange that some equate planned communities with social housing.

  • Biffo

    “To those who comment about Rathcoole etc. I would suggest you go visit. They have good public transport, large areas of green, shops and amenities accessible to all….”

    So that’s ok then, no need to worry that its covered in graffitti and run by paramilitary thugs.

  • Roger W. Christ XVII

    I can’t help but feeling nervous about things like the housing market and the levels of consumer debt (secured or otherwise) in the UK. The Bank of England obviously has things to consider other than UK house prices and the way things are it will only take a few notches up of the interest rates before a lot of people are in trouble. I have a few pals working in a bank call centre and the levels of unsecured debt held by some of the people coming on the phone trying to borrow more money would buy a modest house in most parts of greater Belfast.

    Then there’s the more theoretical risk associated with having a huge proportion of the UK’s available capital tied up in bricks which sit in the ground and do nothing other than require maintenance, as opposed to revenue-generating enterprises which spread capital around the country.

    You often hear people say “how can you go wrong in property investing, people always need somewhere to live”, as though a lot of people decided during two or three rough periods in the 1980s that they didn’t need a house anymore.

  • Alan

    Young F,

    Your brass neck is showing beneath your Armani. Talk about cookie cutter houses and you talk large scale private sector, talk about minimal space and lowest possible standards and you talk large scale private sector, talk about costing more to maintain over the life of the property and you talk large scale private sector. Some developers also specialise in manipulating property prices over the long term.

    Without zoning we’d have linear settlements stretching out along the arterial routes, you wouldn’t see a blade of grass from Belfast to Newry for the Early Learning Centre trampolines, and none of them would have a local shop, school, chemist. . .

    There are some wonderful new private sector developments, I’m not denying that, but it is minimal regulation that has lead to them being the exception, rather than the norm.

    Biffo,

    *So that’s ok then, no need to worry that its covered in graffitti and run by paramilitary thugs.*

    And who let that happen anyway?

  • aquifer

    Low rates bills are a hidden subsidy for those with big relatively empty houses. Lets recover some of those infrastructure costs that help give those houses their fancy prices.

    Although the local housing market looks like a private sector one, it is forced by big numbers of public sector salaries, and of course by high land prices due to poor planning and transport policies.

    Better to use some of that salary bill to pay subsidies for each affordable unit completed, instead of having builders build fewer expensive homes for their preferred second time buyers.

    Having people dependent on segregated public housing fits our zero sum politics too well.

  • James

    Suffer a few more tourist questions.

    Do you have a government guarantor for a housing loan?. Guarantor = If you screw the pooch the guarantor makes certain the bank gets paid even if you are out of the picture.

    Is home mortgage interest deductible from income tax? If so, does this apply to more than one house, i.e., a vacation cottage.

    If you sell a house, do you get a tax break on the appreciated value if it is a principal residence? Do you have means, like a live-in residency term, of establishing principal residency to curb speculators?

    Are you allowed a once in a lifetime “windfall” exemption on the sale of the family home?

  • Alan

    Too many questions – my understanding is –

    *Do you have a government guarantor for a housing loan?. Guarantor = If you screw the pooch the guarantor makes certain the bank gets paid even if you are out of the picture.*

    No, although there is a Gov’t scheme to part purchase lower value properties which are then *let* to the vendor on a part rent / part mortgage basis. You can cover mortgage payments through private insurance.

    *Is home mortgage interest deductible from income tax? If so, does this apply to more than one house, i.e., a vacation cottage.*

    Not on PAYE, who knows what tricks a good accountant can get up to, however, for those without the system.

    *If you sell a house, do you get a tax break on the appreciated value if it is a principal residence? *

    Yes and No. If the value goes into a new property it is not taxed. If it does not then its a capital gain and taxable.

    *Do you have means, like a live-in residency term, of establishing principal residency to curb speculators?*

    No. Hence huge levels of speculation in what might otherwise by first time buyer accomodation in Belfast and homes in desirable holiday locations being priced out of local peoples hands.

    *Are you allowed a once in a lifetime “windfall” exemption on the sale of the family home?*

    No, that sounds like the US/Canadian pension arrangements.

  • mnob

    Biffo,

    Can you explain to me the design of Rathcoole etc. and tell me how that contributes to the graffitti and hood problem.

  • Alan

    Not wanting to tread on Mr Boffo’s toes, but there was a lot of theory from the 80’s in which issues such as absence of defensible space (i.e. no garden walls / fences and too much open space), multiplicity of access routes ( the number of ways a burglar / hood could escape capture) etc were blamed on causing sink estates.

    The answer, however, was mainly down to good old fashioned housing management. I wouldn’t like to count the number of tenants over the years who complained that the place had gone to the dogs since the NIHE did away with the rent collector.

  • Young Fogey

    James:

    Do you have a government guarantor for a housing loan?. Guarantor = If you screw the pooch the guarantor makes certain the bank gets paid even if you are out of the picture.

    No, and we won’t have one due to moral hazard issues – i.e. it encourages banks to be less thorough in their checks of who they lend to and therefore ultimately makes the cost of borrowing higher for those who repay honestly.

    Is home mortgage interest deductible from income tax? If so, does this apply to more than one house, i.e., a vacation cottage.

    Not since 1997 when Labour rightly got rid of an ugly, market distorting subsidy which gave the poorest nothing and the richest enormous sums of money.

    If you sell a house, do you get a tax break on the appreciated value if it is a principal residence?

    Yes, it will be Capital Gains Tax exempt if it is the primary residence.

    Do you have means, like a live-in residency term, of establishing principal residency to curb speculators?

    I think you’re asking do we have a way of making sure people don’t sell their second home and then pretend it’s their primary home. If you are, there hasn’t been a history of problems here as second home owners get breaks on local property taxes in the area where their second home is located, and therefore tend to be honest about it. Another ugly, market-distorting subsidy for the rich!

    Are you allowed a once in a lifetime “windfall” exemption on the sale of the family home?

    I’m not sure what you’re asking here – if we sell our dead parents’ family home, it’s not subject to Capital Gains Tax as we haven’t made a capital gain on it, but if their estate (including the house) is worth more than UKP255,000 then we would have to pay Inheritance Tax, which is fairly steep. Nothing I’ll have to worry about.

  • Young Fogey

    Alan,

    please don’t put words in my mouth – I never suggested we do away with all planning restrictions nor did I suggest the private sector is a panacaea. However, if you think there wouldn’t be a blade of grass visible from Belfast to Newry in the event of planning reform, you obviously think it would be attended by a massive population boom!

    We do have a planning system which seems to work from the premise that Development Is Evil, and which can plod its way through applications, appeals, representations and public enquiries a decade or more before decisions are made. We also have a series of urban plans which zone a completely inadequate amount of land for new housing development. The ultimate result of this is that younger and poorer people are forced out of the housing market through higher than necessary and a small number of developers seem to know how to work the system and get to build ugly plywood boxes with a captive market due to the lack of competition. I never said anything about ‘large-scale’ private sector at all.

    As for who should build houses, well if you could leave your undergraduate socialism behind for a moment, you would notice that, firstly, the Northern Ireland Housing Executive is being balkanised at the moment and, secondly, there are an awful lot of empty houses in Housing Executive estates in Belfast. You’d also notice that the population in most big housing estates has fallen dramatically in the past 20 years. You might even notice that the Northern Ireland Exchequer is pretty bare at the moment. You might then work out that there isn’t a huge demand for public sector housing in NI at the moment, or capacity to delvier it at any great scale.

    You might also notice that Belfast City Centre is full of empty flats, feasted on by speculators, forced on us by the planners when most people seem to want to live in suburbia. Personally, I think they’re mad for that, but democracy in my book is about respecting freedom of choice, not the chattering classes trying to force their lifestyle preferences on to everyone else.

    Anyone who thinks public transport in Twinbrook or Rathcoole is good obviously needs to leave the car at home more often.

    By the way Alan, I never wear Armani. It’s much too nouveau.

  • James

    PaddyCanuck:

    Check out the questions in my 3:13 AM.

    How does Canada fare here? Does the same policy apply equally to all provinces and territories?

  • Biffo

    mnob

    “Biffo,

    Can you explain to me the design of Rathcoole etc. and tell me how that contributes to the graffitti and hood problem.”

    Rathcoole was designed as a big, sprawling, soviet era, housing scheme.

    They piled them on top of one another in some bits and left a big empty spaces in other bits (what is the big space at the diamond used for?).

    Hooding and graffitti thrive in communal spaces. I don’t know why, I’m not an expert.

  • mnob

    YF,

    You say that there is inadequate land zoned for housing but at the same time admit to empty spaces within the existing urban area. Surely if there was inadeuqte land zoned then the empty spaces would be used up.

    I would contend that the empty spaces are there because of large scale releases of greenfields in the 80s which sucked the upwardly mobile out of Belfast and into the suburbs. The estates and inner city suffered accelerating our equivalent of ‘white flight’.

    Developers prefer to build on green fields because its cheaper and more convenient for them. There are any number of suitable sites within Belfast for development which are ignored because of the availability of green field sites.

    The reason developers bleat about a lack of green field sites because they are unable to cherry pick and play one land owner off against another.

    You seem to think that cheaper land = cheaper housing. Do you really think that out of public spirit developers are going to charge less for their houses than people are prepared to pay ?