Cost Purchase Housing
The Week in Housing 16/02/24
This week I’m delighted to bring you a guest post by Alex Pigot, looking at the the idea of extending the logic of cost rental to homes for purchase. Alex researches housing markets and policy in Ireland.
The positive long-term effect of introducing Cost Rental Housing in Ireland should not be underestimated. While it is not a quick fix for the Irish rental market in terms of affordability, it will achieve that aim over time. As the number of cost rental homes on the market increases over the next four decades, the affordability of the wider residential rental market will tend towards cost rental prices as has happened in Vienna over the last 75 years.
But one solution which is still waiting to be implemented in Ireland is Cost Purchase Restricted Resale Housing. And this type of housing, if or when the government introduces it, should result in more affordable housing for all homeowners over time also.
So, what is Cost Purchase Restricted Resale Housing?
Cost Purchase Restricted Resale Houses are homes which are affordable to buy – costing perhaps €150,000 less, or 2/3rds of the price, of a new home than is available on the market today. The buyer only buys the building itself, and the Irish state or AHB remains the owner of the site and becomes the ground rent landlord. Such a system can mean that homes currently being sold for €450,000 are offered instead for €300,000. Let’s follow the money to see how this works in practice.
The AHB or state owns the site, which, let’s say, is worth €150,000, and offers a lease for the site for annual rent of perhaps 1% of its value i.e. €1,500 per annum (with the lease period being a lengthy period, e.g. two hundred years).
The developer (which can also be the state or an AHB) then builds the house. For a three bed in Dublin, which is about 100 sq. m. in size, the cost of a build should be about €300,000 (as per https://scsi.ie/consumer/build/calculator/).
The house can be sold to a purchaser who meets certain eligibility criteria – for example mirroring the conditions for a local authority home loan, where the gross household income is no more than €80,000. And similar conditions apply to the subsequent purchasers should the home be resold. The original purchase price was the cost of building the house. If the owner then wishes to sell, the maximum sale price that can be requested by the owner is also the rebuild cost of the house, but costed at the date of sale. And that maximum sale price is determined by the size of the house now standing and being sold. This ensures the home remains a cost purchase home as long as the lease is in place.
A lease condition is that the leaseholder (i.e. homeowner) is liable for any state property taxes. Another lease condition is that the homeowner may not sell the home at any time in the future for a price greater than the rebuild cost (a similar, and very successful, affordable housing model exists in Singapore, and is reportedly to be now tried in China).
The financing to bring a Cost Purchase Restricted Resale home to market is relatively straightforward, since the house itself is being bought by the new owner, the state or AHB only must finance in the long term the land on which the house has been built.
The Government should legislate for Cost Purchase Restricted Resale as a matter of urgency. The mechanism to provide such homes is relatively simple – by building homes on public land (or via the purchase of already built homes) and designating them then as Cost Purchase Restricted Resale and offering them for purchase as affordable homes to first time buyers.
While this will provide immediately some lucky homeowners with a more affordable home, over time, as the average price of homes are affected more and more by the price of those which are cost purchase, introducing Cost Purchase Restricted Resale Housing will result in more affordable homes for everyone in future generations.
Events & news
Professor Rob Kitchin will be speaking at UCD’s Geary Institute on the 20th February at 1pm (lunch provided), looking at Ireland’s housing and planning data ecosystem (linked to his ERC project on data stories). January’s Simon Talks seminar is now available to watch online, with the ESRI’s Conor O’Toole. A new report, entitled Vacant Above the Shop Unit (funded by the Housing Agency’s Research Support Programme), will be launched on Tuesday March 26th, 9.30am in the Seamus Heaney Lecture Theatre in DCU’s Drumcondra campus. I’ll include links to registration when I have them.
What I’m reading
The Chartered Institute of Building and TASC have a new report just out on Modern Methods of Construction. There’s a new issue of the Radical Housing Journal just out, especially worth checking out if you’re interested in tenant politics. Across the water there are some interesting things happening in terms of PRS reform. Scotland are trying to phase out rent controls (at least in their current form). It’s an interesting one to watch as it is instructive re the difficulty associated with doing so, something a future Government here might encounter. In England/Wales, the Tory’s confirmed that no fault evictions would be removed under the Renters Reform Bill, suggesting they might be finally going to do something about the appalling state of security of tenure there. Of course landlords and the property industry are losing the plot.
Hi Killian, Alex Pigot here. The affordable loan scheme (As per Affordable Housing Act) has two huge drawbacks:
Firstly, the home is not really that affordable as the purchaser will in the end have to pay the full price of the house (plus whatever uplift in the market price of the house in the future).
And secondly once the government/local authority has been repaid the loan (and perhaps make a profit as house prices have increased during the loan period) the home is now a commercial asset to be traded to the highest bidder and is therefore no longer an affordable home. So, our affordable homes housing stock is reduced.
The scheme I have put forward ensures the home is affordable more or less in perpetuity, as the leasehold terms require the owner when he/she sells to only ask for the rebuild cost of the home at the time of sale (unless the leaseholder waives that condition of course).
Hope this helps. Kind regards, Alex.
This is an interesting scheme, thanks for setting it out. However, I'm a little disappointed the author hasn't addressed the existing affordable purchase scheme at all. Given there is already an affordable purchase scheme in place, how would this scheme be preferable? I can see how the lease conditions might build in future affordability much more than an LA equity stake, but otherwise, would this be more affordable up front than the existing scheme, or would delivery be easier? While it's always valuable to share new policy ideas like this, I feel that the existing affordable purchase scheme is escaping some of the critique it could be getting, and it would be valuable to read a little more about its weaknesses.