A small number of builders and developers own the land zoned for housing around Dublin. They are the suppliers of housing, and they have control over supply. As monopolists or semi-monopolists they have a vested interest in the high and rising prices for new houses. If prices rise, their profits rise.
The new scheme introduced by the Government gives a 5 per cent rebate of tax, up to €20,000, to spend on new houses priced up to €400,000 and €20,000 on new houses priced between €400,000 and €600,000.
This will bring more people into the market, as it will increase people’s ability to get the 20 per cent deposit required by the Central Bank. So demand will go up. If supply were to rise by the same amount, prices would remain the same.
But the monopolist suppliers—the developers and builders—want increased prices. So the increase in demand will not be matched by a similar increase in supply, and prices will rise because of the scheme.
In a similar scheme in 1997, when a grant of €1,000 was given to buyers, builders increased their prices by €1,000. This new scheme will cause an increase in the size of mortgages and mortgage repayments. So in the long run buyers may be worse off. It is a subsidy to monopoly.
The only real solution is a massive public house-building programme run and controlled by local councils or by a specialised publicly owned and controlled house-building company.