Surging house prices could rise even more if plans to extend first-time buyers’ grants are followed through on, Finance officials have warned, writes Craig Hughes.

Internal briefing documents prepared for Finance Minister Paschal Donohoe caution that extending grants to second-hand homes – which has since been provided for in the Programme for Government – “represents an additional upside risk to prices”.

The Help-to-Buy and First Home schemes, which only apply to newly built properties, are widely agreed by experts, including the ESRI and Central Bank, to have driven up house prices.

And the Opposition say that if secondhand homes are now included, it would “turbo charge” inflation and push even more people out of the property market.

The price of new and second-hand homes has soared in recent years with a report from DNG estate agents last month finding the average price of a resale property in Dublin is almost €600,000 – an increase of €50,000 in 12 months, even while excluded from the grants.

Former finance minister and Fianna Fáil TD Michael McGrath warned against the move of extending grants ahead of last October’s budget, saying it would “provide no incentive effect to encourage the building of new homes and would be likely to have a significant dead-weight element and a high Exchequer cost”.

Despite this, Fianna Fáil and Fine Gael both campaigned on including second - hand homes in the grants the November election.

Mr Donohoe’s Fine Gael party pledged to expand the Help-to-Buy to include second-hand homes if re-elected.

The scheme provides first-time buyers with an income tax rebate of €30,000 if they purchase a newly built home up to €500,000.

During the election, Fine Gael pledged to increase this to €40,000 and include second hand homes.

Fianna Fáil committed to including second-hand homes in the First Home scheme, which allows the Government and banks to provide up to 30% of the property’s cost in exchange for a proportional stake in the home.

The promises were branded as “classic auction politics” that were “using young people as a tool” during the campaign by Technological University Dublin lecturer and housing expert Professor Lorcan Sirr.

The Programme for Government agreed between Fianna Fáil, Fine Gael and the Independents commits to “retain and revise” Help-to-Buy.

It also says it will work with banks to “expand the First Home scheme to firsttime buyers of secondhand homes”.

Both schemes are “demand side” supports meaning they help individuals purchase homes rather than increase housing supply.

A briefing note for Mr Donohoe last month warned that extending “demand side” supports to the second-hand market risks stoking home inflation further, at a time when falling interest rates are making housing more affordable.

“Lower interest rates and robust income growth will improve purchasing power of buyers, while the potential for extension of demand-side measures to existing dwellings represents an additional upside risk to prices,” the officials wrote.

They noted that second-hand home sales “are now the primary driver of residential property prices”.

“Rising property prices continue to reflect a structural shortage of supply, with strong demand for existing dwellings now the key driver of price growth,” the officials wrote.

Sinn Féin housing spokesman Eoin Ó Broin, whose party campaigned to phase out Help-to-Buy during the election, said that adding second-hand homes to the schemes would “turbo charge” inflation.

“If you were to extend Help-To-Buy or First Homes, or worse both, to second-hand homes, all you are going to do is turbo charge what is already a high rate of inflation,” he said.

Mr Ó Broin also said that the consequence of including second-hand homes would be to lock more people out of the housing market, adding: “This is a disaster of a policy and Government shouldn’t proceed with it.

“Not only is the advice [from officials] correct, I would suggest you won’t find a policy expert or economist who will disagree with it,” he said.

There have also been warnings from within the Government’s own ranks at such a move.

On May 21, 2024, Ireland’s European Commissioner Michael McGrath, also former finance minister, ruled out extending the Help-to-Buy (HTB) scheme.

He said: “HTB is specifically designed to encourage an increase in demand for newbuild homes in order to support the construction of an additional supply of such properties.

“For a property to qualify for HTB, it must be new or converted for use as a dwelling, having not previously been used as a dwelling.

“A move to include properties which were previously used as residential homes/second-hand properties within the scope of the scheme itself would not improve the effectiveness of the relief; on the contrary, it could serve to dilute the incentive effect of the measure in terms of encouraging additional supply.”

He added: “For these reasons, there are no plans, at present, to extend the HTB scheme to include such properties.”

When asked if second-hand homes would be added to the HTB scheme, a Department of Finance spokesman referred to a recent parliamentary question response from Mr Donohoe, in which he said it will be considered in the next budget in October.

Mr Donohoe said: “Any revisions to the scheme would have to be considered in advance of the annual Budget and Finance Bill processes, having regard to the Department of Finance Tax Expenditure Guidelines and the sound management of the public finances; and would take into account the effective operation of the scheme and the impact any proposed changes would have on the broader housing market.”

A Department of Housing spokesman said work is ongoing to assess the impact of the proposed change.

He said the First Home scheme is “being examined by the department and Housing Minister [James] Browne” with analytical and technical work underway to look at the potential for such an expansion as soon as possible.