Investment and housing
 

What is in the budget?

  • 30% of total new expenditure was dedicated to capital.
  • €150 million for the delivery of additional social housing units in 2017.
  • €105 million extra for the Housing Assistance Payment.
  • Help to buy scheme for first-time buyers for newly built houses, this consists of an income tax rebate which can be used to fund the deposit.
  • Additional capital spending as follows: Education (€40 million), communications, climate action and environment (€45 million) and public transport (€55 million).



What does it mean for business?

The prioritisation of capital spending is welcome; 30% of all additional spending is in this area. Government spending on capital is currently at an all-time low, only accounting 1.5% of GDP in 2015, the lowest share of any European country. While this was partly due to the denominator effect of last year’s surge in GDP, capital spending is currently 60% lower than what was invested in 2009. The majority of what is spent currently goes towards depreciation and maintenance. The fall-off in capital spending is largely to do with the EU’s fiscal rules which are severely restricting capital spending. Ibec has been calling for these rules to be changed since early 2015.

One of the greatest pressures from underinvestment is in housing. This sector was prioritised in the Budget. The €150 million that was allocated towards social housing was needed.  However, the preferred method for the delivery of social housing in recent years has been acquiring existing houses as opposed to building new ones. Last year, the number of new social housing units was 1,160 but only 75 of these were new builds. If new units are bought instead of built, this reduces supply and puts more pressure on the rental market. This will do two things; firstly, it will cause rents in the private sector to rise, which will increase rent allowance payments and secondly, as the supply shrinks and rents go up, this will make more and more people reliant on social housing.

The main reason for the low level of construction is that building costs are still at peak levels, while house prices are much lower, reducing margins in the sector. The new scheme for first-time buyers will help those people saving for home deposits and will also give greater market confidence to house builders which will in turn help boost housing supply.

 

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