Budget 2015 and Public Investment in Social Housing
Posted on October 15, 2014 by Daragh McCarthy
There are over 90,000 people on the waiting list for social housing. This level of demand for a basic need required a substantial investment in housing, and, in this regard, Budget 2015 was a significant first step. The headline investment of €2.2 billion over the coming three years to provide 10,000 social housing units will make a difference.
The coming year will see €450million in direct state investment in housing with an additional €1.1 billion invested over the course of 2015 and 2016. Moreover, Budget 2015 signalled the intention to use public private partnership and an off-the-books vehicle to channel a further €700 million into the provision of housing units. This level of investment is an appropriate supply side measure that will start to deal with the crisis in social housing.
From a social perspective, there is a need to demonstrate solidarity with the families currently waiting to be housed and those struggling to cope with the rapid increase in rental prices that has taken place over the past two years, particularly in Dublin. In terms of the wider economy, a stable housing market that provides an ongoing supply of affordable homes is of concern to everyone. Recent experience and academic evidence suggest property price bubbles have a greater consequence for economic activity than other forms of asset price volatility, with the fall in house prices shown to cause the deepest and most prolonged recessions. For many, housing assets are the primary source of wealth and the basis of considerable personal debt, so a fall in the value of this asset will significantly stifle consumer spending and investment in the economy. When consumer spending slumps job losses in retail, services and a host of other areas follow. Further, the resulting constrains on investment limit the capacity of the economy to grow over the medium to long term. The misery stemming from the collapse of the property of market in 2008 underscores the importance of this sector throughout the economy. The economy would benefit from a housing market characterised by modest price growth above, but not too far from, the long run trend in price levels in other sectors of the economy. The commitment in Budget 2015 to boosting the supply of social and affordable housing is an important first step in achieving this aim.
Housing completions by public and private sector, 2004 – 2013
Public investment in social housing will be a source of job creation. Employment in the construction sector is well short of the norm for an advanced economy and this investment in housing will be a source jobs in one of the sectors worst hit by the recession. The most recent data from the CSO shows that compared to the second quarter of 2007 there are currently 168,000 people less working in the construction sector. While a return to 2007 levels of employment in the sector is unrealistic, stimulating job creation in the construction industry is important part of sustaining the emerging economic recovery. As a rule of thumb, it takes 26 workers to build 10 houses. On this basis and looking at on standard multipliers for the Irish economy, the straight capital investment of €450 million can be expected to create employment for at least 4,000 people over the coming year. This is a considerable number of jobs, though it represents a small fraction of the number of redundancies in the sector over the past six years. State investment will play a vital role in breathing life back into the construction industry, but it can only do part of the work required.
The full details of the government’s new social housing strategy will be announced by Minister Alan Kelly in the coming weeks. In detailing how it will promote social housing provision, the government’s plans should also look to support the early signs of recovery in private investment in building and construction. The period between April-June this year recorded the third successive quarter of annual growth in new house building—the first time this has happened since early 2006. However, recovery in the private market is at an early stage. Budget 2015 announced a number measures to support private construction with the expansion of the income tax relief for landlords that carry out renovations on their rental properties and the reduction in the windfall tax on rezoned land to the standard capital gains tax rate featuring prominently. The problem with these measures and with tax breaks more generally, is that it is difficult to assess the costs and benefits associated with them. In theory they should boost supply and renovations, but their effectiveness in achieving these aims should be closely monitored.
Public investment in the provision in social housing units is a progressive, job creating element of Budget 2015. In the short run it will create at least 4,000 jobs. It is a first step toward the goal of alleviating the crisis in social housing that was the result of a long period of underinvestment. There is much work still to be done.
The NERI will host a post Budget Seminar on October 22nd. Details availabe here.