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A roof over your head

Posted on October 02, 2015 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

A roof over one’s head and a safe, comfortable and healthy place that can be called home is a fundamental human right. Just as the issue of land was a central social concern and point of conflict in 19 th century Ireland, the question of accommodation was central to the social movement associated with the rise of trade unionism in the early years of the last century. Much of the social protest movement in both parts of Ireland seen in the late 1960’s was related one way or another to housing – or the lack of it or the quality of it. An extraordinary feature of what came to be known as the celtic tiger period is that huge distortions were created in the supply of housing with inappropriate supply by type, by cost and by location. 

True, the market was ‘misled’ by inappropriate tax breaks and other incentives. However, the principle of leaving housing almost entirely to the market with a declining share of public housing supply has stored up huge social problems now that the results of this long-term shift in policy are evident.

There is a poor grasp of what has happened in the area of housing policy. Ireland moved from a heavily socialised component to housing in the 1940s to a much more significant share of private housing output in the 1980s. A combination of fiscal crisis in the mid-1980s coupled with the rising tide of ‘neo-liberal’ economics in Irish public policy during the same period saw a big cut-back in social housing output. The normal and long-term output levels were never restored. The economic crisis of 2008-213 was the final blow with an almost complete cessation. There should be little surprise that the collapse in supply coupled with a surge in private rental costs in 2014 to date has had a catastrophic effect on individuals and families. The cost – to the state – of providing short-term emergency accommodation is significant.

The problem is one of supply

A short-term response must address the problem of rental costs. A rental cost that is out of control is bad for everyone and must be addressed with suitable rental price caps. However, the problem is essentially one of supply – with an under-investment in suitable housing in the right places by public and private enterprises. Given the after-shocks resulting from the explosion in property prices in the early years of the last decade followed by an unprecedented collapse in 2008-2013 there is plenty evidence of pent-up demand for living accommodation especially in the main urban centres. Demographics are a key driver of change with a rising population of younger persons seeking accommodation. A key concern is not only the cost of renting living space but the tenure and predictability of rental costs. This is a killer for many families and individuals – especially those on low income or unpredictable income such as those in precarious employment or facing unpredictable hours of work.

In recent times there has been a marked shift towards private renting of accommodation with approximately one in three households renting from private landlords or local public authorities. Contrary to widespread impressions the extent of home ownership, in the Republic of Ireland, is now close to EU norms at just over two thirds of the total. There has been a sharp upward trend in the ratio of rent to total household expenditure among private renters since the late 1980’s.

Policy responses

A policy paper issued by the National Economic and Social Council in June 2014 ( Social Housing at the Crossroads: Possibilities for Investment, Provision and Cost Rental ) reviewed the current situation and suggested ways forward.  A common theme which emerges from studies of the housing situation is that there is an imbalance between supply and demand with problems in providing affordable housing for those who wish to buy and ensuring security of tenure and rent for those who wish to rent (or who cannot afford to buy at this time). As a consequence of under-investment by public authorities in ‘social housing’ over many decades, the exchequer has been exposed to escalating private rental costs where state subvention is provided to private renters or landlords.

A critical difference between the housing market and many other types of markets is that the rules of ‘perfect competition’ apply even less than they do in ‘normal’ markets.  Research by NESC identifies marked differences between the ways cost-rental and profit-rental systems work. They conclude that:

European countries with more stable, affordable and socially inclusive housing systems generally provide modest support for large-scale provision of secure rental accommodation, mostly by non-profit bodies, in which rents reflect costs, not the maximum that market pressures will sustain.

This poses a challenge for a policy approach that has been more developer-led than state-led or socially balanced. A balance of different housing types and mix of ownership and renting has been undermined by a combination of fiscal and social policies that helped distort behaviour and supply – the fruits of which became all to apparent during the recent crisis as well as the emerging homelessness crisis of very recent times. Clearly, there is need for appropriate funding mechanisms to allow for social housing output. This could be done ‘off-the-books’ by the creation of funding and rental streams that enable public commercial agencies to operate outside of ‘General Government’ for the purposes of public debt and deficit expenditure.

The Government’s own Social Housing Strategy 2020 leans heavily on a market-led approach involving public-private partnerships in the building of new social housing units at a rate of 35,000 over 6 years and a predominantly private rental sector to provide meet the target of up to 75,000 through ‘an enhanced private rental sector’

Given international norms as well as research on housing demand a proportion of somewhere between one quarter and one third for social housing in total housing stock is not unreasonable. The development of appropriate institutions for borrowing, lending and commissioning house building is needed. A minimum annual target of 20,000 houses or living units should be set rising to 40,000 per annum until the current crisis is past. This might involve a total construction budget for new dwellings of at least €3.5 billion per annum rising to €7 billion per annum in the medium-term. With a social housing component of one third this might imply an annual investment of between €1 billion and €2 billion. These figures are tentative and resting on various assumptions. However, they show the extent of ambition and urgency needed.

The case for a housing agency

As my colleagues Daragh McCarthy and Micheál Collins point out in a NERI Research InBrief last year (Ireland’s Housing Crises: The case for an affordable housing provision agency):

Building a considerable number of affordable houses each year is an ongoing need in a well-functioning, stable economy. A new housing agency would be a considerable step towards meeting the current challenges in the system and the continuous need to provide affordable housing suitable for a variety of household types.

A key requirement is a sense of urgency and a sense of social vision linked to a joined up strategy that integrates planning, transport, housing and various public services rather than a property-led model that has caused so much grief and disruption.

 

Posted in: Government SpendingInvestmentLiving wage

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