As the housing emergency worsens it is still time for a game changer

Posted on September 09, 2017 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

Six months ago the NERI published a working paper entitled: Ireland’s Housing Emergency: Time for a game changer. Regrettably, but not surprisingly, the depth and scale of the housing emergency has increased over the summer months. While much publicity has focussed on homelessness (as measured by families in temporary accommodation) another crisis is developing in relation to affordability for those renting as well as for those seeking to buy. This has major long-term consequences for wage-bargaining, spatial planning and community development.

Left to itself, the market regulates supply and demand through price. If there is a blockage on the supply side associated with excess demand (which there is) then price goes up in the form of rents or average asking prices.  However, in the concrete conditions of post-crash and debt-laden construction in Ireland supply is not responding as quickly as it needs to.  Moreover, there is some evidence of land-hoarding for speculative gain which is not helping, either.

This Government, including the previous one, is seeking to come to terms with this crisis through a number of initiatives and continuing policy developments. However, the scale of the crisis is not matched by the policy response, to date.  Targets are vaguely set, timeliness missed, earlier announcements recycled into new ones and ‘Plans’ presented as announcements. Matters are not helped by the lack of reliable and timely data on new housing output (a subject discussed on this blog page some months ago). For what it is worth, the most up to date estimates of ‘new housing output’ (read numbers of Electricity Supply Board connections including reconnections of already built but vacant property over two years) show a very, very slow recovery in residential housing output.

Completions proxied by ESB connections is likely to reach 19,000 in 2017 going by trends in the first half of this year. This is at least 10,000 below what it should be just to meet demographic change never mind the build-up in unmet demand over recent years. The projected output proxied by ESB connections, this year, is still well below what it was in 2009 when the construction industry had already begun to severely implode and the country was in a deep recession.

Clearly, no Government can solve this crisis in the space of one or two years. However, there has been a marked lack of concrete and specific action on a sufficient scale to begin to shift the problem. At the core of this situation is the lack of ambition and courage in addressing particular sacred cows such as:

  • The role of NAMA
  • Ownership of land especially that which is vacant
  • The association between land hoarding and housing cost (a point completely overlooked by those advocating VAT tax cuts for developers)
  • The role of local authorities and other public agencies in providing housing.

At this point, the help to buy tax relief scheme announced in Budget 2017 has been widely discredited and proven to be part of the problem rather than a partial answer.

There are at least two positive signs that all is not bleak. These are:

  • A media report of consideration of a ‘semi-state company’ to build and deliver houses (has someone been reading the recent NERI research paper?)
  • Continuing reference to ‘cost-rental’ as part of an overall solution to the housing crisis.

Now, put these two points together and fastrack money, legislation and other provisions and we might begin to see faster progress.  The ‘European Cost Rental Model’ advocated in the NERI Research Paper last March would not, if it were implemented in full over a number of years, solve all of the housing crisis. However, it could be a ‘game-changer’, over time, for the following six reasons:

  1. It would deliver a significant number of quality housing units rather than rely almost exclusively on the private sector.
  2. It would fund itself in the medium-term by means of full economic cost rents.
  3. It would put downward pressure on rents (or at least constrain further increases) by building, delivering and renting just below average private commercial levels (removing the profit margin of 10% plus on most developments).
  4. It would provide new options and choices by way of mixed-community, high-quality, affordable rented accommodation for young couples, singles, the elderly, migrant workers, etc.
  5. It would begin to put an end to ghettoization of social housing by integrating different groups into a single affordable housing strategy.
  6. It would provide Local Authorities with the means to lease out housing for social purposes from the proposed Housing Company of Ireland.

All of this would take time and would involve some significant upfront exchequer outlays in the period leading up to the establishment of the Housing Company of Ireland.  Such initial investments could not come out of ‘net fiscal space’. Some short-term flexibility on ‘net fiscal space’ would probably have to be negotiated and agreed with the European Commission.

No doubt objections including reasonable ones can be raised. However, if the right to accommodation is seen as a fundamental human right then society must take the necessary steps to address the acute market failure that lies behind the emerging emergency. Otherwise the crisis will not abate and another lost generation locked into debt or rental crunch will emerge. The social and political consequences of that could be considerable.




Digital Revolutionaries