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O happy days?

Posted on November 17, 2017 by Tom Healy

Tom Healy, Director NERI
Tom Healy, Director NERI

Many (most?) listeners of an early morning news might be forgiven, last week, for wanting to climb under the blankets when they might have thought they heard: ‘house prices could rise by over 20% in the next three years in the Republic of Ireland - but don’t worry, housing remains and will remain affordable – on average’.  As luck had it, the same morning featured the latest data on rising average rents right across the State. In the meantime, various manners and classes of persons live and work in quiet despair to meet escalating annual rents and house prices shooting even further beyond

‘What crisis?’ seems to be the de facto official view. Some have even gone so far as to suggest that not only is housing affordable and there is no housing crisis but homelessness is below international levels.  If you think that you are seeing an ostrich minus a head then there is no need to adjust your screens.

Wherever one might fall on a spectrum of complacency it is clear that the ‘housing problem’ is not going away.  It may be that some people ‘feel’ a lot wealthier because their house is now worth 12% more than it was last year.  It might also be a very welcome development for banks, property developers and government that problems of negative equity, mortgage non-payment and banking liability holes are gradually dissolving in the gentle heat of a soft recovery (remember the landing?). Talk of over-heating has been dismissed in an ESRI ‘special article’ accompanied by a press release (Irish house prices: Déjà vu all over again?).  As the article explains: ‘This research is funded by the Department of Housing, Planning and Local Government through its Programme for Housing Research with the Economic and Social Research Institute’. The key punch line is on page 2:

The results are unambiguous; the Irish market does not yet display any signs of overheating. By international comparisons, Irish prices would appear to be quite affordable. The results suggest that prices, barring some unexpected significant shock or a substantial increase in housing supply, are set to increase over the medium term.

The research team at the ESRI is probably right about price increases over the coming years. In fact, they may be on the conservative side about the extent of future increases. The projected increase in house prices confirms the reality that demand far outstrips supply and will continue to do so for quite some time. This is a significant step back by the ESRI given that as recently as December 2016 its researchers were projecting a balance of a supply and demand towards the end of 2018 (see chapte4r 3 of Ireland’s Economic Outlook – Perspectives and Policy Challenges.

On the matter of affordability, much some research has been undertaken at the NERI and may be seen here and has painted a different picture to that presented on foot of the ESRI research publication:

A long-term assessment of Irish house price affordability

NERI Research inBrief Wage Sufficiency in the context of Ireland’s Housing Emergency

But there is a better and feasible way to never-ending gloom and despair on what should be a fundamental human right to a home. It is best described as a state-led intervention in a failing and dysfunctional Irish housing market.  By taking the lead on the delivery of new homes and by learning from good practice in a number of comparable European societies (in particular Austria), we could begin to shift the huge backlog in demand for homes. A cost-rental model such as advocated in Ireland’s Housing Emergency - Time for a Game Changer would have two impacts:

  1. It would make long-term, quality rental accommodation affordable to a range of income households
  2. It would calm the housing market by creating new supply and acting as a counter-cyclical weight to booms and busts with which we are all too familiar in this part of the world.

 Postscript

On my way to an RTE interview early one morning last week I had to catch the first train at a station in north county Dublin. The train, which would have departed at 5.40am in Dundalk, was already full by the time it reached north Dublin. Pray tell me what if 100,000 extra houses were to be built in north county Dublin, never mind counties Meath and Louth, in the next few years? A podcast of the item from last Tuesday on Morning Ireland is available here.

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