In this latest NERI blog, NERI economist Paul Goldrick-Kelly summarises the main points of the latest NERI Long-Read, co-authored with SIPTU researcher Michael Taft (@notesonthefront). They argue that Irish housing policy should be redirected from subsidising an inefficient system towards building unitary model, with a new universally available cost rental sector which competes with the private rental tenures.
The housing system in Ireland has been dysfunctional for at least a generation. Where before we saw an unsustainable boom in new builds, now we see a famine in housing supply.
These structural issues lie behind our argument for fundamental reform within the Irish housing system made by my co-author Michael Taft and I in our new NERI Long-Read (NLR 7).
In it, we argue that Ireland’s longstanding housing issues have not been adequately addressed by policy, despite significant spending on the part of government. We argue that these failures are related to the dualist nature of the Irish housing system – social housing is relatively marginal and cannot compete with the private rental sector. This drives imbalances throughout the market.
The housing crisis, in our view, would be best addressed by policy to construct a unitary system where public housing would compete with private providers, driving a virtuous circle in housing markets. This is best achieved by the roll out of cost rental housing, at scale, available to all. In a cost rental system, rents are determined by the cost of building and maintaining homes, rather than what can be charged in the current market.
This new tenure could be delivered through a range of institutional set ups – which we sketch in the piece – and the choice of delivery model should be dictated by what can be delivered quickly and efficiently. This can be financed in a variety of ways, including through traditional exchequer grants, or capital injections which could be used to leverage funds at favourable rates from other sources.
A new, unitary housing system underpinned by an expansive system of public housing would have a number of benefits. While it would be appropriate to focus roll out in areas facing significant rental pressure like the state’s main urban areas, this new tenure could help address long standing spatial issues, and aid development in hitherto underserved areas of the country.
The new system would also aid increased economic and environmental sustainability. This new cost rental system could dampen boom bust dynamics, and limit the drag that high rents are currently imposing on the productive economy. Lowered rents and increased housing availability could aid mobility, increasing economic dynamism.
The presence of affordable housing in our main urban areas, could in turn, reduce unnecessary travel which can drive up emissions, produce energy efficient buildings which reduce cost of living pressure and regenerate our urban areas.
Tenants within the cost rental sector would benefit from increased tenure security and greater rent certainty given the direct link between rent and delivery cost. Where necessary, lower income tenants could still avail of Housing Assistance Payment (HAP). This would have the benefits of simplicity and the direction of public funds towards the continued upkeep and provision of additional housing supply, rather than the current tendency of public funding subsidising private rental increases.
This new system could face challenges, not least related to labour shortages in construction. However, policy could re-direct construction from certain sectors. In any case, this new sector could encourage better labour standards in the sector, encourage new entrants, and undermine ‘bogus’ self-employment there.
At any rate, these challenges don’t include finance. To those who would argue that this represents an unsustainable fiscal liability, we argue that the system tends to recoup costs, privileges the productive economy over the rentier economy which aids development and government resources, and aids in the transition to a new greener economy with a number of co-benefits.
Ultimately, a new and expansive cost rental sector could offer high quality, secure housing to all on a sustainable basis, balancing boom bust tendencies and helping realise housing as an effective social right. Policy should prioritise the building of a functioning unitary market over tax cuts. We should not miss an opportunity to build a system fit for a prosperous Ireland in the twenty first century.