Thursday 17 August 2017

Bringing back the bedsit - hitting rock bottom or pragmatism over principle?

Minister for Housing Eoghan Murphy speaking at the Irish Council for Social Housing AGM 2017 at the Aishling Hotel in Dublin
Minister for Housing Eoghan Murphy speaking at the Irish Council for Social Housing AGM 2017 at the Aishling Hotel in Dublin
Richard Curran

Richard Curran

Is the bedsit making a comeback? New Housing Minister Eoghan Murphy has not ruled it out. The fact that he has not done so will be interpreted that he is in favour of re-introducing bedsits, if it is done in the right way.

Bedsits were essentially done away with years ago because they were seen as a low water mark in the conditions that people lived in. A single room, with a cooker and sink in the corner and a shared bathroom with other bedsitters, conjured up images of Leonard Rossiter as Rigsby in the TV comedy 'Rising Damp'. (For those readers below a certain age, you may have to YouTube that one).

The very fact that they are being re-considered reflects just how deep the housing crisis has become. But rather than knock Murphy for even considering a return of the bedsit, the fact that it is on the table at all suggests that he is open to trying anything that might make things easier for people.

If they were cheap, comfortable and safe, lots of people would prefer a bedsit to what they have now.

A return to bedsits might be a triumph of pragmatism over principle, rather than simply a giant step backwards. It would depend on the rules.

But we have to ask how did it all come to this? The Government has made a complete mess of the housing situation since it got into power in 2011. Government politicians will argue that they had bigger issues to resolve, from the troika to 15pc unemployment back then, but in truth what could be more important and fundamental than the cost and quality of the rooves over people's heads?

When house prices stopped falling in early 2013, they spiked quite quickly in Dublin on the back of relatively small transaction numbers. However, the rental crisis and the lack of housing supply built up right under the nose of the Government.

There was a chance early on to address rising rents with a proper system of rent controls. This was suggested by Labour's then environment minister, Alan Kelly, but his proposals were heavily watered down by the Finance Minister.

When it came to housing supply, there was a working assumption after the crash that we had enough houses - too many, in fact. In reality, however, a common-sense examination of population growth and economic growth, especially around Dublin, suggested that there was clearly a problem coming down the road.

It was obvious that most of our indigenous property developers were either broke or on life support. Those hanging on to good sites couldn't raise the money to develop them and knew they wouldn't make money even if they did, because they had paid boom-time prices to acquire their land banks.

This left much of the house-building up to newer, larger, often foreign-owned investors. They were acquiring sites cheaply, which meant they could build on them, sell them at a cheaper price and still make a profit.

However, they can pick and choose what sites to build on and when. Many of them acquired property during the crash, during the Government's capital gains tax-exemption period. This means that if they hold on to the property for seven years, they don't have to pay capital gains tax when they sell it.

This was a measure introduced by Michael Noonan to try and get commercial property sales moving. It would enable Nama to find buyers for everything from office buildings to hotels. It didn't necessarily have residential development in mind.

So many investors have bought development sites and they could make a profit by building houses on them. Equally, they are looking at the value of those sites rise every six months. Wait for seven years and then sell the sites tax-free. They don't have to do anything. It is a tempting prospect.

Other problems, blockages and obstacles have emerged. One is the infrastructure that is needed to actually build houses. There are lots of sites that do not have the necessary infrastructure around them, such as access roads and water and sewage pipes.

The Government has introduced initiatives to get more sites development-ready but all of this is taking time.

When new ministers take over a department, they take a little time (some more than others) to read into the brief. Murphy appears to be a man in a hurry, which is a good thing. He knows the housing crisis is a political bombshell as well as one of the most important social issues facing people.

Those who are saving up to get a mortgage are looking at house prices rising by over €2,000 a month in some cases. In the meantime, many of them are paying rents that are 15pc above the highest rents of the 2006-2007 property boom.

Many others have given up on the prospect of owning their own home and feel they are doomed to having rental costs eat up a huge percentage of their after-tax income. Others, who have bought houses miles away from where they work, have signed up to years of commuting, which is time wasted and keeps them away from families.

Three big questions arise: 1. Is this a housing bubble that will crash? 2. Have we learned anything? 3. Is it too late to fix it?

Firstly, I don't believe this is a classic housing bubble, because it isn't credit-fuelled. There aren't 100pc mortgages and the new mortgage lending market, at about €7.5bn, is not sufficient to create such a bubble. As long as the banks are pinned back to only lending a certain multiple of people's earnings, we can avoid a widespread housing bubble fuelled by debt.

However, it doesn't mean it isn't a problem. It is a huge problem that only those on higher incomes can afford to get a mortgage at these levels, while others are at the mercy of enormous rents.

Secondly, it is wrong to say we haven't learned anything from the crash. We have avoided a debt-fuelled bubble so far because of the strong arm of the Central Bank in curtailing bank lending.

Politicians don't appear to have learned very much. Consumers, by contrast, have learned, as evidenced by the fact that many are paying down debt, rather than engaging in borrowing splurges.

Thirdly, the crisis has to be fixed. Every possible solution will take time, even the good ones. But no interest group with a skin in the game is having to pay a price. Landlords are enjoying record rents.

Developers are sitting back, waiting on house prices to get higher or waiting on planning rules to be eased. There is no 'use it or lose it' law being applied which will speed up house building. Planners may have to lose some of their precious planning guidelines because some of them may be too prohibitive and this is an emergency.

All of the measures so far involve something for everybody, except the citizens. One exception to this was the Help-To-Buy scheme, but even that was really about providing more money for developers to encourage them to build.

The biggest lesson we have failed to learn is the value of having an affordable place to live. That has an enormous social, personal and economic value, whether it is a rented home or one you own yourself.

We still seem to see housing simply as an industry, a source of employment, exchequer revenue and an avenue for gain. Unfortunately, we have missed an opportunity to learn that lesson.

Maybe next time.

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