Now is the time for action not panic in trying to solve housing market issues
Published 24/09/2015 | 02:30
The housing crisis is turning into a political powder keg. Just weeks away from the pre-election Budget, ministers are concerned about the impact a shortage of houses is having.
The problem is multi-faceted because it involves tough new mortgage lending rules forcing people to save for longer, which in turn leaves them at the mercy of uncontrolled rent rises from landlords.
Separately, those struggling at the bottom of the income ladder are finding they cannot pay rent at all and are forced into homelessness. Building more houses is seen as the solution but it doesn't appear to be happening quickly enough.
Government instincts are to build more social houses for those on waiting lists, try and convince the Central Bank to ease up on some of its mortgage lending restrictions and find ways to get developers back building new houses.
Rather than panic and try to provide an expensive fix for everybody, the government should ask what parts of the housing situation are working and what parts are not.
More private houses and apartments are being built. It is just taking a lot of time. That is inevitable. Rather than rush to introduce state-subsidised measures to speed this up, why not let it take its course.
The Central Bank's mortgage rules are doing their job. They have stopped house prices in Dublin in particular from rising at 15pc per year. And contrary to what some people predicted, they have not caused house prices to tumble backwards. So, they are working. Leave them alone.
The downside is that the rules leave people at the mercy of uncontrolled rent hikes. So why not introduce measures that will cap or restrict rent increases. This will benefit first-time buyers saving for a deposit as well as those who plan to stay as renters for a long time.
It might also prevent landlords pushing families into homelessness by unrestrained rent increases. Unfortunately, the Cabinet has dithered on this issue. Massive rent increases have already been introduced and have done a lot of damage. Delays in coming up with an acceptable new rent control regime have cost many families dearly. At best by the time new rules are introduced they will control further increases but for many people the damage has been done.
On the social housing front, we need more built. Nama has a land bank, half-built and fully-built houses. Just go and make them available. The loss to the exchequer of not selling them to vulture funds will be more than compensated by the social benefit to families. This is social investment not subsidy.
We have 280,000 vacant properties in Ireland, with around 8,000 vacant houses and 16,000 vacant apartments in Dublin. Measures need to be introduced to bring those into use. This is tricky because there are a multitude of different personal circumstances behind why they are empty.
But people will have to either be incentivised (this will cost money) or forced (very unpopular) to put them to use. There is no evidence that government is even looking at these options. Why not? It won't create lots of building jobs.
The Government wants lots of people back working. This means finding ways to incentivise developers to build more houses. Irish developers are crying that at current prices they cannot afford to build new houses profitably.
Around 11,000 new houses were built last year and a similar number are expected this year. I find it hard to imagine that somebody is building 22,000 new residential units over a two year period at a loss.
Overseas investors, who have bought up sites and projects at knockdown prices, are building. A handful of them are expected to invest more than €1.5bn constructing 7,000 new houses, apartments and student units in Dublin in the next few years.
US firm Kennedy Wilson is involved in three projects constructing 536 apartments and houses. Another international investor is involved in 660 units in the greater Dublin area. They are not complaining that they cannot build at a profit or that the planning rules about things like apartment sizes have to be changed.
It is because they have lots of money to invest and bought their sites cheaply in the crash. Our own Irish developers are broke. Some of them are highly bankable while others are not.
The reason many of them are not bankable or their basic price per unit needs to be higher is because they made a complete mess of their businesses during the crash. They cannot make a profit or enough profit from developing at current prices.
They should team up with some of these international guys who have money but they will have to split the profits. If they are simply sitting on sites waiting on higher returns or fresh government incentives, perhaps it is time for a "use it or lose it" initiative.
Developers are not builders. Developers acquire sites, get the planning and finance to put a project together and then hire builders to construct it. The builders are the ones who employ lots of people. Unfortunately, during the boom many great builders became developers while many great developers over-extended themselves.
There are still some excellent builders who didn't lose it on development and they are still financially equipped to go out and construct houses. The more progressive developers are finding partners.
Among the measures being sought by the construction industry are state-backed saving schemes for deposits, lower Vat, lower local authority levies and access to more finance. Reports suggest the Government is considering using the Irish Strategic Investment Fund money to provide 90pc loans to developers to build houses. This is a very big risk to take. You only have to look at the mess that has been made of the housing market in the UK to see what not to do. Chancellor George Osborne introduced a £26bn Help to Buy scheme in 2013. It involves state guaranteed mortgage insurance, and free money to help people save for a home deposit by giving them £50 for every £200 they save.
It has just added to how much people can borrow and helped drive up prices even higher. Rents have gone up too. The British government is paying out £24bn in housing benefit per year.
Landlords in the town of Blackpool alone received £91m in housing benefit last year. One developer in Blackpool is constructing 1,800 homes on a site. Because of low incomes he cannot develop the units profitably. So the council has not charged an upfront price for the land but will get a payout from the profit.
Meanwhile the people buying the houses will be subsidised through the Help to Buy scheme. The UK taxpayer is subsidising the developer and his customers. Sounds like Ireland before the crash.
Ireland is not in a UK situation as house prices remain well below peak levels but the government should not make the wrong decisions by rashly introducing measures that will increase state subsidy and state risk.
The Government should tackle rent hikes, build as many social housing units as it can, incentivise use of vacant properties and let those who have the money build private houses. Even with such an approach this will take time to fix. Now is the time to be active but not rash.