Saturday 25 March 2017

A housing crisis while 165,000 houses lie vacant

'Ireland’s Local Property Tax is at a rate of 0.18pc. On the average property, this means the bill is less than €300 a year. Given that home ownership is the preserve of the wealthier two thirds of the population, this is a very small holding cost.' (stock photo)
'Ireland’s Local Property Tax is at a rate of 0.18pc. On the average property, this means the bill is less than €300 a year. Given that home ownership is the preserve of the wealthier two thirds of the population, this is a very small holding cost.' (stock photo)

Ronan Lyons

The Census earlier this year in Ireland revealed that there were almost 260,000 homes vacant around the country. This figure represents almost 15pc of all homes and excludes holiday homes. Indeed, in rural areas, one in five properties is vacant - this is an average and in the rural parts of some counties, such as Kerry and Limerick, almost one in three homes is vacant.

But even in towns and cities, over 10pc of homes are vacant. This fraction is smallest in and around Dublin, with just 5pc of homes in South Dublin County Council vacant in April. Given the acute shortage of housing that has emerged over the last five years, however, it is surprising that roughly 15pc of urban homes in Waterford, Carlow and Galway lie empty.

Vacant homes are something of a Rorschach test - the factor on which people place the blame often says as much about the person as the issue they are ostensibly addressing. Some, for example, see the hundreds of thousands of vacant homes and think immediately of ghost estates. To them, therefore, the solution lies in somehow convincing workers and employers to set up near these ghost estates.

However, it turns out that of the 76,000 units in what are officially designated Unfinished Developments, over 30,000 are occupied while a further 25,000 have not been started - many of these have planning permissions that have expired. There are just 5,000 vacant and complete or nearly complete houses and apartments in ghost estates around the country. If we want to explain why there are almost 260,000 homes vacant in Ireland, ghost estates are only a tiny part - about 2pc - of the answer.

In "solving" the problem of vacant homes, the first step is to admit that there is a natural rate of vacancy and it's not zero. In a market like housing or employment, each match between resident and home - or between job and worker - is unique and thus it takes time to find a good enough match. If it takes time to find a match, then the only alternative to having a certain small fraction of homes vacant all the time is the opposite: a certain fraction of the population homeless all the time.

However, that natural rate of vacancy is probably closer to 5pc than 15pc, so in effect we have three times as many empty homes as a healthy market would have. In round numbers, then, what can be done about these 165,000 homes?

Well, as we have just seen, roughly 5,000 of them are in ghost estates. Given that each of these estates is being monitored, these are probably the least of our concern. It is the other 160,000 that are the challenge. I doubt there is one single root cause of these extra homes being vacant. I suspect instead that there are a handful of factors.

The first - and least popular - is the lack of a meaningful property tax. A property tax is a holding cost for housing and, in most other developed countries, its presence means there is little incentive in sitting on an empty dwelling, either in a state of indecision or in the hope of capital gains.

Ireland's Local Property Tax is at a rate of 0.18pc. On the average property, this means the bill is less than €300 a year. Given that home ownership is the preserve of the wealthier two thirds of the population, this is a very small holding cost. In the US, France or elsewhere, the equivalent cost would be from €1,000 up to more than €2,000.

It is unlikely, though, that anyone will campaign for a higher property tax as a solution to Ireland's vacant homes. Thus, already, we will have to accept a higher level of vacant homes than other high-income countries.

Another contributor to Ireland's high vacancy rate is the legal and conveyancing system. In England, 21 days to close a property transaction means 21 days. In Ireland, the typical time between agreeing a sale and closing it is at least twice that and can stretch to a year or more, if there are issues around title. (Ireland is only now getting around to having an official register of who owns what.) With almost 50,000 transactions a year, an extra three weeks on average converts to an extra 3,000 properties unnecessarily vacant at any point in time.

The process is worse if probate is involved, as is the case when there is an executor's sale. Dublin's probate office is comically understaffed, adding unnecessary weeks and months of vacancy to homes for sale. If there are 10,000 sales that involve probate each year, and each is delayed by 10 weeks on average due to probate having to clear, that is a further 2,000 homes vacant.

A third contributor to vacancy is likely to be the Fair Deal scheme. Under this scheme, people who take up residence in a nursing home have the bulk of their disposable income taken to cover the cost of care. This in effect means that there is no incentive on their part, or on the part of their relatives, to rent out the house they have just left. With over 25,000 people in nursing homes around Ireland, the vast majority covered by Fair Deal, this may be accidentally contributing to thousands more unnecessarily vacant family homes in good locations.

As with so many other areas of housing policy, then, the solution to Ireland's vacant homes is not one silver bullet but rather a host of smaller measures - ones that should only be taken when we have a full assessment of what is vacant and why.

Ronan Lyons is assistant professor of economics at Trinity College and author of the Daft.ie Reports

Sunday Independent

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