The Lost Recovery: Just this once, let us resist the Siren's call to build houses in a rush - we have options
Slowly building quality houses is long-term solution to crisis, but in the meantime we can get creative, says Conor Skehan
Published 27/09/2015 | 02:30
The economy is recovering. House prices rise steeply to recover the value lost during the crash but many remain cautious about entering the housing market - not wanting to sell until prices reach the old peak.
Demand for housing returns, but supply is slow to restart, it takes a long time to get permissions and build new houses.
Meanwhile, the combination of few sellers and few new houses creates a shortage of accommodation. Rents rise as those who have money can not find houses to buy. Poor people, students and transient workers compete fiercely for fewer and fewer rental properties.
The building industry pressurises governments to incentivise new house-building with lax lending rules, tax exemptions, grants and lower interest rates. Extra cash increases the hope value of building land. Social charities pressurise Governments to control rents - landlords leave the market, supply further contracts.
Pundits besiege governments, egging them onwards with alarm, based on snap-shots of data.
Everyone is suddenly an expert in housing. Everyone knows the solution - the site, the pre-fab, the tax break, the planning loophole. Every scheme probably has some merit, for addressing some part of the problem.
Everyone ignores the dull reality that the provision of housing must be slow to be safe, to be wise, to be affordable, to be fit. Hurried houses make very poor homes.
This plodding advice is never heeded. Short-sighted, politically expedient measures are eventually adopted. The seeds of the next house bubble are sown. It is happening now in Ireland. It is happening in the UK. 'Housing Crisis!' is a headline in Spanish, German and Scandinavian cities. Renewed demand is unmatched by sufficient or suitable supply.
This always happens at the end of a deep recession.
The building industry tempts the government with the promise of creating jobs. Revenue is tempted by the taxes from property sales. These are short-sighted, once-off and illusory benefits.
The reality is that when housing is abundant and affordable it creates and sustains jobs in an internationally competitive economy. The ' Housing Industry' does not create jobs - it eventually kills jobs in the real economy, the lasting economy. A new house only benefits the economy once. A job sustained by affordable housing delivers over and over again.
It doesn't always have to be this way.
The transitional period as housing supply catches up with the re-emergence of demand can be managed in other ways. Long-term supply solutions - new homes - are the responsibility of the Department of Environment.
But until these are ready - which will take 24 to 36 months - we need short-term solutions that are not short-sighted.
First let's do some simple maths to find out the size of our short-term problem. In July, the Housing Agency advised the Government that Ireland will need 21,000 new homes each year for the next four years.
The Agency also advised that there is a persistent mismatch between the supply and demand for housing, particularly in Dublin and surrounding counties, as well as major cities such as Cork, Galway and Limerick.
More maths. Dublin has around 500,000 houses - it is estimated that around 8pc are vacant. A normal city always has around 4pc vacancy - for a variety of reasons. Every 1pc less vacancy produces 5,000 houses. If we could prod, persuade, tempt and bribe people to reduce our vacancy by 4pc, we would have enough supply for a whole year - at no cost - and it would be available immediately.
Even more maths. Property is mostly owned by older folks. If we assume that 20pc of the population are over 55, then every 1pc of the over-55s who can be encouraged, rewarded or otherwise tempted to down-size will yield another 2,000 homes.
These are just back-of-the envelope calculations - using very bad maths - to illustrate how tiny changes in behaviour could immediately free up huge quantities of houses, at very little cost.
The short-term answer may lie in the Department of Finance - who are good at maths - because the shortage of supply during the transition phase could be managed by this kind of evidence-based legislation and associated fiscal measures.
Just for once, let us resist the Siren's call. Just for once let us stimulate the availability of our existing housing stock.
Just for once, let us not build. Let us instead:
• Incentivise owers to sell - or rent. Let us provide advice, and support those who move to down-size to warmer, safer and more convenient homes.
• Reward those who convert, modernise or share existing accommodation. Let us measure, challenge and reward Housing Authorities who can rapidly return existing social housing for use.
• Offer once-off Capital Gains Tax reductions to incentivise reluctant sellers. There is a chronic shortage of homes for sale.
• Offer annually increasing tax credits for landlords who retain tenants with only cost-of living rent increases.
• Offer tax and vat relief for all landlords - so that we treat them as professionally-run businesses.
• Use financial regulation to require pension funds to invest in Irish social housing - as is done in Switzerland.
• Offer Capital Gains Tax Reliefs for lands developed exclusively for long-term rental.
• Legislate to facilitate tax efficiency in temporal ownership.
• Adjust the rules of the Fair Deal Programme to incentivise and reward the rental of unused premises and introduce cost penalties.
• Incentivise new collective property letting businesses - to increase the professionalising of the rental sector. These are just 10 examples of the type of fiscal and regulatory measures that can be quickly introduced by a Finance Act. Each has the potential to incrementally contribute to the supply that we need until building resumes.
There are, literally, tens of thousands of houses out there - they already exist. Let us unlock these while we wait to build the new homes that we need. Let us build the new homes that we need slowly, carefully, in the right place for the right price. And meanwhile, let us be wise and not build. Let us use what we already have.
Meanwhile, Britain's housing crisis is said to be so bad it is now threatening the national economy. Concern is rising that sky-high accommodation costs are making businesses think twice about locating to London and the South East.So the Chancellor George Osborne last week unveiled a series of housing and planning measures.
They were contained within a wide-ranging report that addressed the age-old curse afflicting the UK economy: low wages and low productivity. Key measures in the 'Fixing the Foundations' report included a radical attempt to liberalise and speed up the planning system to smooth the delivery of 200,000 new Starter Homes at a 20pc discount to the market price.
Conor Skehan is Chairperson of the Housing Agency