The only way is up if we are to tackle the issue of soaring rental market
The lack of housing is manifesting itself in high rents. With building costs just too expensive, it's time to look at high-rise developments
Published 13/06/2015 | 02:00
Dublin must rise up. One of the obvious conclusions to the rental conundrum in Ireland is that Dublin city is too low. It's too flat.
If you ever get the chance to go up the Gravity Bar in the Guinness Storehouse, you'll notice the views out over the city are lovely, but the city is not high enough. It should be taller. We need much more high-rise buildings because this is one of the few ways that we can reduce the costs of building: by building more high-rise apartments.
We can designate certain areas for taller buildings in order to preserve the cityscape and avoid having incongruous skyscrapers dwarfing older Victorian and Georgian parts of the city. But, whatever way you look at it, up the city has to go.
The reason is simple. The housing market and the market for accommodation in general is highly dysfunctional in Ireland and this will have dreadful ramifications for the economy and the society if we don't sort it out.
Rents are heading upwards in all our urban centres and for many thousands of people, living in Ireland is becoming just too expensive.
At the core of the problem is the cost of building houses. Strange as it may sound, although unemployment is still high, the industry indicates that the cost of building houses is extortionate.
If this is the case, the city has to go up to reduce the cost of building. There is not any other solution. And it's not just Dublin that will have to go up; Cork and Galway will have to rise also.
We see this dysfunction in the housing market, in the rental market. The rental market is the outward manifestation of inner problems. It is the consequence, not the cause, of our accommodation problems. We are seeing four major changes in the housing market and these are being reflected in rents and prices.
(1) The return of Deckland
Exactly 10 years ago I wrote The Pope's Children. In it, I created a place called Deckland, which was the commuter counties outside the main cities. Here, young couples bought because they wanted to start somewhere and they saw significant capital appreciation in the future. This didn't happen. Now we are seeing a massive return to Deckland. But young families are not heading there because they want capital appreciation. They are heading as renters because there is simply nowhere else to go. There are no new builds in the cities.
(2) Dublin has reached its cap
Dublin rents are levelling out. After a rise of 35pc in four years, rents appear to be stabilising in Dublin. Combined with the return of Deckland, this suggests not that things are easing in the capital, but rather that a limit of affordability has been reached. People just can't afford the rents and they have stopped chasing the rental market.
(3) Odd anomalies
Like all markets, some off things are happening. These oddities are driven by demographics and income as well as a lack of supply. For example, in most parts of the country, it's cheaper to pay a mortgage on a one-bed than to rent it, while it's cheaper to rent a four-bed than pay a mortgage. So it pays to keep the family big!
(4) Cities are driving everything?
There is evidence that people are starting to live further away from Dublin and the main cities. For example, the Munster/Connacht/Ulster (ex-cities) rental stock has fallen from over 6,000 in 2012 to only 1,300 three years later!
This means that slowly but surely people are moving further away to look for value, but this is a very slow process and only suits certain types of workers.
Quite apart form supply and demand, something else is going on.
The normal 'first-time buyer' is being squeezed out of the market by cash buyers and also by the Central Bank's more stringent rules on lending. This is pushing these people into the rental market, pushing up demand, whereas in the past, they would have had their own house, paying mortgages not rents.
But this would be much less of a problem if houses were being built.
So let's stand back and see what's happening. The first thing to appreciate is that, unlike almost every other rich country, our population is growing quickly. The population even grew when the economy collapsed and this is continuing.
This means more people who need more houses.
In addition, employment and incomes are growing but only in certain areas - precisely the areas where rents are highest and the housing shortage most acute.
Our cities are experiencing the bulk of population growth but without any building. According to the ever-reliable Ronan Lyons at Daft.ie: "Dublin's population may grow by as many as 100,000 families during the 2010s but, halfway through the decade, fewer than 10,000 new homes have been built in the capital".
Rental inflation has come down a bit in Dublin from 16pc to 6pc since this time last year, but figures from April 2014 show that in the Baby Belt - the commuter counties outside Dublin - the opposite has happened. Rents rises are now going from 7.6pc in early 2014 to 14pc now.
The average number of houses for rent on the market was just below 5,000 at any one time in 2011. This figure is falling rapidly as demand soars. For example, in 2011, 60,000 rental properties were listed. Now half of that figure is on the market, yet demand is huge.
So we need to build new houses. The builders say that given wages and cost, they can't build enough cheap houses.
If this is the case, they will have to build up to reduce costs. It's really that simple.
Every city does it eventually. Why not Dublin? If you drive to Belfast and come into the city on the motorway towards the Titanic Quarter, you will see lots of high-rise, newly built office and residential buildings.
This is the way to go. It's time for us to look to the sky.
What's the real cost of renting in your area?