Increasing rental supply could draw vulture funds
Published 11/09/2016 | 02:30
The Budget is eagerly awaited, along with the outcome of the Central Bank's review of its mortgage lending rules. They will form the complete set of measures to address the number one policy priority in Ireland today - housing and homelessness.
The latest Department of Housing figures show an almost 15pc increase year-on-year to the end July in the number of new house completions. While 29pc of these were in Dublin, 58pc were outside the greater Dublin area.
Year-end house completions could reach 2010 levels of about 15,000 homes but it's estimated that less than 5,000 of these will be sold on the open market. This is at a time when we have needed 25,000 units a year for the last number of years.
While the Government's plan for the rental sector is imminent, the sheer scale of the rental accommodation shortage was evident in the recent Daft.ie rental report. It is now cheaper to service a mortgage, if you can get one, in many areas of Dublin and the country than to pay rent, even allowing for a 2pc increase in interest rates.
A new survey of Institute of Professional Auctioneers and Valuers (IPAV) members found that close to 46pc in Dublin do not have properties available within the Central Bank €220,000 threshold at which 90pc loan-to-value is allowed. And almost 59pc in Dublin have had prospective buyers withdrawing interest due to the mortgage lending restrictions.
Dublin is where the housing and homelessness crisis is most acute. Buying, selling, renting and homelessness are deeply intertwined. The National Competitiveness Council has said to incentivise increased supply prices, we need to exceed building costs. The Central Bank mortgage rules have capped prices relative to incomes. Therefore, there is a need to address the other side of the equation and reduce development and construction costs relative to income and prices, the Council says.
A great deal more properties are needed - to buy and to rent. In ramping up supply it would be deeply unwise for us as a country to adopt a policy of encouraging renting in preference to buying. Quite apart from facilitating the erosion of personal wealth associated with home ownership, it would likely see vulture funds, once they've gained a dominant market position, dictating rental prices.
In a country of less than five million people, such could happen in just a few years. If we're not sufficiently balanced in policy responses, the wrong emphasis in this direction could deliver the Trojan horse of 21st century Ireland.
Pat Davitt is chief executive of the Institute of Professional Auctioneers & Valuers (IPAV)