Wednesday 22 February 2017

Policy should focus on private sector construction

John McCartney

Published 22/05/2016 | 02:30

John McCartney
John McCartney

It is easy to forget just how perilous a situation Ireland was in when the last government took office in early 2011. Output was shrinking by 8pc per annum and 328,000 people had lost their jobs. With the Exchequer running a 10pc deficit, the key priority was understandably to stabilise the public finances and, if housing registered at all, it was only in relation to ghost estates.

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Two things have changed to propel housing back up the political agenda. First, the actions taken to create jobs and correct the public finances have been successful, effectively taking these issues off centre stage. Second, rapid population growth and low construction rates have turned what was once a housing surplus into an acute supply shortage.

In an undersupplied market, economic forces will allocate the properties that are available to the highest bidders, excluding those who cannot pay. This is where the safety net of social housing should kick in. However, Ireland's social housing sector currently hasn't enough units to accommodate the number of families that are priced out of the market. One part of the solution is therefore to build more social units, and it is positive that the Programme for Government targets an additional 18,000 local authority dwellings by the end of 2017. However, considering that just 476 social houses were built last year, this is a very big challenge.

Therefore, another part of the solution must be to take pressure off social housing waiting lists by making private sector renting and home ownership more affordable. Inevitably the Government will face calls to assist struggling renters and homebuyers through financial assistance measures. However, that is likely to be counterproductive as giving people more money to compete for the same number of properties can only drive inflation.

Instead, policy should focus on expediting private sector housing construction. Holding everything else equal, this should make the supply-side of the market more competitive, resulting in more stable and affordable private housing costs. The new housing ministry provides the opportunity for a truly integrated housing policy that has been sorely lacking. The Programme for Government gives us an early glimpse of how this might be shaping up. One could certainly quibble with some details, but the overall emphasis appears to be correctly directed at removing barriers to development arising from tight credit, rigid planning and high government costs.

Dr John McCartney is director of research at Savills

Sunday Independent

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