Dublin prices in the outer suburbs further evidence of policy failure
Colm McCarthy insists Simon Coveney must make some difficult decisions to bring house prices down in the capital
Published 19/06/2016 | 02:30
Unaffordable housing is largely confined to the Dublin area. Figures from Daft.ie reveal that rents in central areas of Dublin are (at least) double those in the provincial cities.
In many rural counties, three-bed semi-detached homes can be purchased for under €100,000, below the cost of construction and readily affordable by a single person on average earnings. In most parts of Dublin, even a couple both on average earnings would struggle to reach current prices, typically three times the rural level, even if they could assemble the deposit required under the mortgage lending rules.
Unaffordable housing has its most dramatic manifestation in rising homelessness. Almost 70pc of all emergency accommodation for the homeless is provided by the Dublin local authorities, according to Friday's Oireachtas committee report.
The Housing Agency regularly points out the key problem: homes have once again become unaffordable in Dublin, whether for rent or purchase. The most recent Daft report gives prices for the 25 different postal districts and county divisions in Dublin, four provincial cities (Cork, Galway, Limerick and Waterford) and 25 rural counties. Affordable housing is available virtually everywhere in the rural counties and the situation is not so bad in the provincial cities either. In Dublin, where salary scales are not generally much higher than elsewhere, prices and rents are at least double and, in some districts, four times the cost in rural Ireland. Long-distance commuting is on the rise again.
In Dublin City and county, there is not a single postal district or county division where Daft reported the average price for a three-bed semi below €200,000 in the first quarter of this year. For most areas, the average was over €300,000. The highest prices were in the inner suburbs on the city's south side, but a three-bed semi is also out of reach in many of the more distant areas.
In the 25 rural counties, all but one (Wicklow) had average prices below €200,000 and half had average prices below €100,000. The counties below €100,000 include three in Leinster (Carlow, Longford and Offaly). In Cork City, a three-bed cost €204,000, in Galway City €185,000. There is not a single district amongst the 25 in Dublin City and County where prices are this low.
It is sometimes alleged that high Dublin prices reflect excessive population growth in and around the capital. This perception is simply false: the 20 years up to the 2011 census saw population in Dublin City and county rise more slowly than in the rest of the country. Dublin's numbers rose 24pc while the national total was up 30pc.
The most rapid population growth was in the counties surrounding Dublin, but there was strong growth also around the country. Munster's population grew 23pc with a 28pc expansion in Connacht and 27pc in the three Ulster counties. The explanation for unaffordable Dublin prices is not some dramatic influx from the deserted provinces - it is a persistent failure of the planning system to deliver adequate housing supply in the areas of highest demand. There are working farms inside the M50 and rolling prairies to the west and north.
The report of the Oireachtas committee ignores the pronounced regional pattern in housing affordability. In a country where salaries and pay rates are not differentiated by region, any sensible rules linking the availability of housing finance to the borrower's income will not deliver affordability unless house prices are reasonably similar across the country. Where prices go, rents will inevitably follow.
The current rules specify that a loan should not exceed 3.5 times the borrower's income. A couple both earning €35,000 can thus borrow €245,000 and even with €30,000 on top for a deposit, they will struggle to find an affordable three-bed semi anywhere in Dublin City or county. Not everybody earns €35,000 and mortgages supported by a single income will not even reach the cost of a small apartment in Dublin for any but the top earners.
Unless the mortgage caps introduced by the Central Bank are relaxed, there is only one practical solution, short of sharp regional differentiation in pay rates. That is to bring Dublin prices back towards reality, from which they have been departing steadily for the last two decades. It would be undesirable to aim for a replication in Dublin of the depressed prices, well below the cost of construction, currently evident in most parts of Ireland. These are a relic of the bubble, the legacy of the ghost estates and the dysfunctional planning policies and banking practices which gave rise to them. But Dublin prices in the outer suburbs, way above the cost of construction, are further evidence of policy failure.
The Oireachtas committee report contains the, by now, customary suggestion that the Central Bank mortgage limits should be reviewed. They are already being reviewed and the Central Bank has invited submissions. They will receive an avalanche of proposals for a relaxation of the rules from the predictable sources, including housebuilders, owners of what little land around Dublin is zoned and serviced, possibly even from the banks whose eagerness to expand their large exposure to long-term residential mortgage risk is hard to explain. The objection to any relaxation in the rules is twofold. They would not be particularly restrictive in the context of a proper housing market and relaxing the rules to finance a dysfunctional market is nuts. We had no rules at all during the bubble. In most parts of Ireland, the rules are fine and in Dublin they are already a danger to both lenders and borrowers.
The Oireachtas committee makes numerous recommendations about social housing but shies away from the elephant in the room, the re-introduction of the tenant purchase schemes which will see the inadequate stock drained through bargain disposals. How many of the 50,000 units they feel should be built will disappear from local authority ownership at discounts of between 40pc and 60pc? They also propose measures in the private rental and purchase markets which will enhance demand rather than supply without an apparent care in the world about consequences.
Minister Simon Coveney is due to produce a new housing strategy shortly. He should be more analytical than the Oireachtas committee has chosen to be and particularly about policy objectives. The ultimate objective should be to reduce prices (and hence rents) in the outer Dublin suburbs to a modest margin over construction costs. Quantitative targets for housing output, in public and private sectors, should be avoided like the plague. There will be losers from such a strategy, including banks, developers, land hoarders and current beneficiaries of unearned capital gains. These are big political constituencies whose interests paralysed policy through the bubble. It is not possible to make housing affordable in the Dublin area without hard political decisions.