Wednesday 23 October 2019

Brendan Keenan: 'There is still a failure to see the extent of our housing problem'

To meet demands the country needs something like 30,000 units a year,but only half of that is being provided. Stock image
To meet demands the country needs something like 30,000 units a year,but only half of that is being provided. Stock image
Brendan Keenan

Brendan Keenan

HERE'S one to try over the mince pies: what is the population of the Republic? After getting it embarrassingly wrong myself, I have tried it on a few people, and have yet to get a correct answer.

When told that the figure is almost five million, disbelief is a common reaction. This is the case even among younger folk, who might be expected to have been caught out less by the speed of change. But no: for them as well, change has been just too dramatic.

The biggest spurt has been in the last 10 years - the 'lost decade'. The combination of economic crisis and rapid population growth is associated with emerging economies. It is a baleful combination anywhere.

The confusion and anguish of the housing crisis may have something to do with a failure, not only to cope with the change, but fully to grasp it. Even making allowance for the stress and restrictions of the crash and bailout, it does seem remiss that the housebuilding industry was allowed to collapse, given the all-too obvious trends in population and demographics.

Attempts were made to show that the 70,000 units being built per year at the height of the boom were actually needed. That stretched credulity, and they were certainly not needed in many of the places they were being built, but it turns out it was not that far off the mark.

It should have been apparent that the pre-bubble level was a minimum requirement for the future and failure to achieve it would have consequences just as damaging as the banking collapse and the public finance insolvency. In the long-run, perhaps more so.

To be fair, maintaining a viable housebuilding industry at that time would have required state investment, and therefore bigger cuts in personal income under the bailout. There would have been no support for that - least of all from the people who are now most vocal about the housing shortage.

It is less easy to explain why housing was not a priority when it became possible to ramp up capital spending again. Public and private accommodation should be the central investment around which the other stuff in the grand plan is placed. Instead, it is not much more than an aspiration.

This is part of what is still a failure to recognise the extent of the problem and its probable effects on the economy, even though the details are well-known and much publicised. The country needs something like 30,000 units a year - in the same range as was delivered in the past - but only half of that is being provided.

On present trends, output will still be almost 10,000 units behind what is needed by 2024.

Less well-known is that these kinds of figures do not included the accumulated backlog of unsatisfied demand.

It must be something like 50,000 already, and rising. This will have to be supplied on top of the annual demand, in order to meet the country's total requirements.

The plight of those without any accommodation gets most attention. That may be fair enough, given the trauma involved, but it can often seem from the debates that solving the homeless question solves the problem. Far from it.

Failure to develop a large national construction programme - perhaps 75pc greater than at present - will mean, not only that homelessness remains an issue, but the resources to deal with it will be reduced because of the economic damage caused by emigration and lost investment.

A swathe of analysis in recent weeks tried to plug some of the holes in our knowledge and suggest solutions. The trade union-linked NERI Institution noted that 20pc of housing in western Europe tends to be provided by the state. One key missing piece of the Irish jigsaw is just how much social housing there needs to be.

The institutes' big idea is a semi-state Housing Company of Ireland which would build social and affordable housing (usually provided together) making use of the estimated 400,000 sites around the country and develop a European rental model.

Ireland has a tradition of successfully dealing with problems through state companies, although in many cases it might have been better to wind them up when they had finished their primary task.

The target of 70,000 units over the next four years seems wildly optimistic, even if the necessary €12bn could be raised. Impossible as it seems, it is still only half of what is really needed. But the only way to eat an elephant is one bite at a time and the sooner something like this is begun, the better.

So far, there are only nibbles. Presumably not by coincidence, construction levels elsewhere appear to reflect income per person almost exactly; with Finland, Sweden, Norway and Switzerland well ahead of the EU average of 4.4 units per 1,000 people. Ireland is at 3.8, but clearly needs to build more than the average, and in theory ought to be able to afford it.

A lot more apartments will be needed. During the bubble, it seemed that far too many were built but now there are not nearly enough. Housing economist Ronan Lyons has calculated that 700 new apartments will be needed every week for the next 50 years.

If they are built, will the customers must be able to afford them and will there be a return for the providers? It is not realistic for the state to provide subsidised accommodation for more than a quarter of the population but the figures seem to show that purchase may be out of reach for many of the other four-fifths.

Goodbody Stockbrokers produced a detailed calculation which confirmed a rough and ready one that price of the average dwelling, particularly in Dublin, is beyond the safe financial reach of the typical new household.

From a large sample, they found that almost 70pc are limited to a price below €287,000 and only 17pc could go beyond €450,000. "Given the current cost of delivery, a significant proportion of the population will not be able to achieve home ownership," said chief economist Dermot O'Leary.

Rents are more punishing. Even at interest rates of 5pc, mortgage repayments would be lower than rents in most of the country, but history shows clearly that the Central Bank is right that the size of even those mortgages would make them unsafe both for lenders and borrowers.

This whole project will fail - and it will be every bit as big a failure as the crash - unless ways are found to provide accommodation at a lower cost. Yet, as with many other things, from health to childcare, all the official reports deal with the results of high prices, and not why they are so high in the first place.

There may be some pointers in the ESRI research which showed that construction's share of employment, while still below the EU average, is back to that of the 1990s - when far more houses were being built.

Author professor Kieran Quinn concluded that an influx of foreign workers will be needed to deliver the necessary supply but, just to add to the complexities, that would put more pressure on accommodation and rents.

Besides, it is not clear where the necessary credit for an explosion in residential construction would come from; or what would be the dangers for the economy. The only thing that seems clear is that the crisis requires a national response on the scale of electrification, the slum clearance programme or the motorway system.

Maybe all three. The challenge is all the greater because government has become more difficult than it used to be, as years of responses, wise and foolish, to the problems of the day accumulate, like barnacles on the hull of an old ship.

As NERI's Tom Healy put it, "There is still a sense that something is missing in the scope and scale of the current response so far - namely stronger policy and executive capacity to undertake a more active and ambitious approach to housing and land supply management."

It is hard to be confident, seeing the difficulties involved in starting any new construction and the political interference in almost any project, whether in construction or not.

And if one is not confident, one cannot be other than highly alarmed.

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