Friday 24 May 2019

More houses won't bring down prices as developers will seek higher profits

Expert warns cutting mortgage rates will drive up inflation

Dr Lorcan Sirr, senior lecturer in housing studies at DIT, warns that building more houses won’t bring down prices in Ireland. Photo: Mark Condren
Dr Lorcan Sirr, senior lecturer in housing studies at DIT, warns that building more houses won’t bring down prices in Ireland. Photo: Mark Condren
Breda Heffernan

Breda Heffernan

Increasing the supply of property will not bring down house prices - but will instead lead to developers chasing yet bigger profits, an expert has warned.

A national conference on housing and homelessness heard that the model of property development in Ireland and the UK was based on prices rising.

And it also heard that even if Irish mortgage rates were brought into line with cheaper rates in the rest of the eurozone, house prices could go up €60,000 "overnight".

This is because buyers would have more to spend on the property itself, as opposed to interest on the home loan.

The conference in Dublin was organised by the Irish Congress of Trade Unions (Ictu) in a bid to address the crisis that is crippling swathes of Ireland.

Dr Lorcan Sirr, senior lecturer in housing studies at DIT, said that while increasing supply is important, it "is not the only answer out there".

He said a number of "myths" were being put forward: "A myth that's propagated is that increasing supply will bring down house prices. No, it won't.

"The way the model works in Ireland and the UK is prices increase and builders build with the expectation of getting more. Supply, supply, supply is not the only answer out there."

Speaking to the Irish Independent, Dr Sirr said that supply might help moderate price growth, "but it won't reduce prices".

He said politicians believed "increasing supply is the answer to all our prayers, but affordability is the real answer".

He said this could be achieved by greater State intervention in building affordable housing - and welcomed Housing Minister Eoghan Murphy's suggestion of using State-owned lands for this purpose.

Another speaker at the conference, architect Mel Reynolds, added that "in 40 years, increasing supply hasn't reduced house prices".

He pointed out the housing market doesn't behave like most other markets, where increasing supply will lower prices.

Housing is an asset market - which means that as prices rise, it encourages more people to buy. They see a potential gain in holding an asset that is rising in value.

"When the price is going up, housing becomes an asset and it becomes attractive to buy," said Mr Reynolds.

Irish mortgage holders are paying some of the highest interest rates in the eurozone. But Mr Reynolds warned that even if these rates were brought into line, it would just further inflate house prices.

"If mortgage rates dropped closer to European rates, the price of houses would probably go up €60,000 overnight," he said.

Mr Reynolds explained how a drop in a mortgage holder's interest rate would simply mean they aim to borrow more.

He added that there was no shortage of State-owned land to build upon if the will was there.

"We have enough State land to build out for 108 years. The State is the biggest land hoarder in the country."

Opening the conference in Dublin yesterday, Ictu general secretary Patricia King said the housing crisis was the result of policy failure over decades - which has seen social housing being outsourced to the private sector.

She pointed to figures from the Department of Housing which show that in 1995, county councils were leasing just over 95,700 homes from private landlords, but by 2016 the figure had risen to over 141,500.

Ictu yesterday launched its 'Charter for Housing Rights', calling for a major public housing building programme to deliver 10,000 new homes annually for the next five years.

Irish Independent

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