Wednesday 24 October 2018

Richard Curran: Housing boom is different this time - high costs and rip-off rents mean it's far crueller

Today’s queues to buy houses reflect a huge shortage of houses rather than an insatiable appetite for borrowing as was the case during the Celtic Tiger era
Today’s queues to buy houses reflect a huge shortage of houses rather than an insatiable appetite for borrowing as was the case during the Celtic Tiger era
Richard Curran

Richard Curran

Another week and another government announcement aimed at tinkering around with a broken housing market.

The latest initiative is around landlords, and proposed new measures from housing minister Eoghan Murphy to have a rent register showing how much rents are in your local area.

The idea is that somehow those looking to rent will know what others in the area are paying and then be able to ascertain if they are being ripped off or not.

Surely such a register already exists. It is called Daft.ie. I can just imagine how the conversation will go with the landlord regarding their exorbitant rent. The landlord can argue that his property is better, deserves a premium and if you don't like it, there is a queue of other, (less trouble-making) punters waiting to take it.

The new measures also make it more difficult for landlords to force tenants to vacate a property by providing for longer notice periods. The latest plan is also expected to make it a criminal offence to increase rents in a way that contravenes the rules around Rent Pressure Zones (RPZs). This is the old trick of saying the house has to be vacated for a family member or it is going to be sold.

These measures will not seriously address the underlying problems facing anyone looking to buy or rent a property. They may be well intended but they are too little and too late.

Rents in Ireland, especially in Dublin, have exploded since the bottom of the market in 2010. Since then rents in the capital have gone up by 81pc. This is despite numerous initiatives around protecting tenants and controlling rent increases. They simply haven't worked.

The Government had several chances to implement real rent controls which basically meant that rents could not go up unless in very specific circumstances.

Even the RPZs allow for 4pc per year at a time when inflation is running at a fraction of that level.

Dealing with the housing problem head on would have meant taking on various property interests but also taking policy initiatives during the recession years that would have been deeply unpopular with a very large group of voters - homeowners.

Many of them were sunk in negative equity. They felt their financial situation was hopeless. Anything the Government could do to increase property prices made those people feel more optimistic and in theory at least, gave them more options for their own future.

But there has been a catastrophic downside. Yes. the vast majority of those trapped in negative equity in the recession are out of it or close to that, but the entire housing market has become utterly dysfunctional.

One estimate last week suggested that house prices are set to reach Celtic Tiger peak levels within 18 months, if they keep rising at current rates. This automatically leads people to question whether there is a bubble or not.

Ireland's housing boom is different to the last one. This time it is more cruel. A real problem has been created but it isn't the same problem as back in 2007. Mortgage lending is rising but it isn't remotely near the levels of 12 years ago.

For example, in the last three months of 2017, 10,350 mortgages were drawn down. They had a combined value of €2.2bn.

In the same period of 2006, 48,637 mortgages were drawn down, with a combined value of €10.3bn. The difference was that lots of people were taking out mortgages on second or third properties.

The queues of people back in 2006 waiting to buy a house, included those who wanted to flip it very quickly at a profit. Today's queues reflect a massive shortage of houses rather than an insatiable appetite for borrowing.

So, if this isn't a credit-fuelled bubble, what is the problem? The problem is the social and economic mess it is generating.

Ireland's population is set to keep growing. The need, never mind demand, for new houses will only grow even more. The amount of money people have to spend on those houses is determined by how much they can borrow.

The Central Bank and to some extent the banks, have learned a lesson about credit. The numbers of people who can afford the mortgages that are available under lending rules, will increase through employment and wage growth.

They will be the lucky ones. So for example, if you are confined to borrowing a maximum of 3.5 times your salary, your mortgage limits can rise when you get pay rises, or more people arrive in Ireland who are paid higher salaries. This is where the social cost kicks in. Despite growing numbers in rented accommodation, our housing culture is still built around ownership. There are whole swathes of hard-working people who are being cut off from that life option.

So what you might say. Renting is a perfectly good alternative option in lots of countries. But it isn't in Ireland.

Those who cannot get a mortgage are driven into a dysfunctional rental market where they are being ripped off. The social cost of all of this includes, not just homelessness for a group of people who would never have been homeless in the past, but also quality of life issues.

These people are signing up to spending more of their disposable or savings income on rent. This will affect their quality of life, that of their children and their ability to plan for the future.

The economic cost will be the next issue to really rear its head. It is inevitable that our housing mess will cost us in terms of competitiveness. Executives in major multinationals are announcing new jobs projects and you have to wonder have they realised how hard it will be for many of their future employees to find an affordable and suitable place to live, especially in Dublin.

There are other economic costs. People in lower wage jobs will be driven further out of the city to find affordable accommodation. These people provide essential services in our economy and society and they are badly needed by businesses to do the jobs they do.

So, what should happen? The State has to start building houses on State lands. We have had multiple announcements around this but not enough is happening.

We need genuinely punitive measures to counter land-hoarding.

We need to accept that the Exchequer's tax take on construction might have to take a hit in order to achieve the more important goal of providing affordable housing for our citizens.

We need to seriously re-examine our planning laws to see what is not necessary for the sake of a greater social and economic good.

If some of these measures need legal or constitutional change then we should introduce it.

Nama is on track to make a profit of around €3bn. It would be better if the agency broke even but made a serious contribution to building affordable and social housing.

Local authorities have to be called out on why they are not building more social housing.

It is already far too late to pare back rents. The Government had its chance and blew it by not introducing rent caps. All it can do now is tinker around the edges to try and contain rents at close to their current rip-off levels.

The Irish homebuilding market is being cherry-picked. Too many developers are hoarding sites. Too many individuals are sitting on under-used land or houses. Too many local authorities don't seem to want to build social houses.

Yet, many voting homeowners say they are upset about the housing market but are privately quite relieved their own property is going up in value. It isn't up to them to take the hard decisions but politicians.

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