Monday 15 July 2019

Richard Curran: 'Housing crisis means we risk creating new social divide'

Supply and demand: More homes were built in the year to March 2019 than were sold. Photo: PA
Supply and demand: More homes were built in the year to March 2019 than were sold. Photo: PA
Richard Curran

Richard Curran

The list of grievances at the heart of the Irish housing crisis remains very long. Twelve years after house prices started to fall and close to six years after they began rising again, the problems with housing seem as intractable and contradictory as ever.

Yes, more houses are being built, but here are just some of the criticisms you regularly hear: houses are too expensive for an average couple to buy a first-time home; builders are creaming it; developers are hoarding land which keeps prices high; we are heading for another crash because the whole thing is a bubble; rents are still rising and are too high; so-called cuckoo funds are buying up too many apartments which push out first-time buyers; we are building more houses but still not enough, and so on and so on.

Here are two things you don't hear too often:

1. There were 2,500 more housing units built in the year to March 2019 than were actually sold. The numbers of unsold homes is actually increasing - wrong house in wrong place at wrong price.

2. House prices may have sky-rocketed in recent years but we are unlikely to see a very severe crash as we did last time out.

Fewer homes are now being sold at less than €250,000 with more of them moving into the middle- to higher-priced bracket. When combined with the strict mortgage lending rules, there seems to be fewer potential buyers who either have the cash or can get the mortgage.

This adds to the dysfunctionality of the housing market at a time when there are clearly not enough homes. But it suggests there aren't enough affordable homes based on the financial metrics of the customer base, ie after tax income levels, mortgage caps, cost of building houses etc.

When you see a softening of demand in this price category it automatically makes you think there could be a price drop coming. The 'Financial Times' ran a headline on a lengthy article the other day which read 'Real Estate: Post-crisis boom draws to a close'.

It sounds ominous and analysis pointed to a Spire project in Canary Wharf in East London which was launched in 2016. The £800m curved glass tower was set to include 800 luxury apartments, a 35th floor spa, a cocktail bar and dancing fountains but it has now been stalled and according to its promoters is "under review".

Prices for high-end London real estate have fallen more than 20pc in recent years. The FT also points to comments by American real estate investors who say there has been too much money chasing too few projects. It drives a price bubble and sentiment has now begun to turn a little.

However, this doesn't mean we are heading for a big bang crash like 2008. And even if prices in Ireland were to soften and fall, we would not be hit in quite the same way as before. We are less over-borrowed, the price falls should be smaller and if anything the biggest impact would be how it would stop further new housebuilding.

One symptom of a house price fall, namely less building, would do more damage than the fall itself because what is needed most is affordable housing.

The biggest potential long-term problem facing the Irish housing market is not around price bubbles but the changing dynamic which is seeing us shift from a nation of homeowners towards a nation that rents.

More renting is a good thing because it helps avoid the kind of credit bubble and house price crash that happened in 2008. Well, at the very least it reduces the pain of its impact. Renting, if the market dynamics are right, can also lift a person's disposable income - assuming it costs less to rent than to buy. Homeowners also face the inevitable peaks and troughs of the market in various property cycles.

After the last crash several problems were identified. One was that we tended to borrow too much money to fuel our national obsession with owning property. That is being dealt with through bank regulation and mortgage caps. Another problem was that we had too many tax incentives to encourage speculative building. They are gone but the tax incentives now favour large international buyers to want to rent out properties they purchase.

A greater portion of the population will be living in cities, especially Dublin, so to avoid further sprawl and a life sentence of commuting by car, more apartment-building is taking place closer to city centres.

Some people felt we needed to move away from the obsession of property ownership and towards a more continental European model of long-term renting.

Let the small part-time landlords slide out of the market to be replaced by larger scale professional landlords who would be in it for the long haul and have the money to build suitable housing units.

The problem is that we are ending up with the worst of both the home ownership model and the renting model. And there is no serious public policy debate about the direction we are taking.

National discourse on property is understandably taken up with the multiple measures that are required to tackle rising homelessness and the need to do something as soon as possible.

Germany was seen as the kind of long-term stable renting model we should aspire to. Yet, this week Berlin authorities are discussing proposals to introduce a five-year rent freeze in the city. Momentum is growing for a referendum which would enable the state to make compulsory purchases of apartments owned by companies in possession of a certain threshold of housing units.

One such company, Deutsche Wohnen, owns around 118,000 units in Berlin. Rent increase caps have not worked and Berliners want to get drastic.

It has to be said that in Ireland, large investment funds which are building to rent or buying to rent large blocks are nowhere near the scale of Berlin. Around 85pc of homes in the German capital are rented. In Dublin it is more like 27pc. In 2018 some 3,000 units were snapped up in Ireland by funds in large blocks to rent. Our biggest professional landlord, Ires Reit has around 3,500 properties rented. We are not Berlin.

At a time when we need more properties built, and more available to rent, these funds are contributing to new supply. But they expect to do well from it.

Ireland is now at something of a crossroads. Do we want to be more rent-focused or more home ownership driven? Taoiseach Leo Varadkar said recently he believes strongly in the value of home ownership. Yet it is becoming a more privileged position to hold. The number of people aged under 35 who are owner-occupiers has declined by 44pc since 2011.

We are moving towards more renting without building the housing stock suitable to long-term family renting. We are more shared hubs than lifelong renting.

If we want to be a society of homeowners, why are we still failing to deliver affordable homes for people to buy?

Whatever direction we take, there will be long-term consequences. If you accept that over your lifetime home ownership is financially more rewarding than renting, Irish society will split into the owners and the renters, with the latter in a more stable financial position.

Without proper pension provision, those renting face serious financial cliffs when they stop working. How can you put money aside for your pension when you are being ripped off by runaway rents that are now 37pc higher than in 2008?

Irish people are marrying much later. Getting married is a usual trigger for buying a home. Renting has its benefits. Perhaps we can have a reasonable mix. But what might the mix look like?

In the eye of a housing crisis storm, these questions aren't even being asked, never mind answered.

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