Sunday 21 July 2019

Home Truths: Government in cuckoo's nest on affordable homes


Trendy but tight: A modern apartment of the type provided via build-to-let rental schemes and the most favoured ‘blue corner’ solution to the crisis
Trendy but tight: A modern apartment of the type provided via build-to-let rental schemes and the most favoured ‘blue corner’ solution to the crisis
Mark Keenan

Mark Keenan

This week's report from Davy Stockbrokers proclaims that Irish home ownership rates, once the second highest in Europe at 80pc, and now below 70pc; are set to fall to a level equivalent to Germany's 51pc. Dublin ownership levels are already likely to be south of 65pc as it stands.

The same report told us that so-called "cuckoo funds" are not, in fact, displacing home owners from the market, as they roam about hoovering up entire apartment blocks. But does anyone remember the last time a block of apartments was sold unit by unit to private buyers, first-time buyers or to down traders? We don't deny there's a need for fund involvement in the market, but the balance seems to have been tipped greatly in their favour.

We do know that the current Government has bent over backwards to enable (a) radical changes to planning which made whole block development for big buy-to-let economically viable in the first place, and (b) it has constantly beaten down the competition from small private landlords through the extension of rent pressure zones, while (c) it continues to enable vast taxation inequality between small private landlords (taxed to the hilt at 51pc) and big cuckoo funds who, very strangely, aren't taxed at all thanks to a loophole.

With the continued lack of affordable housing over the last six years (affordable in real terms, not by Mickey Mouse Government definitions) it's hard to believe anything other than the thesis that this Government is looking to the big funds to take on the biggest role in killing the crisis.

To make this proposition viable in turn, there is a requirement for more young people renting in future, rather than owning. It also tallies with the recent UN report voicing concern about the increased commoditisation of housing in western markets (that report singled out Ireland) and how market-leaning governments (like ours) are also being tempted by the cuckoo solution to sort out social housing.

A battle royale could now kick off between those in favour of the fund rental solution and those struggling to cling on to the tradition of ownership in our cities. In the blue corner we have the proponents of a right-of-centre market-led Government and its adherents and voters. Along with lower taxes, less welfare fraud and so forth, the blue corner seems to envisage a future of renting (not owning) for young city couples in new tower blocks.

In these diminutive but much trendier abodes, couples might have to keep their 1.5 kids in one cupboard and their folding bike in the other (for a tip-toe environmental footprint) while paying to a corporate fund the equivalent in rent what their parents previously shelled out monthly to buy a three-bed semi.

Most of the movers and groovers in the blue corner own homes already, so this is a totes plebian 'solution'. Odd, given that Margaret Thatcher, an inspiration for so many in blue, was always a fierce champion of pleb home ownership.

Then, in the red corner, we have those who still cling desperately on to the Irish home ownership dream. The vision the founders of the State proffered - the chance for everyone to hold deeds to a smidgen of the nation's turf and not be beholden to landlords, whether domestic or foreign in origin. The distinctly untrendy red corner types would like to end up clutching a set of deeds covering at least three bedrooms and for that to be paid for over time with reasonable increments from an average wage.

While second-hand Dublin city home prices are either stagnating or falling at this point, the average price of a semi in the capital is €433,000. But supply hasn't met demand for the truly affordable city homes we never got. It has only done so for the expensive properties we did.

This year's Demographia International Housing Affordability Survey puts Dublin's affordability index rating at 4.8; in the "seriously unaffordable" category (4.1 to 5) and just below the worst case "severely unaffordable" bracket by global standards (5.1 and over).

Despite this Government's definition of "affordable" (up to €320k and requiring an income over €80k) big US business here raised affordability and quality issues at the The Irish American Chamber of Commerce meet recently where president Mark Gantly said: "Multinational companies' principal concern right now is how to attract and retain talented individuals from abroad to work and live here, and also how to develop and retain our home-grown talent. Increasingly we are scored on quality of life factors where we must measure up against competing international destinations."

But it is still wholly possible to build genuinely affordable homes in Dublin, Galway and other cities. The barrier is our blue corner Government which simply isn't willing to permit what it takes to achieve affordable. Allow me:

At present a €350k Dublin home in Swords or Lucan costs the site (€70k), labour and materials (€120k) and the per unit profit for the builder (€15k is normal). So that's €205k. More than €75k goes on a combination of: estate agent's fees, marketing, finance costs, legal costs and stamp, site development costs, insurance and Homebond (the guarantee scheme for buyers).

Next there's 13.5pc VAT for Paschal Donoghue and a €20k contribution to the local authority. So the State is taking €67,250 directly from the price of a €350k home. And this doesn't include the VAT on materials bought or the tax paid from the wages to those involved.

So let's despec a bit. Kill the requirement for a downstairs loo, reduce the energy spec to a still pretty good BER B by ditching solar panels. Now get rid of the ensuite loo upstairs and build a home which is entered straight into the living room (no hall) - that's €25k saved. Now eliminate the direct State tax and you have a house coming in for just under €260k. Very affordable indeed.

Now introduce a temporary scheme that allows all three-bed city houses priced under €260k to be sold tax/levy free. The Government would instantly kick start the provision of truly affordable family sized homes.

But the pro rental blue corner simply won't have it. Red corner plebs ducking tax, even in a housing crisis? FerGodsakes who do they think they are? A no tax, block buying, big shot cuckoo fund or something?

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