Wednesday 21 February 2018

Home truths: More houses not the only answer

The Central Bank in Dublin
The Central Bank in Dublin
Mark Keenan

Mark Keenan

All sorts of 'solutions' have been tabled by the outgoing Government and various panels and committees (and all and sundry) as to how the housing crisis should be solved.

The latest comes in a report this week from the ESRI suggesting we incentivise older people to leave "empty nest" homes. Some have compared chucking people out of their homes as akin to the wrong type of solution.

For its part the ESRI says around 26,000 homes could be freed up this way but also points out that this cannot be enough - because the ESRI also stated last year we need 25,000 new homes annually to solve the problem. Where these people might go is also a mystery given there is also a shortage of smaller homes. Large numbers of younger and expanding families are currently trapped in unsuitably small accommodation like apartments and there is a general lack of choice of homes of all sizes and types on the market. Last week we revealed that supply of property for sale in Ireland had hit a record low.

It's a chicken and egg conundrum: we need the younger families out of smaller accommodation in order to provide the homes for those trading down and vice versa.

In fairness to the ESRI, the body was asked by Government to investigate the potential of freeing up homes in this way. The trouble is, here we are again looking at any sort of novelty sideline scheme rather than just get to grips with a problem that has been with us for three years.

It's farcical, like most of the 'solutions' tabled by the last Government. These include rent controls; another useless living-over-the-shop scheme to incentivise the use of empty upper commercial floors; promises to build temporary dwellings (which became 'permanent' dwellings and then got canned); and now we have reports commissioned into moving older folk out of their homes. It's all about rearranging deck chairs on the Titanic.

But it's not just Government to blame - some of the solutions being tabled by the anti-Government lobby and housing associations are equally useless. For example, the clamour to raise rent allowances will absolutely do nothing but hike up the prices of rent, and therefore perhaps the price of existing property. The outgoing Government has been absolutely right on this. It can only make things worse.

For many years, there has been only one solution to the housing crisis - to build more houses. To do this, we should have been enabling builders and construction, whether by tax incentives (I know!) or by abolishing the many barriers we have set up to prevent home construction: high local authority levies, new building standards set to an unaffordable level and regulations to close bedsit accommodation without offering a viable alternative.

We have probably now reached the point in parts of our cities where building more houses possibly won't make enough difference in isolation. Why? Because the Central Bank's lending restrictions, combined with an assortment of other key real-income factors, mean people won't be able to get a mortgage for these new homes on ordinary salaries.

Without doubt we need them, but can we buy them? It's why, despite a situation of record low supply, many perfectly good average homes in Dublin are sitting unsold. The deposit requirement is much talked about and it does have a huge impact. A quite average Dublin home can require a deposit of €80,000 at this point. But there's also the 3.5 times salary stipulation. If a person is on a respectable €40,000 a year, then they're looking at a total mortgage of €140,000 when it costs at least €200,000 to build a house. Work it out.

There's also been a reduction in purchasing power at the buyer's end because of additional taxes like the USC, bin charges, water charges, property taxes - and then there's the increases in existing essential charges like fuel and heating bills, health insurance (probably now a luxury) and car insurance. Add to this the cutting back of salaries through the recession years.

So the cost of housing has gone up and our ability to pay for it has plummeted.

Some 'solutions' to the housing crisis applied these last few years have now actually made fixing the problem more complicated. For example, simply removing the Central Bank controls on lending (in the absence of supply) will now cause a sharp surge in city prices as a pent up lot of postponed buyers are released. But to create the necessary supply to prevent such price rises, we need to have the lending controls removed. Another chicken and egg.

It's why we've now moved beyond one simple solution that would have worked up to last year - building more houses. From now on, solving Ireland's housing crisis requires a concerted and carefully considered approach involving a body of varied experts on a number of fronts. And led by a dedicated senior minister for housing.

Indo Property

Promoted Links

Life Newsletter

Our digest of the week's juiciest lifestyle titbits.

Promoted Links

Editors Choice

Also in Life