Thursday 20 June 2019

A proper economy cannot function while carrying a housing crisis every two decades

Couples hoping to make it on to the property ladder have seen prices surge. Stock photo
Couples hoping to make it on to the property ladder have seen prices surge. Stock photo
John Downing

John Downing

Everyone knows someone suffering the effects of a dysfunctional housing market.

There is the renewed rising cost of new homes reflected in surveys at the weekend, bringing that sinking feeling that we are heading back to boom and bust.

There are historically high rents which we're told cannot really be controlled.

There are homeless families, amounting to some 7,000 people, relegated to bed and breakfast accommodation and more than 90,000 people in social and affordable housing.

We have been here before round about the turn of the millennium when shortage of supply was again the major issue. In the year 2000/2001 house prices increased by an average of 17pc.

A short few years afterwards an incentivised house building sector went into over-drive. At the height of the boom, or perhaps more correctly the cusp of the collapse, in 2006 almost 90,000 houses were built in this country - more than the entire island of Britain which has 15 times the Irish population.

Then the bank sector fell asunder in 2008, taking the Irish economy down with it, and seeing the EU-ECB-IMF arrive in November 2010. The focus was all on getting the books straight and house building dwindled to negligible quantities as the population continued to grow. The government's response was slow to kick in.

But now the Housing Minister, Simon Coveney, has been given a challenge which makes the Herculean tasks look rather facile. The main thrust of his approach has been to encourage developers to expand output by providing public land at reduced cost and through various tax incentives. Doubts about the validity of this have been compounded by the weekend surveys which cited the tax incentive-driven 'Help-to-Buy' scheme as a factor in the spiral.

In a report last month the Nevin Institute, backed by the trade unions, also challenged the Government approach arguing it favoured excessive capital gains. In a separate assessment, the Economic and Social Research Institute warned against an over-heating economy caused by the housing market.

Both reports got a good airing and then, like many another report, normal business resumed. The ESRI warned that since the housing market is the main driver of growth, a construction boom risked over-heating and loss of competitiveness.

Output is rising and this year is predicted to be about 18,500 units. But it's well short of the 25,000 homes a year needed. The danger remains that closing that gap in the coming years, with a tightening labour market, could recreate conditions which gave us the 2008 economic crash.

The Nevin Institute called for a new housing policy focused on providing social accommodation. It proposed a Government-led programme on a commercially driven basis.

The scheme could build 20,000 social and affordable units over four years. That might address social and affordable housing waiting lists and boost employment with some 16,000 jobs.

Long-term, low-cost borrowing from the European Investment Bank, the Ireland Strategic Investment Fund and pension funds could fund it.

The first years of this century saw excessive house prices damage the economy and society. Unsustainable increases had been at the core of the economic collapse. We cannot function with a housing crisis every 20 years.

Irish Independent

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