Sunday 15 December 2019

High costs in the construction sector keep pushing up prices

Thomas Molloy

CLOSE to the top of the lengthy list of Irish delusions is the myth that we are a nation of proud homeowners.

In fact, a third of us rent while just two-thirds live in a home that we, or the banks, own. These days, home ownership here is lower than the European Union average.

In other words, rising rents matter for a great many people but get very little attention amidst all the hullabaloo about house prices. House price gains are generally good for those who own a house (and don't plan to trade-up). But they are always bad for the one in three who rent because rising property prices inevitably push up rents unless you live in a country like the United States or Germany where rent controls are common.

Here in Ireland we have seen a rapid rise in property prices in many parts of the country. That has not always been reflected in the official data which is skewed by the Central Statistics Office's peculiar reluctance to report the price actually paid for a house rather than mortgages taken out. Today's figures from Daft.ie reflect the inevitable consequence of soaring property prices which is soaring rents.

The report's author and one of the most astute experts on Ireland's property market, Ronan Lyons, has many interesting things to say about the latest figures but his chief argument is that rents and house prices are now close to what the market can bear thanks to endless tax hikes and salary cuts.

This means that the Government must do more to tackle the high costs in the construction sector to ensure more cheap houses are built. It is not always understood that the cost of building has risen slightly since 2007 despite the hundreds of thousands of construction workers who are on the dole or have emigrated.

The reason for this apparent paradox is simple; the Government effectively sets salaries for construction workers along with the unions and the construction industry. For reasons best known to themselves, those wages are still very high. In fact, wages account for two euro out of every three euro spent on construction.

What to do? Wage cuts would be an obvious start. Prof Lyons also wants the various development levies and planning charges to be simplified to remove the red tape that bedevils builders who want to start providing the homes that will meet the pent-up demand.

There are powerful forces in society who want prices to keep rising. Landlords and the banks would both be happy to see prices continue to rise for understandable reasons but the truth is that prices are already very high.

The survey shows Dublin rents are close to rents in Hamburg, which is the richest city in the eurozone. Just how much more do we think prices should go?

Irish Independent

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