Marc Coleman: 'Our €215bn debt doesn't mean we can't do social housing'
As the homelessness crisis continues, voters will want results, even if it means state spending, says Marc Coleman
'It doesn't matter if a cat is black or white, so long as it catches mice." Spoken by Chinese leader Deng Xiaoping 40 years ago to explain communist China's embrace of limited capitalism to raise living standards, the pragmatism behind these words has a message for today's policy-makers.
Last week saw new child homelessness figures emerge and with the generational struggle with high rents and mortgages putting the housing crisis to the fore, results will trump ideology by a country mile in the minds of voters at the next election.
In that regard, Ireland may soon need to go in the opposite direction to Deng Xiaoping with a more determinedly state-driven approach to housing provision.
Please log in or register with Independent.ie for free access to this article.
Not that you must be socialist to believe in social housing. De Valera and Charles Haughey built tens of thousands of units of social housing annually in a country far less rich than today's Ireland.
That process stopped in the 1990s, just as our population boom started. And that leaves us with a lot of catching up to do. Now, Ireland 2040, Construction 2020, the Action Plan on Housing and the Land Development Agency (LDA) proposal are moving things in the right direction.
But converting direction into action remains the challenge. Compared to the 1990s, four challenges confront any effort in this direction: higher land prices, higher personal indebtedness, EU fiscal rules and capacity.
Let's take them in turn.
Strong recovery and foreign capital have driven land prices to new heights. But if Dublin's high prices are an obstacle, the far lower prices in regional Ireland point to an opportunity to be smart about investment in ways that encourage growth outside the capital. The LDA also needs fast-tracking. And a debate on land prices - namely whether increases caused by planning constitute a real property right - may not be far away.
Ireland's high personal indebtedness - especially when compared to our EU peers - is sometimes cited as a reason why we should avoid more public debt.
CSO figures released last Friday show per capita debt equates to €44,365 for every man, woman and child in the country - four times higher than our 2007 level. This is ironic and self-defeating, as high personal mortgage debts today largely reflect a lack of past investment. Sensible public investment today can reduce future indebtedness.
Here, Finance Minister Paschal Donohoe needs to balance classic PhD economist advice with experience-based nous. As a politician, he will, of course, shy away from asking taxpaying mortgage holders to subsidise social housing. But by moving right on tax cuts, a move left on social housing can deliver the best of both worlds, provided a more sophisticated approach to fiscal rules is taken.
The Irish Fiscal Advisory Council has raised concerns in relation to the budgetary situation and the economic cycle - for current spending, but not for capital borrowing. Here longer-term, not short-term cyclical, factors are more important. Good investment raises future productivity, living quality and tax revenues, regardless of the cycle.
And, as happened in the 1980s in the UK, social housing can be eventually sold to occupants, thus creating stakeholders in the system. Subsequent lack of such policy now is a contributor to current instability in that country. Besides, economics 101 tells you that capital stock should be stable or rising as a share of output. Despite output and the workforce rising by one half and one quarter since 2014, respectively, our capital stock has barely flinched.
So we must change how fiscal rules work. Two chances have already been missed. Firstly, the 2004 EU Accession process when the Stability Pact could have been changed to facilitate younger, high-growth eastern states to invest more in infrastructure, and the 2012 Fiscal Treaty.
In both cases, I wrote papers urging reform. Again, the focus was on the short-term cycle. Now, a new EU commissioner and ECB president gives us a third chance. It might be the last.
A fourth constraint is capacity. Massive investment could mean our construction industry needs some help, in the short term at least. Here Italy, with its experience of cooperatives and housing investment, and Germany, with its good planning, could be good partners.
Donohoe will worry about the National Children's Hospital saga. But his department is improving spending guidelines. Implementing them will require practical experience. And a little - this time Irish - wisdom: save the pennies and spend the pounds.
Marc Coleman is a consultant working with Ibec and other organisations