Boost supply, not prices
Housing crisis looks set to get worse as added risks to economy loom on horizon
The effects of a dysfunctional housing market are being widely felt: from the rising cost of new homes, to historically high rents, homeless families relegated to bed and breakfast accommodation and shortages in social and affordable housing. The Government’s response has been to encourage developers to expand output by providing public land at reduced cost and through various tax incentives. The Nevin Institute has challenged this approach as favouring excessive capital gains while, in a separate assessment, the Economic and Social Research Institute warns against an over-heating economy.
Aspects of both reports deserve careful consideration. The ESRI is concerned that because the housing market is now the main driver of growth, a construction boom could lead to over-heating, loss of competitiveness and other negative consequences. Output this year is predicted to rise to 18,500 units, well short of the 30,000 homes needed. But efforts to close that gap in the coming years, with a tightening labour market, could recreate the conditions that led to the economic crash of 2007.
For its part, the Nevin Institute has called for a new housing policy where the primary incentive would be to provide accommodation, rather than make excessive capital gains. It proposed the establishment of a Government-led programme, structured on a commercial basis, that would build 20,000 social and affordable units over four years. This approach would address social and affordable housing waiting lists and boost employment by up to 16,000 in the short term. Finance would come through long-term, low cost borrowing from the European Investment Bank, the Ireland Strategic Investment Fund controlled by NAMA and from pension funds.
Making the point that excessive house prices are bad for the economy and for society, the Nevin Institute report noted unsustainable increases had been at the core of the economic collapse. Some 750,000 housing units had been built between 1995 and 2007, reaching a peak output of 93,000. But instead of prices falling, the cost of a home rose from three-and-a-half times average income to five-and-a-half times. Ireland could not afford to repeat that experience, it said, and Government policy should oppose massive price increases and large capital gains.
The shortfall in social and affordable housing and an ability by developers to evade Part V planning regulations, which require 10 per cent of new homes to be used for that purpose, is cause for concern. Only 64 new homes were provided under this scheme in 2015 and the suggestion it will deliver a big portion of the Government’s five-year 47,000 social housing target is risible. Reducing reliance on the private sector for social housing could save the Government money and improve its chances of meeting targets.