Varadkar’s new housing target shows there’s a mountain still to climb

Taoiseach Leo Varadkar has called into question his own Government’s housing targets, telling a Fine Gael meeting this week that 250,000 new homes are needed to fill the State’s housing deficit.

Coming as moves to end the eviction ban spur anxiety about a new wave of homelessness, the Taoiseach’s new assessment shows there are mountains still to climb if his administration is to finally assert control over a crisis that seems to grow by the day. With progress erratic in the drive to increase building, housing remains the Coalition’s single biggest challenge.

Only 18 months have passed since the Housing for All masterplan committed the Government to build an average of 33,000 new homes each year for the rest of the decade, a daunting target it has yet to reach and which is already out of step with demand.

New dwellings completions came close to 30,000 in 2022, a post-crash high that rose 41 per cent on the previous year. But a slowdown in building commencements and planning permissions has raised concern that housing delivery is on track yet again to fall this year instead of rising.

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Now Varadkar says the annual building rate needs to increase by 10,000 homes over 2022 levels. “There needs to be at least 40,000 homes built every year and we are ramping up to that under the Housing for All plan,” he told a parliamentary party meeting. That is the equivalent of half the building rate at the height of the last boom, when some 80,000 homes were built in one year alone. Still, the Taoiseach’s figures suggest titanic efforts will be required to overcome planning, labour, financial and water infrastructure constraints.

[ Local authorities to be given individual targets for social housing purchases ]

But what was the basis for his calculations? “The figure was based on the Taoiseach’s own assessment of the situation,” says Varadkar’s spokesman, referring to recent housing summit presentations and talks with the Housing Commission. The commission is a body established by the Government to formulate a long-term strategic view on housing matters.

Although Housing for All targets will not be formally reviewed until later in the year, the Taoiseach’s remarks reflect the view common in property circles that another big escalation in building is needed to break the cycle of crisis.

What is more, many in the sector believe the Government should go far beyond the levels foreseen by Varadkar.

When law firm Mason Hayes & Curran surveyed more than 200 developers, estate agents and property managers in December, 76 per cent said 50,000 new homes would be needed each year.

Whatever the eventual target, the current shortfall in supply reflects the collapse in building that followed the 2008 banking meltdown. “Ultimately a lot of our current difficulties go back to the crash and the fact that housing supply fell by so much and for so long,” says Kieran McQuinn, research professor at the Economic & Social Research Institute. “It was down to as low as 4,900 units in 2012 and 4,500 in 2013. It didn’t really start to increase in any significant fashion until 2017 when you got to just over 14,000 units.”

The 2020 pandemic shutdown dealt yet another blow to delivery, leaving the Government on the back foot to this day, and homebuyers and renters in despair.

[ Varadkar reveals deficit of 250,000 homes in State, admitting crisis will take time to solve ]

Analysts say the 250,000 deficit cited by the Taoiseach can easily be substantiated given population growth and expectations that Ireland’s relatively high household size would decline with more housing delivery. Similar expectations surround the relatively high age at which young Irish adults leave the family home for the first time.

Data shows 2.6 people per Irish household in 2021, compared with an EU average of 2.3. The average Irish adult leaves the parental home aged more than 28, almost two years later than the EU average.

“Ireland is an outlier when it comes to the number of persons per household in Europe and where that goes in future has a big impact on overall housing need,” says Dermot O’Leary, chief economist at Goodbody stockbrokers and a member of the Housing Commission.

Trinity College Dublin economist Ronan Lyons, another commission member, says the Taoiseach’s figures reflect where housing might be if supply was not constrained. “If we wanted our housing stock to reflect the way we live rather than having to adjust to suit our housing stock we would have hundreds of thousands more homes in this country,” he says. “It’s become increasingly clear that the costs of building too few homes are substantial. A lot of the system in Ireland… seems to be predicated on a post-Celtic Tiger view that everything must be done to ensure we don’t have too many homes. But the problem is the opposite. Now we don’t have enough homes.”

Still, the riddle of Ireland’s housing crisis is that higher delivery can be elusive even in the face of rising demand and higher targets. New data points to a sharp decline in planning permissions in 2022, with approvals for apartments showing the biggest drop. This is on top of a year-long backlog of planning appeals at the crisis-struck An Bord Pleanála.

[ Planning applications for 70,000 homes awaiting decisions from An Bord Pleanála or High Court ]

There are other grave challenges, with the funding of projects more difficult because of post-crash restrictions on bank lending, rising interest rates and high construction inflation. “There is a growing consensus on the need for greater Government involvement to provide that type of funding,” says McQuinn.

With the economy in virtual full-employment and apprenticeships down since the crash, labour supply is another problem. “But there is scope for a redeployment or reallocation of workers from commercial property activity to residential – we’ve seen a cooling off of the commercial property market in the last six months,” McQuinn says.

Still, he notes a tension between the need for more workers to build new homes and a similar requirement for workers to retrofit thousands of older homes to help meet onerous climate targets.

In a crisis worsening for many years, there are no easy answers.