Government policy at centre of housing shambles

Cantillon: The Government does not want to fund local authorities to build social houses

The private sector understandably refused to build while prices were on the floor, and it remains slow to get in the game while legacy tax incentives to hold onto land work their way through the system. Photograph: Getty Images

The private sector understandably refused to build while prices were on the floor, and it remains slow to get in the game while legacy tax incentives to hold onto land work their way through the system. Photograph: Getty Images

 

In 1975 Irish local authorities built 8,794 social housing units; in 1985 this dropped to 6,523; in 2006 the rate was 3,968; in 2015 it fell to 75.

The numbers speak for themselves. The Government does not want to fund local authorities to build social houses.

Instead the State’s 34 local authorities are fast becoming glorified administrators of ever-expanding social housing waiting lists. Supply – from acquisitions, rentals and refurbishments – is increasingly reliant on the private sector.

The Government’s overarching aim has been to address the housing crisis by activating the private sector speculative model, while dealing with the affordability gap at the bottom through rent subsidies.

This is backfiring on a grand scale. The private sector understandably refused to build while prices were on the floor, and it remains slow to get in the game while legacy tax incentives to hold onto land work their way through the system.

In 2012, finance minister Michael Noonan granted a capital gains tax holiday for investors who bought prior to the end of 2013 and held the property for seven years or more in bid to attract investment in the crash-hit market. The measure was later extended to end-2014.

Now the Government, stuck in reactive policy mode, is about to pull the other lever – a land-hoarding tax – in a bid to bolster building activity.

Rent subsidies have only added to the strength of rent inflation, which in turn has required greater Government subsidies in a sort of self-perpetuating circle.

For much of the last century social housing was a valuable counterbalance to the private sector market, buttressing supply when output slowed; peeling back when the latter oversupplied. This kept property prices and rents on a relatively even keel, and maintained employment in construction sector at steady rates.

Now social housing, or the absence of it, does the opposite, reinforcing private market trends. Essentially, the collapse in social housing provision since the crash has only added to the crisis by further removing supply at one end of the market instead of picking up the slack like in the past.

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