Ireland’s stellar financial blowout in 2008 and the follow-up austerity project, the biggest undertaken by any country, continues to reverberate. We are stuck with an uncompetitive, semi-nationalised banking system that charges borrowers an interest rate premium over and above what our European counterparts pay for loans.
It’s edifying to simply blame the banks — they were after all instrumental in causing the crash — but it’s also facile. Lenders here are forced to hold more capital than other European banks because of the extent of the crash; the higher incidence of arrears; and the pronounced difficulty in getting hold of the underlying collateral when someone isn’t making repayments.
We don’t have an eviction culture, hence there is a risk premium attached to lending into the Irish housing market. You can’t have it both ways.
We also have a chronic housing and rent crisis that is predicated, more than anything else, on the hiatus in construction that followed the 2008 period. According to the Central Statistics Office (CSO), the State’s housing stock grew by just 8,800 (0.4 per cent) between 2011 and 2016, in sharp contrast to the growth of 225,232 net new dwellings recorded between 2006 and 2011.
Yes the pandemic triggered the recent surge in demand and prices but our starting point on the supply chain was considerably worse than other jurisdictions. On May 1st this year, there were just 851 homes available to rent nationwide, an all-time low, according to property website Daft.
And now we find that up to 100,000 Celtic Tiger-era apartments need remedial work, the result of boom-time violations of building regulations. It is understood the working group established by Minister for Housing, Darragh O’Brien to look at the defects issue has found that problems such as a lack of fire-safety material, structural defects and water ingress are present in up to 80 per cent of apartments and duplexes built between 1991 and 2013, which equates to between 62,500 and 100,000 units.
It’s an astonishing testament to the lack of regulation that was attached to our last building boom.
The image of a fire engine permanently stationed outside an apartment block came into the public consciousness with the Priory Hall fiasco, the notorious firetrap apartment complex in north Dublin. The High Court ordered the evacuation of the 187-unit block back in 2011 due to fire risks. The cost of the remediation works there have totalled €45 million so far. With the council recouping some of the bill through unit sales, the taxpayer is on the hook for €15 million.
The list has mushroomed since then. St James’s Wood, Kilmainham, Dublin 8; Holywell, Swords, Co Dublin; Riverwalk Court, Ratoath, Co Meath; Carrickmines Green, Dublin 18; Beacon South Quarter, Sandyford, Dublin 18; Millfield Manor, Co Kildare; and Longboat Quay, Dublin 2, are just some of the notables.
The bill for State-wide defects is expected to come to €2.8 billion, according to the working group, but several experts claim that’s a conservative estimate. About 80 per cent of the defective units are in the greater Dublin area, where most of the boom-time apartment building was.
The bill is likely to result in a levy on the construction industry along the lines of the insurance one. The Government’s mandatory 2 per cent levy on insurances policies offered by all insurers, triggered by the collapse of the former Quinn Insurance group, is still in place 10 years on, inflating already high insurance costs.
A similar one for construction might also incorporate the funding of the existing Defective Concrete Blocks Grant Scheme.
“My officials, with the assistance of colleagues in other departments and agencies, as well as from Revenue, have been working on identifying and evaluating a range of options in regards to such a levy,” Mr O’Brien said in response to a recent parliamentary question.
A new levy will add to the cost of construction at a time of rapid construction inflation, an additional cost that will almost certainly be passed on to homebuyers in the form of higher prices. When no one is to blame, everyone pays.
Activity in the construction sector fell in June, the first contraction since April last year when the sector was constrained by public-health restrictions, according to BNP Paribas Real Estate’s latest purchasing managers’ index (PMI) for the sector. The report linked a fall-off in new orders to mounting “price pressures”. It indicated firms were also more cautious about hiring given weaker demand, with some respondents noting that projects had been put on hold due to cost pressures.
The Central Bank similarly warned recently that supply constraints were driving up input costs in the housing sector, potentially putting at risk “the necessary delivery of housing and other key infrastructure”. It forecast that housing output would reach 31,000 in 2024, with total units delivered over 2022-2024 coming in about 5,000 lower than previously expected.
We have travelled a long way from the dark days of the crash and its tricky aftermath. The jobs market has been transformed, as have the public finances, but the sector at the centre the crisis, banking, is still convalescing and the infrastructural deficit that has dogged the Irish economy for decades is arguably worse.