Government’s housing plan looks built on dodgy foundations

The Government had billed its Rebuilding Ireland strategy as a sensible panacea to the State's housing woes.

Centred around a massive pick-up in supply from the private sector and a €5.5 billion State investment in social housing, the plan would tame, once and for all, Ireland’s recalcitrant housing market, Ministers said.

The Coalition had put one of its brightest and best men, Simon Coveney, on the job and diverted billions of euros to the cause.

It’s a tad premature to write it off just eight months in, but the signs are not good.

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Another raft of property price surveys point to the return of double-digit inflation in Dublin and elsewhere; opposition parties are talking about another generation being permanently priced out of the market; and the Government is getting it in the neck for fanning further price rises through its help-to-buy scheme for first-time buyers.

Inevitable

There was something inevitable in all this, however. Letting building rates flat-line in the wake of the crash was always going to produce another housing crisis, even without the economic upturn or the return of net inward migration.

The demand for new houses didn’t collapse because a certain section of home owners found themselves in negative equity.

Household formation rates,one of the key drivers of demand, still rose while the economy convalesced.

As Conall MacCoille noted in the latest MyHome.ie report, while homebuilding activity is clearly stepping up, it is clearly not happening fast enough.

“The 14,900 homes completed in 2016 was still the lowest number since 1970, excluding the recent past,” he said.

Experts have also queried whether this 14,900 figure actually reflects the true level of supply as it is based on ESB metering data, which typically overcounts new homes.

Target level

While Coveney is still hoping housing supply can be brought up to the Government's target level of 25,000 in two to three years, economist Ronan Lyons, author of the Daft.ie report, suggests demand may now be nearly double that.

“Adding up the four components of demand – obsolescence, falling household size, natural increase and net migration – it is clear that the country needs at least 40,000 and, in reality, probably 50,000 homes per year,” Dr Lyons said.

He also took aim at the Government’s sole intervention in the market, namely the help-to-buy scheme for first-time buyers, claiming it had only fanned further price hikes.

Either way, the State’s property problems are likely to pose an even bigger problem for the Government than Brexit and all its dire probabilities.