Grappling with the housing crisis: Fresh approaches needed

With 90,000 people on social housing lists, we asked five insiders for potential solutions

 

Housing looks set to be the key issue facing any incoming government. However, as consensus on the issues involved and how best they can be addressed remains elusive, we speak to five key stakeholders.

They are: Patricia Byron, director general of the Society of Chartered Surveyors in Ireland, a group that represents estate agents and other property professionals; Independent TD Mick Wallace; David Hall, director of the Irish Mortgage Holders Organisation; Tom Parlon, director general of the Construction Industry Federation; and People Before Profit TD Richard Boyd Barrett.

What are the main challenges in housing for any incoming government?

Patricia Byron: The main challenge is a change of mindset. The new government needs to engage proactively on this issue and with a sense of urgency. This has been lacking to date. It also needs to change its approach to housing. The SCSI has been calling for some time for the establishment of a national housing authority to be charged with the delivery of the country’s housing requirements.

The authority – working closely with local authorities all over the country – would be responsible for ensuring an adequate supply of affordable homes for first-time buyers, devising and implementing a comprehensive social housing programme and addressing the shortage of properties available to rent.

David Hall: Firstly lack of supply, the hoarding of land banks by Nama and individual developers. Nonexistent building of homes by local authorities. Central bank mortgage lending rules. First-time buyers can’t buy homes and social tenants can’t get a council house so both put massive strain on the private rental market.

Richard Boyd Barrett: We urgently need a number of both short-term and long-term measures to deal with what is now a housing and homelessness emergency. The general thrust of these must be to break from the utterly misguided view that the private market is capable of delivering social and affordable housing. The idea that a profit-orientated market could deliver not-for-profit housing is what lies at the root of the current crisis. We need robust and large-scale State intervention in the situation to directly provide social and affordable housing.

Mick Wallace: The main challenge has to be the delivery of local authority social housing to those who need it. It has to be of good quality, with access to all the necessary services, and must involve a social mix – avoiding the ghettoisation that has been so damaging in the past. The rent supplement scheme and attempts to provide social housing through the private sector have failed miserably.

Tom Parlon: The incoming government must fix the dysfunctional housing market. They must stimulate supply effectively to meet the increasing demand for all types of accommodation. It’s simply not economically viable for builders to build houses in the numbers required at the moment. The housing shortage and homelessness are two ends of a supply issue.

First-time buyers are priced out of the market and can’t get mortgages and are choosing to rent for longer. This is driving rents up and pushing people off the property ladder generating new forms of homelessness. The incoming government must move into an emergency footing and provide finance that will facilitate home building while reducing their take of building a house – up to 40 per cent in some cases.

Should there be a dedicated senior minister for housing?

Boyd Barrett: Yes.

Byron: Absolutely, but not just for housing. The SCSI wants a national housing authority to be headed up by a senior minister. The housing crisis now constitutes the greatest threat to the country’s recovery but a minister, supported by a national housing authority, could cut through bureaucratic logjams and make radical changes.

Wallace: A senior minister for housing would be helpful – but would be pointless without the provision of the necessary funding to implement what needs to be done.

Parlon: Any minister must have responsibility for infrastructure and construction. If we build the 25,000 houses required without infrastructure and a sustainable construction industry, we will create isolated islands of homeowners with inadequate services. The whole reason CIF called for a minister for infrastructure construction was because you can’t solve housing without addressing infrastructure. A minister is required that can co-ordinate both activities at a national level is essential.

Hall: Absolutely. In the event that no suitably qualified Dáil member exists then one of the Taoiseach’s nominees to the Seanad should be selected with this in mind.

What key steps are required to actually deliver housing as quickly as possible?

Hall: Start building. Nama has land banks and the expertise is available. A competent minister for housing could manage delivery of 20,000 homes over the next two years.

In conjunction with this and to protect against the crisis worsening, an effective mortgage-to-rent system needs to be working to prevent those in deep mortgage arrears adding to the social housing lists.

Boyd Barrett: An immediate ban on economic evictions and repossessions needs to be introduced, with local authorities empowered to buy homes in such cases, using compulsory purchase powers, if necessary.

Similarly, local authorities must be given instructions and funds to buy up all available homes currently for sale on the open market and use them to house those on the emergency and priority lists. This would be as cheap, much quicker and far better than temporary so-called modular homes. Nama must be turned into a vehicle, whose sole mandate is the delivery of social and affordable housing. All available units and land must be used for this purpose.

In the short term, rent allowance must be increased to market levels and extended to those who are in employment but on very low income. This should be a temporary measure to ensure people are not made homeless because of rent increases, with the intention of phasing it out as a large-scale social housing programme is rolled out.

Serious rent control legislation also needs to be introduced as a matter of urgency. There needs to be large-scale recruitment of construction workers, architects, quantity surveyors etc, to the local authorities and a new State construction firm to cut out the massive waste and long-time delays involved in outsourcing and tendering to the private sector for public housing works.

Parlon: The Government should introduce a help-to-buy scheme for first-time buyers, where Government takes an equity stake in homes. This helps people on to the property ladder who can then buy out the Government’s stake over time.

In tandem, the Government should introduce a tax-incentivised savings scheme for future purchasers of new homes to help people reach mortgage deposits.

To reduce some of the regulatory costs that make building unviable, the Government could exempt new starter homes in development schemes from an S48 development levy. As a complementary measure, a temporary VAT rate of 9 per cent for the provision, construction, renovation and alteration of the housing for a two-year period could stimulate supply.

Byron: Builders need to be able to access affordable financing and there needs to be a reduction in construction costs. At the moment, builders cannot access the upfront financing they require and the costs of constructing a unit means many projects are not commercially viable.

Currently for every new build, approximately a third of the costs goes to the exchequer. Our planning process also needs to become more efficient while capacity constraints within the sector need to be addressed.

Wallace: Fast-tracking the construction of local authority social housing has to be the primary target. It may require a new body designed to overcome the layers of bureaucracy that impede decision making in the relevant local authorities.

Funding is presented as a major impediment to delivering housing projects. How can this be addressed?

Wallace: The State needs to challenge EU fiscal rules so that we can borrow money at 1 per cent for social housing infrastructure investment, rather than paying something in the region of 15 per cent for PPPs. We require a five-year window, where the money borrowed for infrastructure investment is off the books. Europe needs to accept that we have an emergency housing crisis, and some flexibility is essential.

For the private sector, which is struggling to raise finance from our regular banks, the next government must deliver on the failed promise of the last, and finally establish a functioning State investment bank that will lend towards viable projects. Furthermore, the tax take in Ireland from final house sale prices is draconian by European standards and needs to be addressed.

Byron: This is where new and imaginative approaches are required. For example, just last week the Irish League of Credit Unions confirmed it had offered €5 billion to the Government for the construction of some 26,000 houses over a five-year period. Is there scope for Nama to play an expanded role? Is there a role for PPPs?

Parlon: Many housebuilders are reporting a funding gap in the market. The Central Bank mortgage rules are so restrictive that people can’t secure mortgages. This lack of a critical mass of first-time buyers means that banks won’t provide finance to those who have the capability to build developments.

Hall: I don’t agree. Irish financial institutions have significant amounts of capital to lend. Money on financial markets is currently at record low rates. The NTMA’s recent bond issues were massively oversubscribed. There is significant ability in both public and private sector to raise the required funds.

Urgent analysis is needed on the monies being spent for rent allowance and emergency accommodation in hotels with no assets or any long-term return to show.

Boyd Barrett: Social and affordable housing is self-financing over the medium to long term. The real drain on the exchequer is almost three-quarters of a billion euro per year poured into the pockets of landlords and developers in the form of rent allowance and leasing arrangements. This is public money being poured down a black-hole.

The madness of the Government’s Housing 2020 strategy is that it will increase the amount of public money being wasted in this way, with the so-called HAPs scheme.

A large-scale, directly provided social and affordable housing scheme will create a revenue stream for the government, repaying the upfront cost of building the houses over a period of 10 years or so and, in the long term, actually making the State money and expanding a State asset.

The upfront capital cost of a major social and affordable housing programme can come from a number of sources: Nama’s cash reserves, the Strategic Investment Fund, the credit unions, publicly owned banks and pension funds to name a few.

In light of the comments of Central Bank economist Lars Frisell this week, and others, are current mortgage rules appropriate?

Parlon: The Central Bank needs to relax and target its mortgage rules more effectively. Mr Frisell is out of touch with the realities faced on the ground by first-time buyers and developers. Their policy, which runs counter to the European Central Bank’s efforts to stimulate demand across Europe, is directly adding to the problem because, when there aren’t a supply of people with mortgage approval, builders can’t secure finance from banks.

Mr Frisell seems happy to see rents increase in the coming months even though that is contributing to homelessness and pricing people out of the market.

The Central Bank should increase the €220,000 threshold requiring a 10 per cent deposit to €280,000 to €300,000 to make deposits more reasonable. Increasing the loan/income ratio from 3.5 to 4.5 as in UK for first-time buyers would mean they could get mortgages for even average-priced homes.

They should also allow mortgage providers to take into consideration a person’s track record of paying rent at levels equivalent to potential mortgage repayments.

Boyd Barrett: The entire mandate of the Central Bank and the banking system needs to be changed. Even in the United States, the Federal Reserve has a mandate to ensure the provision of housing. This must happen here.

More generally, we need a public banking system where lending and investment decisions are based on achieving social goals such as affordable housing provision. There should be no question of the State selling-off AIB and other publicly owned banks. These banks should be mandated to support the provision of affordable housing and mortgages.

Wallace: I agree with the Central Bank rules – they will lead to fewer default problems in the future, but it does place an extra onus on the State to deliver social housing to those in need of it. The percentage of people likely to require social housing is likely to increase from 15 per cent to something closer to 30 per cent. It is imperative that it will be of higher quality and better designed for family living, especially when it comes to apartments.

Byron: The Central Bank’s new lending rules have been highly effective in addressing the issue of personal indebtedness and in dampening property prices, especially in Dublin. Any measure that prevents the property market from overheating is positive. The role of the Central Bank is oversight of financial stability.

Hall: I recommended to the Central Bank during public consultation that a deposit amount of 10 per cent for first-time buyers be implemented and that a rate no higher than 15 per cent be required at any time.

To what extent should government commit to a programme of social housing or to greater support for lower income people to make renting in the private sector viable?

Hall: The most vulnerable need to be protected and supported. It is essential to have a functioning social housing system to accommodate those who need same. Given the lack of supply, those most vulnerable run the risk of being further marginalised and made homeless due to high rents.

Wallace: A good supply of local authority social housing will ease pressure on the private rental market but problems will remain unless the government addresses the fact that foreign investment funds have distorted the market. With our government’s blessing, they have bought up huge quantities of residential rental units from Nama and Irish-based banks at fire-sale prices, with little or no tax obligations, and are now operating what can best be described as a cartel in areas like Dublin.

State intervention is now required to bring affordability and security of tenure. If that involves revisiting our Constitution, so be it.

Parlon: Government must commit to a transformative programme of social housing. There are approximately 90,000 people on social housing waiting lists. The Construction Industry Federation will be working with the new government to develop innovative solutions to stimulate building of social housing units possibly through access to international finance and delivered through ISIF and other state funds.

The new government must accept that we are in an emergency and that the chronic housing shortage is a force majeure that should allow us to set aside fiscal constraints. Ironically, the ECB is delivering QE and, due to a lack of urgency and imagination, Ireland is not using this funding to solve its most pressing social and economic challenge.

Boyd Barrett: This is absolutely vital. The abandonment of large-scale council housing provision by successive governments is the root cause of the current crisis. To begin to undo the damage of this disastrous mistake, we need a major emergency programme of council home construction to deliver at least 15,000 council homes per year for the next five years.

A sufficiently large stock of council houses will also serve to keep a lid on house prices generally, preventing the sort of disastrous property price bubbles we have seen over recent years. As well as providing council houses, we need a parallel scheme to deliver affordable housing for those that want to buy.

Byron: There won’t be a one-answer-fits- all to our housing crisis. The State needs 25,000 new housing units per annum for the foreseeable future. At the moment we are only constructing half this figure. We believe the establishment of a national housing authority provides the best chance of delivering a balanced housing programme. Such a programme might initially include measures to increase the supply of rental properties.

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