How other countries seek to stimulate house building

With Ireland struggling to build enough homes we look at how other nations do it

Archive Video: Less construction, greater internal migration and a pickup in the economy are some of the factors leading to a housing crisis characterised by a severe shortage of accommodation combined with rising rentals and house prices.

 

There was nothing unusual about the meeting. In the days and weeks leading up to the Budget lobbyists representing all sectors of the economy make their way to government buildings to put forward their own interests.

However, what was striking about the visit of the Construction Industry Federation in mid-September was that just a few hours after the arrival of the lobby group on the steps of the Department of Finance, Minister for Finance Michael Noonan told The Irish Times that he wants a review of the Central Bank’s lending restrictions. The reason? There are aspects of the regime, Mr Noonan said, “which, according to the construction industry, are inhibiting starter homes”.

Influenced by this visit or not, there is no doubt that historically, the construction industry and the powers that be have been close bed-fellows in Ireland. But does it have to be so?

Housing supply issues after all are not unique to Ireland. A report of European residential markets from Deloitte this summer found supply shortages across a host of European markets. Indeed in 2014, housing construction in Ireland, at about 2.4 residences per 1,000 citizens, was on a par with our European neighbours, and was even ahead of the development rate in the UK. However, Ireland also had the lowest housing stock in a survey of 15 European countries in 2013, at just 342 per 1,000 citizens, compared with 442 in the UK .

So what do other countries do to stimulate housing supply? And have they found a better solution?

The UK

Since the financial crash of 2008, UK house prices have rebounded rapidly, but supply has failed to keep up with demand. In London for example, the number of homes has grown by just 8 per cent over the past decade, despite the population surge thereby putting further pressure on house prices, which have rocketed by 30 per cent in the past five years. Some statistics say that by 2025, the UK will be 1m homes short of the amount required to house its population.

But the UK has as of yet failed to crack the problem, despite taking several measures to address it.

Help-to-Buy: This scheme gave those struggling to buy a government backed mortgage guarantee and equity loan to enable them to do so. The idea behind it was that by stimulating demand, developers would seek to match this demand by constructing new homes.

However, as a report from the London School of Economics notes, when you stimulate housing demand such as through policies like Help-to-Buy - but don’t increase supply - you simply raise house prices. “These policies may thus be an ineffective waste of taxpayer money at best, and counterproductive at worst,” the report notes.

How other countries deal with housing

Comparison of housing density

Indeed according to building society Nationwide, London house prices shot up by 26 per cent in the year to Q2 2014, following the introduction of Help-to-Buy - and there was no sign of an equivalent building boom.

Builders Finance Fund: This fund, first announced in April 2014, planned to unlock the construction sector by providing a £500million fund for small and medium sized builders, allowing them to access funds to build 15,000 housing units. However there were concerns that the fund didn’t meet the needs of smaller builders.

Planning regulations: Most recently, on July 10th of this year, the UK revealed a new plan to try and relax planning regulations across the country in an effort to get building going again. The so-called “zonal” system will grant automatic planning permission on suitable “brownfield sites”, while in London, people will be able to add extra storeys to their houses more easily. The impact of this move has yet to be seen.

France

As new home construction fell to a 15 year low, in 2014 the French government announced a host of measures aiming to deal with the country’s chronic housing shortage. While France has one of the highest housing development intensities in Europe, it is still not enough and supply, at just 330,000 in 2013 for example, was far below the 500,000 or so needed.

So, prime minister Manuel Valls announced 50 measures to simplify building regulations, offer tax breaks for landlords who accept rent limits and ease conditions for obtaining zero-interest loans.

Israel

Israeli homes are over-valued by about 30 per cent the International Monetary Fund found earlier this year. The supply is highly concentrated, with the government owning 93 per cent of all the country’s land and excessive red tape for building approvals

As such, the IMF has urged the government to approve accelerated planning procedures, implement zoning changes and land sales as well as helping local authorities develop high-density housing and a further tightening of loan requirements.

New Zealand

With annual house price gains of 13 per cent in Auckland, the New Zealand Government is also working on increasing the supply of houses in an effort to dampen prices.

In Auckland, measures taken by the Council to boost supply include:

  •  Rezoning land for residential development in several special housing areas(SHAs),
  • Freeing up more than 1000ha of land for housing - enough for around 12,000 new homes
  • Ensuring at least seven years’ worth of land is available for new housing at all times
  • Encouraging intensification in areas with good transport connectivity
  • Introduce plans to provide a housing bond guarantee so community housing providers can build more affordable homes.

Germany

In what is by now a familiar story, in August, the Institute for the German Economy (IW) in Cologne warned that too few new flats were being built in Germany’s largest cities - even though fears of oversupply continue to loom in more rural areas. It found that new development was 50 per cent short of requirements, with the disparity most keenly felt in Berlin and Munich.

The solution put forward? Relax regulations to allow developers build taller houses in cities, and make surrounding commuter areas, where supply is plentiful, more attractive by boosting transport links.

Canada

A home to many Irish emigrants, Vancouver, on the country’s west coast, has come up with a number of ways to boost supply and ease price growth, which soared by 19.2 per cent in the year to May 2015, with the average price of a detached home at a record $2.23-million (€1.5m).

Its solution, like many other places, focuses on developing a rezoning policy which would allow the construction of more high-density multi-family units in single-family neighbourhoods that have facilities such as schools and parks, boost the requirements for family-oriented units in new residential projects from 25 to 35 per cent, and require 50 per cent of units in new social housing to be suitable for families.

Foreign investors buying property has also being cited as a problem, but the city has of yet rejected calls to clamp down on it.