We have little chance of building enough homes to meet election promises

John FitzGerald: Urgent action is not enough to deliver required new homes

 Can we build enough  homes to satisfy the claims made by the various parties in the recent general election campaign? Photograph: Cyril Byrne

Can we build enough homes to satisfy the claims made by the various parties in the recent general election campaign? Photograph: Cyril Byrne

 

The different election manifestos promised to radically scale up building, particularly social housing. However, it is likely that building new homes on the scale promised will prove very challenging over the lifetime of the next government. So when we next go to the polls there are still likely to be disillusioned and disappointed voters on this score.

Some manifesto proposals look likely to make things worse. Giving individuals more money to buy houses will only result in further price inflation, and do little for supply.

While housing finance may pose some constraint, it is not the main one. The key problem is that the economy will not be able to physically deliver the promised massive increase in housing supply in the next few years.

A recent Central Bank of Ireland study shows that over the coming decade we are going to need nearly 35,000 new homes a year just to cope with population change, compared to the 21,000 built in 2019. Yet if we want adult households to have their own homes and reverse the doubling-up with parents or housemates then we would need to be building closer to 47,000 new homes a year.

The percentage expansion in housing stock that Ireland needs is much larger than in most EU partners. Our population is growing very rapidly as the economy has flourished, and as those born in the baby boom years up to 1980 have established their own families.

Unlike other commodities which can be imported if they are in short supply, the homes we require must be built here – you can’t ship them in from France or Germany and plant them in Cork or Dublin. There is relatively little automation in housing construction, so to build more homes we need more building workers, and more skilled trades like electricians, plumbers and plasterers.

Sky-high rents

In the early 2000s we were able to rapidly ramp up house-building because of an influx of such workers from the new EU states who joined in 2004. Today these countries are successful economies, and few of their skilled workers are choosing to migrate here and pay our sky-high rents.

It will take many years to expand the supply of skilled workers to deliver the new homes we need even if urgent action is taken today. Thus it seems likely that whatever government takes office will preside over a steady but inadequate increase in house-building falling short of what is needed.

Many of the manifestos call for greatly increased social housing provision. If the State contracts directly for new build the skilled workers on these homes will not be available to build housing for sale on the open market. And if a higher share of private building is bought for social housing, that would also squeeze supply for would-be home-owners.

Some reforms could gradually increase housing supply, although they will take time to achieve results

If we can’t build enough homes in the short run, slowing economic growth could help ease some of the pressure of housing demand. For example, raising taxes this year and next, especially if focused on the business sector, would slow down the growth in jobs, softening demand for housing. But if we try and choke off growth it may be more difficult to restart it.

In any event Brexit may see a significant and unwelcome hit to the economy next year. However, it is likely it will hit rural Ireland more than urban Ireland, not greatly reducing housing demand where it is most acute.

Another option would be to use taxation policy – for example, through stamp duty – to try and move construction activity from building offices to houses, a measure that has already featured in past budgets. However, such a redirection of building effort is difficult to achieve.

Factories

Some reforms could gradually increase housing supply, although they will take time to achieve results. In many other countries the use of timber-framed housing produced in factories has streamlined and accelerated housing construction.

Replacing our traditional concrete block construction with such technologies would bring a degree of automation to building houses and apartments, and economise on the need for skilled labour. If the government were to partner with experts in this field it might be possible to expand the house-building capacity of the economy more rapidly, but it is unlikely that production on scale could be achieved much before 2025.

Building land is still exceptionally pricey, with one site in Dublin this week selling for €6.5 million an acre. Effective action to release more building land, tackle land hoarding and reduce site costs would bring about significant benefits.

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