Housing crisis will become a monster unless the State kills it now
Caveat: The pandemic should not distract from issues that could dwarf it later on
It never went away, you know. The greatest medium-term threat to Irish economic and social stability – which is just jargon for the fortunes of businesses and people – is not the fallout from coronavirus, it is the housing crisis, whose most grotesque features have been distorted even further by the pandemic.
Darragh O’Brien, the Minister for Housing, must now try to succeed where Eoghan Murphy, Simon Coveney, Alan Kelly, Phil Hogan, Éamon Ó Cuív, John Gormley, Dick Roche, Martin Cullen and Noel Dempsey all failed before him: by wrestling some semblance of enduring stability into the monster that is the Irish housing market.
Were he still alive, it might once have been a job for Wes Craven, for housing has been such an undulating horror show for the best part of two decades. This destructive pattern must be brought to an end before it swamps social cohesion and distorts the whole economy.
Counterintuitively perhaps, the pandemic provides us with that chance, a shock to dislodge us from our stasis.
Research released separately this week by the ESRI and by Myhome.ie, both pointing towards future supply shocks, suggests the Minister faces a daunting challenge.
Just like the burgeoning problem of youth unemployment, which also threatens to blister the skin of Irish society long after coronavirus is gone, discussion of realistic solutions to the housing crisis should be firmly in the spotlight in all current public discourse aimed at younger members of our society.
It would be far more productive and empathetic to talk to them about such issues now than to give all-too-generous attention to the likes of misguided calls for soldiers to flood the streets to stop over-enthusiastic students from drinking their cans. Let’s focus on what is more important.
Attempts at intergenerational understanding can be a hazardous pursuit, a form of blundering Kremlinology between the old and the young. The blundering often cuts both ways but it ought to be possible to dial down the rhetoric and reach for empathy on housing.
Barely three years after I bought my house in March 2007, it was worth less than half of what I paid for it
Even with a pandemic slump, average rents are above €1,200 nationally and the median asking price across the State for a house is €282,000. In Dublin, average rents are above €1,700 while the median purchase price is €386,000. The mere sight of these figures must be overwhelming for many young people, who must think it impossible that they will ever be able to bridge such a yawning chasm to afford secure and stable housing.
They might be feeling it hardest now, but some of us have been here before. The Celtic Tiger housing bubble peaked in March 2007. I purchased and got the keys to my first – and current – home on March 15th of that year, bang in the middle of the month when things went south.
When economic historians rake over the remains of the collapse that began more than 13 years ago, there is a fair chance that they will discover a fossilised image of me, standing on the literal peak of the madness and crying like a baby. Barely three years after I bought it, the house was worth less than half of what I paid for it.
When people of my age could no longer afford to buy homes back then, society’s solution was to pump prime everything with dubious credit, funny money that eventually blew up in everybody’s faces with terrible consequences.
That cannot be the solution to the problem this time round. And be in no doubt that a huge problem is coming. Research released this week shows that it is metastasizing and getting ready to explode all over again.
ESRI researchers Kieran McQuinn and Conor O’Toole released a paper on Wednesday predicting a future supply shock because investment will dip now due to general economic uncertainty and a lack of development finance from more cautious banks.
They also predicted that this supply crunch could coincide with a resurgence of post-pandemic demand that was pent-up. This surge could be further fuelled be the release of a wall of savings, currently running at twice the normal rate – at almost 20 per cent of income – driven by the fear wrought by the pandemic.
Once the fear recedes, demand could climb quickly right at the same time that the supply shortage becomes most acute due to a lack of building activity now.
Property website Myhome.ie, which is owned by The Irish Times, also predicted future supply difficulties in a paper released on Thursday as it revealed a 25 per cent drop in listings even though there was no let-up in website activity from potential buyers.
Also on Thursday, the Construction Industry Federation’s annual conference (virtually) heard that activity levels may not reach 2019 levels again for another three years. And even in 2019, building levels were less than two-thirds of what they needed to be to calm the crisis.
The ESRI’s McQuinn and O’Toole concluded that the best way of offsetting an impending housing shock – one even more shocking than the crisis that has already been bubbling away for the last five years – is for the State to kick off in a massive social and affordable housing building programme now.
In short, the virus-ravaged private market is in no fit state to fix the issue, so the State should step in to build instead.
Ireland will borrow €30 billion this year to fight coronavirus, and at least another €9 billion next year, probably far more. A counterintuitive reaction to such borrowing excess might be that, while market conditions permit, it might be sensible to sneak a few billion onto that load to fund an agency to directly engage in immediate property development on behalf of local authorities.
This would not be a simple task and it would require a shift in long-standing ideological thinking at almost every level of the State and its economic partners. But if the ESRI is correct, this may well be the best time to make such a shift.
If common sense economics cannot solve the problem of affordable housing now, then, out of desperation, who could blame younger people if they eventually turn to madman economics in future? That would cause even more problems.