Economics: Despite considerable progress in relation to the provision and standard of housing over recent decades, many are no nearer to owning a home or renting one at a reasonable price than they were 10 years ago, writes PJ Drudy
The continuing escalation in house prices is a matter of particular concern and rising interest rates are putting many households under pressure.
The private rental sector currently offers an expensive and insecure alternative to home ownership and those who are eligible for a local authority house must join long waiting lists.
The average price of a new home in Ireland increased from €72,732 in 1994 to €275,810 in 2005 - a massive 279 per cent while new house prices rose even faster in Dublin - from €81,993 to €351,263 or 328 per cent. Despite constant reassurances of "soft landings" prices have continued to escalate into 2006.
Since 1997, Ireland has experienced the highest rate of house price inflation in the developed world. Is housing in Ireland "over-valued" as argued in recent years by the Economist magazine, the IMF, the OECD, the European Central Bank and, perhaps more cautiously, by our own Central Bank?
There is certainly a dramatic divergence between other standard price indices and the price of housing. New house prices have risen over four times faster than house building costs (including labour and materials), and seven times faster than the consumer price index since 1994. This is unsustainable and housing is simply "unaffordable" for a significant minority.
Thirty years ago, a mortgage could be obtained with one modest salary. At that time, the standard loan period was 20 years; now it has risen to 30 and more, ensuring a lifetime of debt for many - recently labelled "debt serfdom" by economics professor Michael Hudson.
Reasons for escalating house prices include positive factors such as population growth, higher employment and low interest rates, but also a lack of viable alternatives to house purchase. Relaxed lending practices by the banks and building societies with 100 per cent and interest only mortgages play a key role, as do windfall profits by landowners and property developers.
Investors and speculators attracted by sustained price escalation, by the low capital gains tax of 20 per cent and by regressive property-based tax incentives likewise drive up prices further. As a result, the proportion of first time buyers (in direct competition with investors and speculators) has fallen from 63 per cent to 48 per cent over the short period from 2001 to 2004.
With significant revenue from VAT on building materials and stamp duty on house sales, the Government has little incentive to curb price increases. The end result is an arguably dangerous level of personal long-term housing debt for many young people. Home-equity loans are further increasing the level of personal consumer debt.
What of private rented as an alternative to house purchase? Unfortunately, and despite helpful legislation in 2004, private rental in Ireland compares unfavourably with many European countries regarding rent certainty, standards and security of tenure. Good accommodation can certainly be secured by those on high incomes, although much of it, especially in Dublin, consists of small one and two-bedroom apartments unsuitable for families.
Those on low incomes usually end up in sub-standard and largely insecure accommodation - a sample of 2,100 units (29 per cent of those inspected by the local authorities) were in breach of health and safety regulations in 2004. This suggests that as many as 23,000 units in the entire private rental system do not meet the minimum standards.
Yet private landlords were subsidised to the tune of €370 million last year in rent supplement to accommodate low-income tenants. Such expenditure should be accompanied by better regulation, rigorous enforcement of standards, rent indexation and greater security of tenure.
Because of the difficulties in buying a home or renting from a private landlord, the numbers in housing need remains high. The most recent official figure of 43,700 families on the waiting list may seriously underestimate the real extent of housing need. Local authority estimates show that, in the case of one-third of new households formed in Ireland (14,000 in any given year), housing is "unaffordable". In addition, about 43,500 households not on the waiting list were receiving rent supplement in the private rented sector in 2004. Adding the three categories, in excess of 101,000 households or about 236,000 people are arguably unable to access the private housing market without assistance.
What of public provision? Provision comprises newly-built houses and those acquired by the local authority at market prices. This amounted to 43,253 over the last 11 years. However, gains in the stock were counteracted by the sales of 17,809 local authority houses to sitting tenants at a significant discount. The net gain was thus only 25,444 homes or an average of 2,313 each year.
With Government funding, housing associations have been active for some years in building houses for rent (but not for sale) and they provided an average of 1,500 over the past three years. Therefore, local authorities and housing associations between them have provided an average net increase of almost 4,000 homes per annum over the last decade.
Market provision has thus been the dominant feature of Irish housing in recent years (now 93 per cent of total provision) and local authorities increasingly see themselves as "enablers" or "facilitators" of provision by the market rather than direct providers. A housing system so dependent on market forces must inevitably experience the difficulties outlined above.
A range of Government initiatives have been taken over the past decade. These included a serviced land initiative designed to facilitate increased supply, several affordable housing schemes, a new Affordable Homes Partnership and an increase in public provision. But an anti-speculative tax proposed some years ago was never implemented and the 20 per cent social and affordable legislation was weakened under pressure from property interests.
Above all, a change of philosophy is required in order to reinstate the traditional role of housing primarily as a home rather than a commodity.
There is a continuing need for a sustained increase in both private and public housing with the latter ideally re-christened "community housing" and available to a broader range of income groups on the continental model and thus competing with the private market. Tax incentives are no longer desirable and a capital gains tax should be introduced to curb speculation and hence house prices. A programme of land acquisition by the state is also needed.
A fundamental re-think is required to ensure that every person has affordable, secure, good quality accommodation appropriate to their needs.
Prof P.J. Drudy teaches in the Department of Economics at Trinity College.
