NESC highlights serious deficiencies in housing policy

Greedy landowners, profiteering builders and incompetent policy: all have been blamed for the problems in the housing market, where prices have soared.

As befits a body on which all the social partners are represented, the forthcoming report from the National Economic and Social Council takes a balanced view. Much of what has happened in the housing market has been the result of the rapid growth in the population and the economy, it says, but serious policy deficiencies have contributed to unbalanced development.

A central part of the NESC analysis is that: "A large increase in house prices was inevitable" due to the boom and the rise in the population. Supply was always going to struggle to keep up. That said, supply has picked up substantially in recent years, with a record 69,000 homes built last year.

However, problems remain. Approximately 35 per cent of all dwellings do not result in the formation of new households - presumably many are second homes or investment properties. And supply has particularly lagged demand in Dublin, at least until the last couple of years.

The report does not reach a firm conclusion on the contentious debate about whether landowners deliberately hoarded land hoping for prices to go up - though it does not rule this out.

However, it says that the structures, processes and systems for both planning and infrastructure development in Dublin combined to lead to low supply in the early years of the boom.

In broad terms there was no overall plan for the integrated development of housing at appropriate densities with the associated transport and infrastructure. A central theme of the report is the need to co-ordinate investment in these areas to develop "high-quality, sustainable neighbourhoods".

Housing output in Dublin has grown substantially since 1999, it points out, with increasing densities in many areas and a doubling of output in the Fingal region. However, many imbalances remain in the system. Affordability is not a general problem, it concludes, but does affect a significant minority of below-average income earners.

The key issue for many is affording the deposit, typically around 10 per cent of the cost, or more than €24,000 on an average home. It suggests that State intervention is needed, to help those "not in a position to acquire housing deposits from parental gifts or other sources of wealth".

The NESC says that this could be done through tax relief on savings for a deposit - presumably on a similar basis to pensions saving. The NESC also outlines a scheme through which the State could provide the 10 per cent deposit as an equity investment in the house, to be repaid at a later date.

The report examines other taxes affecting housing - such as stamp duty and mortgage interest relief - and broadly gives them the thumbs up. It suggests that the Government examines a new tax on second homes/investment properties. This would be partly designed to ensure that those owning such properties paid the full cost of providing local services. Increased development levies being imposed by local authorities, which push up the purchase price, are already moving in this direction.

However, looking at the controversial area of land supply and the profits that accrue to landowners from rezoning, the NESC does not appear to have reached a consensus, according to the late draft of the report. An earlier proposal to put a tax on the value of land - which would have hit homeowners and big landowners - has not received consensus backing.

The report says that such a tax could encourage the earlier development of land, but the Council has not agreed to recommend it, or to opt for ways to tax landowners benefiting from planning permission changes through a special charge or capital gains tax measures.

Nor has the Council reached a consensus on other policy interventions, such as the development of public land banks through compulsory purchase orders, some for social housing and some to be released for home building. Earlier this year the Joint Oireachtas Committee on the Constitution called for moves to cap the cost of development land and for a tax on windfall profits for developers .

The NESC report highlights the potential of examining these routes. However, it also shows the debate over the precise impact of different measures in a complex market and the difficulty in reaching agreement.