Where do we go with the housing crisis, the seemingly intractable Rubik’s Cube of Irish policy? Move one side and you risk putting out the other. There are no magic solutions, but there are things that can be done and ways to make progress. Here are eight things which need to happen now.
1 Accept there is no ‘quick fix’
This is a complex crisis. What happened this week will probably change the shape of private investment in some ways, but it is not a “fix” to any fundamental problem.
This has been brewing for years. More and more people have been stuck living at home, unable to afford to buy – or even rent. Central Bank deputy governor Sharon Donnery has said if the number of people living in each house was in line with the EU average, there should be 260,000 more households in Ireland. In the five years leading up to the pandemic there was just one house built for every additional seven people in the population, substantially less than what's required.
The lack of supply to meet this obvious demand is the central conundrum of the housing market. Whatever your view of developers and builders, they would have built more, much more, in recent years if they saw a way of making money from it. But they didn’t. Or in some cases they were not able to do so.
This lack of supply can't be fixed quickly. The National Economic and Social Council wrote in a major report on housing last year that "without a change in the system, we are condemned to an endless sequence of isolated measures that seek to generate a little more viability, a slight reduction in risk, a marginal increase in supply, a slightly higher share of affordable housing and a minor shift from greenfield to brownfield development".
The latest row over the involvement of funds is a symptom of a much wider problem – not it’s fundamental cause.
2 Establish why it costs so much to build here
Demand was there, so why was housing supply so slow to respond after the financial crisis? Part of this was due to a lot of builders going bust after the financial crash. And part of it was down to banks being crippled and unable to lend. But there is something in the cost of land and building which is providing a major problem in encouraging viable development.
TCD economist and housing expert Dr Ronan Lyons has long called for a detailed Government-sponsored study to lay out all aspects of the costs of building – and in particular the cost of apartment building. For city centre apartments, the cost of private building means resulting rents – or purchase costs – will remain unaffordable for most, bar the highest paid workers in sectors such as tech.
The cost of building issue crosses the public and private sectors. Information published late last year by Dublin City Council shows an average cost of almost €430,000 on the total delivery costs in seven developments.The housing element of developments are much cheaper, but apartments drive up the cost.
Yet the goal of national planning policy is to have more people living in a more environmentally sustainable way in smaller dwellings in town and city centres. Apartments are homes too, particularly as average household size falls and there are more people living alone.
3 Move quickly – but adhere to a strategy
If this is an emergency, we need to treat it like one. “The kind of quick response we saw to the institutional investor issue needs to become more common,” says Micheál Mahon, president of the Society of Chartered Surveyors Ireland (SCSI). This means addressing issues like planning delays, particularly those caused by judicial reviews of planning decisions, he says, which is causing major problems for the public and private sector.
The pace of building development needs to accelerate. Ireland needs about 35,000 extra houses a year and, while numbers had been rising gradually up to 2019, the pandemic has set building back and just 20,000 may be completed this year.
A commission on housing, promised in the Programme for Government, has still to see the light of day and is supported by the SCSI and many others in the industry.Whatever format is used, there is a need for some vehicle to focus beyond the electoral cycle and lay out a clear long-term strategy.
The National Economic and Social Council has pointed to land use as central to this. The vacant sites levy, intended to penalise those hoarding land, is not working. Some type of land value taxation is needed to speed up the release of land for development. And the NESC calls for a rapid ramping up of the Land Development Agency, which will build on State land, and even consideration of compulsory purchases of land in some cases. Breaking the land trap – the bidding for land and the building of economically marginal and expensive properties – is vital, it says.
4 Build more local authority housing
Little building of social housing for many years means local authorities have relied more on private development, not only via so-called Part V – where builders must set aside a portion of developments for social and affordable housing – but also buying stock directly from the market. Funds have bought up properties but so too have local authorities, and in turn the State has also bankrolled funds via long-term lease arrangements, spending a vast amount on housing supports which would be better directed in the long-term to building its own stock.
Spending on State building was slashed after the financial crisis. Now there is a political consensus that the State – local authorities and voluntary agencies – must build more itself. The Government says more local authority building is the central plank of its policy and the new housing Bill, put forward by Minister for Housing Darragh O’Brien, also increases the Part V proportion of an estate which a private builder must set aside for social and affordable housing to 20 per cent, from 10 per cent currently.
Ironically, in the Dáil this week, a Sinn Féin motion was passed – due to Government inattention – calling for a doubling of spending on the social and affordable building programme to €2.8 billion per annum. The party says it could deliver 20,000 houses a year; the Government promised to build 9,500 additional social homes this year.
Just how quickly houses can be delivered, and at what cost, remains a subject of major debate. Part of the issue is the huge lead time from planning to delivery for State housing projects.The public procurement rules which State bodies must adhere to are one cause of major delay.
5 Develop a cost-rental model
Cost rental – under which a reduced rent is paid based on the cost of building – is seen as the vital step to deliver affordable rental to those stuck in the middle who are not qualifying for social housing, but also not earning enough to rent or buy in the market. This is a major focus of the new Land Development Agency.
The concept would be that some people could rent for the long-term. Whether we want to develop a widely used, long-term rental model as part of a move to more environmentally sustainable city and town centre living is a debate which we have yet to have. Most people still aspire to buy – and home-ownership is part of the traditional Irish financial life cycle.
6 Deliver affordable homes
Whatever about affordable rental, affordable purchase is another challenge. The Shared Equity Plan in the housing Bill – under which the Government would take an equity stake in a new home bought by a first-time buyer – is one proposal to boost affordability. But because it is a demand measure, it risks pushing up prices. The political problem is that more supply takes time.
Some local authority and housing body projects have led to the development of affordable homes on a relatively small scale, via building on local authority land. There may be scope to extend this route. The other direction is the traditional Part V, now being expanded to include 20 per cent of developments, with 10 per cent going to affordable homes.
Fiona Cormican, new business director at Clúid, the largest approved housing body, says that Part V delivers communities with a mix of tenure types and has shown itself to be a viable structure.
7 Create new funding models
The role of funds, brought into the market after the last crash, has become highly controversial. The Government has moved to change the tax and planning rules. Opinion on whether this will work is divided – and the problem for the Government is that with supply so constrained, this will remain a major issue. As things stand, and as outlined above, institutional funding is central to the provision of apartment buildings. But how to finance affordable smaller apartment schemes and dwellings in the city centre is a real challenge – and the LDA’s progress will be watched closely here.
Part of the reason why investment funds have been buying up all around them is that investment returns from cash and other secure holdings are on the floor. The plus side of this is that there are opportunities for Ireland to create structure and rules that attract long-term pension fund money – which seeks a steady 3.5 to 4 per cent annual return – rather than short-term funds looking for quick profits.
Cormican of Clúid points to its funding arrangement with Legal and General as an example of the use of private money, which she sees as an essential part of the mix for the future. Loan finances have been used in some other voluntary agency funding structures. And European Investment Bank cash is also part of the mix in some cost-rental projects.
With the State currently able to borrow at very low cost and private sector funds desperate for a return, there have to be options. Dermot O’Leary, chief economist at Goodbody Stockbrokers, says that the State could commit to longer-term procurement orders with builders, making it easier for them to secure bank finance. Bank funding for development is now limited – meaning that in recent years private institutions have provided the bulk of the investment in the wider property market. Ireland will need both more State money and a lot of private investment in future. The challenge is to make the money work for us, in every sense.
8 Target lower prices and lower rents
It may seem obvious, but a central part of the goal needs to be lower house prices and lower rents. This may not please current homeowners and will not be welcome to the investment funds. But more supply means lower prices and costs, and that is where we need to end up.