Newton Emerson: amount of money trying to get into property is doomed to swamp supply

It is not only happening in the Republic. A friend from Portadown reports that houses in the Co Armagh town have started selling to cash buyers from England, sight unseen, within hours of being advertised online. Unlike recent stories from Dublin, there is no sign that these buyers are agents for overseas funds or individuals. They appear to be small-time landlords from their own part of the UK or just ordinary people with some cash to invest, browsing property websites. For the moment, this is causing more incredulity than anger in Portadown. That will change once everyone realises they can no longer buy a place to live.

The political left, with dramatic flourish, refers to Ireland’s housing market being drenched by ‘the fire hose of global capital’. The garden hose of English savings reveals the intractability of the problem.

International and corporate investors could be regulated, taxed or prevented from snapping up whole developments, as Minister for Housing Darragh O’Brien is suggesting.

Non-resident foreigners could be banned from buying existing homes, as New Zealand did in 2018.

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The amount of capital sloshing around was too large and varied, ranging from sovereign wealth funds to the bank of mum and dad

That would simply clear the way for domestic landlords to re-enter the market – many have been priced out in Ireland by corporate funds, just as they previously priced out owner-occupiers.

In an era of zero interest rates, overvalued stocks and lopsided intergenerational wealth, the amount of money trying to get into property is doomed to swamp supply. Dam it at the border and it will spring up at home. Stem the larger flows and smaller ones will burst out everywhere.

‘Populist’ calls

Ministers and developers have warned this week against “populist” calls to block corporate investors. They have a point where such investment builds new housing or replaces amateur, speculative landlordism with professional build-to-rent schemes.

But this does not apply to buying whole estates already constructed and about to go on the open market, and it is clearly absurd to claim otherwise.

The conundrum is finding policies that can control investment without reducing construction, unbalancing the mix of homes for sale and rent or undermining the property rights that draw people to home ownership in the first place.

In 2016, centre-right UK think tank Civitas examined this question and decided it was essentially unsolvable by attempting to regulate investment.

The amount of capital sloshing around was too large and varied, ranging from sovereign wealth funds to the bank of mum and dad. There was no hope of the UK building its way out of the problem – still a common proposal in Ireland – as supply could never sufficiently outpace demand to bring down prices, let alone make housing affordable and available again to most working people.

So Civitas re-examined the question from first principles – how to create more owner-occupiers – and came up with a single, silver-bullet policy from a completely different angle: a legal right to buy for private tenants.

Investors of all kinds would remain free to acquire or build as much rental property as they liked, but they might have to convert it to private homes.

There's a large number of individuals or families who have bought another property as their asset for the future and we wouldn't want to endanger that

This could follow Margaret Thatcher’s right-to-buy policy on public housing, with subsidised discounts for tenants. Or it could apply at the market price, with the government offering cheap loans or other targeted support.

To prevent an eviction cliff-edge, Civitas proposed that private tenancies be secured for five years, with the right to buy commencing after three.

England's housing crisis, not Brexit, gave Labour its surprise 40 per cent result in the 2017 general election. The 10 per cent swing to Jeremy Corbyn's party came from frustrated renters their mid-30s rather than the radical young.

Labour policy

Corbyn had hinted at a right to buy for private tenants in a speech in 2015. In September 2019, with another election imminent, his chancellor, John McDonnell, made it Labour’s headline housing policy.

This gave the concept quite an ideological range: Civitas describes itself as “classically liberal”; McDonnell called himself a Marxist. But within two months he had surrendered to the kulaks – the UK’s 2.6 million rental property owners.

In November 2019, McDonnell said the right to buy should apply only to “the wealthiest” landlords, not those who own “one or two properties”.

Two weeks later, and two weeks before the election, he dropped the policy entirely, saying: “There’s a large number of individuals or families who have bought another property as their asset for the future and we wouldn’t want to endanger that.”

This can only be seen as a pathetic refusal to take on an electoral bloc.

The current Irish Government is unlikely to get even that far.

McDonnell was a well-known supporter of Sinn Féin, now experiencing a surge of support in the Republic due to a housing crisis. Would it take on small landlords in office? Its populist record, North and South, suggests not.

Where the locked-out generations turn after is an ominous question.

Investors, landlords and owner-occupiers may all wish they had shared when they had the chance.