Programme for government wrong to put faith in private builders
Hope again placed in sector that only builds housing with highest returns
Market prices are no longer set by what average earners can afford to pay back on a 25-30 year mortgage, but by what an investment asset can generate through high market rents over 50-60 years. Unsurprisingly, market prices have doubled. Photograph: Alan Betson
The programme for government says it will put “affordability at the heart of the housing system”. This bold statement needs very close scrutiny, because the cost of housing in Ireland, particularly in or close to cities, is out of control.
In reality, for many it is not the availability of housing that is causing distress, it is the cost, as high prices and rents have an impact on disposable income, the ability to save, to make provisions for pensions, childcare and further education. High accommodation costs also have an impact on wage demands, labour mobility and national competitiveness.
The outgoing Government’s housing strategy, Rebuilding Ireland, was launched four years ago. At the time, fewer than 10,000 new homes were being built annually and the median sales price was €250,000 nationally. The Department of Housing introduced a series of policy initiatives to improve developer “viability”.
These were first aimed at “price points around the €200,000-€260,000 mark” for a two-bedroom apartment in Dublin.
Market prices are no longer set by what average earners can afford to pay back on a 25-30 year mortgage
Within two years, this had shifted upwards “towards an outline affordability range of between €240,000 and €320,000”. More followed, but by 2019 the median price of new home was €335,000 nationally and €390,000 in Dublin. Good for developers, not for buyers. Most recently, the property sector claims that developing an apartment in Dublin costs €460,000.
Worryingly, the programme promises further pursuit of this elusive and nebulous concept of private developer “viability”. While hard construction costs may have added 10 per cent in these years, it is policy changes such as reductions in standards, increases in height, subsidies and others that have had a real inflationary effect on land and the business of development.
The sector has been incentivised away from building homes for buyers. As a result, according to industry, last year nine in every 10 apartments built in Ireland were purchased by institutional investors. Market prices are no longer set by what average earners can afford to pay back on a 25-30 year mortgage, but by what an investment asset can generate through high market rents over 50-60 years. Unsurprisingly, market prices have doubled.
The State and their agents are also active, buying up one quarter of all new market homes, for social housing last year. The “half a million euro” social home is now established in policy, and at a time when the Minister confirms an “all-in” cost of less than €250,000 nationally, for a two-bedroom apartment developed by local authorities.
Recent discussion about €6 billion pandemic borrowings is in stark contrast to the silence over a commitment of €10billion in the housing programme for expensive public-private-partnership and enhanced leasing deals.
At the end of 25 years, the State will own assets worth less than 5 per cent of its investment and the 11,500 families living in them will be homeless. These deals are being promoted to investors as guaranteed income because “cash comes directly from local government into your bank account” with “net yields around 5.5 per cent per year, five times the return from the bond market”.
One developer is raising capital internationally for Irish social housing schemes on 25-year enhanced-leases at 95 per cent of market rents. Another offshore fund has leases worth €750,000 each for social housing apartments, with the local authority responsible for maintenance.
A visionary housing programme could give citizens a realistic aspiration of owning their own home in sustainable communities
The redevelopment of the O’Devaney Gardens site in Dublin has private, social and affordable housing; “affordable” is on the basis of free land to the developer and a €50,000 government stake in it, and it will still cost €310,000 for eligible buyers.
This is the model for a “State-backed affordable home purchase scheme” in the programme, rooted in a policy that supports prices over €300,000, rather than set at the cost of development. While subsidy schemes create some affordability for some buyers, invariably they are not affordable to the State in the medium to long term, and not scalable to the demand.
If these are the Government approaches, then housing will require very significant levels of State subsidy, meaning they will be constrained by government budgets and available to few. Moreover, it leaves the Land Development Agency as little more than a conduit of public lands and another property market player, missing all opportunity for reform to prioritise high standards, affordability for the long term and recession-proof delivery. What is needed is a government commitment that the agency will deliver €250,000 housing – the cost confirmed by the Minister – at scale, and with an immediate programme for annual delivery.
Importantly, a market-reliant approach means outsourcing price, quality, location and delivery, but in a time of extreme uncertainty. Bank of Ireland chief executive Francesca McDonagh estimates that property prices will fall up to 12 per cent this year and others have put this even higher.
What are the risks of this speculative supply pipeline stalling when prices drop, demand is uncertain and lending constrained? Or of the State under-writing “affordable” housing at above market prices for which there are no buyers?
True affordability, for the long term, at scale and in a recession can only be achieved with technical solutions that re-engineer an off-market housing sector, through a combination of design, procurement, finance and tenure.
A visionary housing programme could give citizens a realistic aspiration of owning their own home in sustainable communities, self-funded without subsidy. Moreover it could bring the construction sector through recession, build resilience for climate change and take pressure off government finances. There is no vision or commitment to this.
The programme for government indicates that hope will again be placed in the private sector perhaps supplying housing if “viability” is right, but only the type housing that gives the highest returns.
What is more, this time hope is placed in international investors and small build-to-rent high-rise apartments, a supply pipeline that is reliant on conditions of high demand, low standards, high rents, and lucrative state contracts.
Theses are the very conditions at the root of this housing crisis. Persisting with this policy approach is not sustainable – neither socially, environmentally, economically, nor politically.
Orla Hegarty is assistant professor at the UCD school of architecture, planning and environmental policy