Hous­ing cri­sis — whose fault is it any­way?

Sunday Independent (Ireland) - Property - - SUNDAY PROPERTY - THE RO­NAN LYONS COL­UMN

IRE­LAND’S hous­ing woes can be sum­marised ad­e­quately by the phrase ‘plenty of peo­ple, not enough homes’. The coun­try en­joys a rapidly grow­ing pop­u­la­tion. This is due to a sub­stan­tial sur­plus of births over deaths, some­thing that most other high-in­come coun­tries would love to have. It is also due to net mi­gra­tion, again a symp­tom of eco­nomic suc­cess.

That’s why it’s ‘plenty of peo­ple’, rather than ‘too many peo­ple’. I’m a bit of a de­mand fun­da­men­tal­ist, when it comes to hous­ing. We shouldn’t have to turn away any­one sim­ply be­cause we don’t have enough prop­erty.

This is true not only for per­ma­nent res­i­dents but also busi­nesses, who need of­fice space, and vis­i­tors, whether short-term tourists or longer-term vis­i­tors, such as in­ter­na­tional stu­dents. All de­mand is good de­mand, in that sense, be­cause this de­mand for hous­ing goes hand in hand with job creation and thus liveli­hoods for those of us that call Ire­land home.

Why ‘not enough homes’, though? Where have things gone wrong? In re­cent months, it has be­come some­thing of a con­ven­tional wis­dom that the lack of new homes be­ing built is down to the fail­ure of the mar­ket. Over-re­liance on the mar­ket, this line of thought goes, has left us bereft of the full range of homes we need.

The log­i­cal con­clu­sion most com­men­ta­tors mak­ing this point ar­rive at is that the State must step in and get build­ing new homes. If we set aside, for the mo­ment, quib­bles about whether hous­ing should be pro­vided by Lo­cal Author­i­ties or by Ap­proved Hous­ing Bod­ies, like Cluid or Tuath, then I agree with the con­clu­sion.

But I think the path to get­ting there is not only wrong but dan­ger­ous in terms of its pol­icy implications. A look at some of the num­bers will hope­fully ex­plain my point.

Tak­ing into ac­count the var­i­ous sources of de­mand, it is clear that the Greater Dublin Area needs at least 1,200 new homes a month — and prob­a­bly more if it en­joys sus­tained net mi­gra­tion. But over the last five years, it has seen about one quar­ter of this level of ac­tiv­ity.

Are those who ar­gue that the prob­lem here is over-re­liance on the mar­ket hon­estly sug­gest­ing that the State should make up three quar­ters of all home-build­ing? Of course not.

I per­son­ally would favour a sit­u­a­tion where about one third of hous­ing is sup­ported by the State, tar­geted at those in the low­est third of the in­come dis­tri­bu­tion. But in a coun­try that needs 50,000 homes a year, this means new so­cial hous­ing pro­vi­sion each year of roughly 17,000.

Given that only 13,000 new homes were started in 2016, the ma­jor­ity of which were one-off houses, this leaves a miss­ing mar­ket of 20,000 new homes. Why are th­ese not be­ing built?

One ar­gu­ment is that the de­vel­op­ers sim­ply don’t have the cap­i­tal to build. This sim­ply doesn’t stack up against re­al­ity. In a world of zero in­ter­est rates, cap­i­tal is on a global hunt for a re­turn. We have seen the fruits of this in Dublin’s of­fice sec­tor, where half a mil­lion square me­tres are cur­rently be­ing built — with the same again ready to be built once the first chunk is oc­cu­pied.

The same is now true for Dublin’s ho­tel sec­tor, where ris­ing room rates have made it vi­able again to build. And, while there are clearly is­sues with the plan­ning sys­tem (as I dis­cussed last week), the stu­dent ac­com­mo­da­tion sec­tor also shows no signs of be­ing cap­i­tal starved.

The fi­nal piece of the jig­saw is that the or­gan­i­sa­tions that fund or build of­fices, ho­tels and stu­dent ac­com­mo­da­tion are the same ones that fund or build apart­ments — the sin­gle great­est need when it comes to hous­ing in Ire­land.

So if it’s not a lack of cap­i­tal, what sort of mar­ket fail­ure is it? All good stu­dents of eco­nom­ics are taught to look out for two types of fail­ure when con­sid­er­ing out­comes — mar­ket fail­ure and pol­icy fail­ure.

One clear pol­icy fail­ure is the dere­lic­tion of duty on the part of gov­ern­ment, both cen­tral and lo­cal, to pro­vide so­cial hous­ing. It is sim­ply not cred­i­ble to ex­pect the mar­ket to pro­vide hous­ing for peo­ple with in­comes so low they can’t cover the cost of build­ing their home.

And it is sim­ply not fair to ex­pect, as Part V does, that the oc­cu­piers of newly-built homes should pay for new so­cial hous­ing. The cost of new so­cial hous­ing should be borne by all mem­bers of so­ci­ety, not del­e­gated to the in­hab­i­tants of new homes.

But this is about the 17,000 or so homes needed each year for so­cial hous­ing. When it comes to the 35,000 or so mar­ket-built homes needed in Ire­land each year, the ev­i­dence from the rest of the con­struc­tion sec­tor is clear — there is no mar­ket fail­ure in get­ting funds to where build­ing is vi­able.

The prob­lem is that build­ing is not vi­able, par­tic­u­larly for apart­ments, where the need is great­est. From the lack of a land tax to well-in­ten­tioned reg­u­la­tions that sim­ply sti­fle new sup­ply, pol­i­cy­mak­ers need to stop blam­ing the mar­ket and take a long, hard look at their role in creat­ing Ire­land’s hous­ing cri­sis.

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