Coveney’s big plan to tackle the housing crisis leaves Brussels cold
New studies on housing and the property market show there’s a way to go before our problems are solved, writes Dan O’Brien
IT is rare that a week passes without stories on housing, property issues and homelessness making the news. Last week was no exception. Last Thursday, the head of Ireland’s Central Bank warned people against thinking that property is a “one-way bet” and raised the spectre of house prices falling in the future, while his counterpart at the German central bank spoke in a TV interview about a rise in interest rates being justifiable within two years.
Last Wednesday, a report by the property website, myhome.ie, highlighted how Ireland’s already illiquid housing market actually became more so last year (the number of homes sold in 2016 was down on 2015). On the same day, the eurocrats in Brussels weighed in, devoting a good proportion of their latest analysis of the Irish economy to issues around housing and the built environment more widely.
As an outside body, and one with a strong capacity to ana- lyse economies comparatively, the European Commission’s assessment of government policy is always of significance.
Last week’s analysis of housing policy was of added significance given that the minister who designed most of it and is implementing it is seeking to become the next Taoiseach.
In the study, Brussels hammers home an obvious but essential point about the inequitable and inefficient subsidies being given to home-buyers.
It states dryly that the Government’s Help-to-Buy scheme “may contribute to further price increases, at an estimated fiscal cost of €50m, without directly contributing to increasing supply”. A translation of that from officialese might put it that €50m is being taken from one group in society to be given to those fortunate enough to be able to purchase a valuable asset yet doing so is unlikely to have any wider social good.
On the multi-pronged housing and homelessness plan that Simon Coveney is directly responsible for, the commission’s broadest assessment is less than positive. “The absence of a coherent spatial strategy that integrates housing and infrastructure delivery with projected population developments is a concern,” it says, noting the failure of the last effort at national spatial planning in the first decade of the century.
On more housing-specific planning, the report notes that Ireland is currently ranked 38th by the World Bank for dealing efficiently and speedily with construction permits, long recognised as a bottleneck in the system. While the commission believes that the partial reversal of some post-crash building regulations may be helping to boost supply, it raises concerns about maintaining existing height restrictions and the requirement that new builds come with parking facilities.
Nor is it impressed by the extension of rent control measures, noting that they “could provide a disincentive to further investment”. Citing recent research on experiences of controls internationally, it says that they “have been shown to have a significant destabilising impact on the aggregate housing market in other countries”.
The commission also raises questions about the Government’s social housing commitments which, it noted, will account for 40pc of the State’s capital spending budget over the next five years. It says that without additional reforms “direct provision of social housing may be more expensive in the long run than schemes operating via the private rental market”.
Although the report does not cite a new collection of data on housing by the OECD in Paris, this source provides some valuable context on social housing. Among other things, it finds that among the OECD’s 33 rich and middle income member countries, Ireland has the seventh highest level of social housing relative to total housing stock (one in 12 of all homes is provided by the State at below market rents). This share will rise further if targets for private and social housing contained in the action plan for housing are met over the next five years.
This raises a hard-to-answer question as to what is the “right” amount of social housing.
Should the supply of subsidised housing be ramped up to ensure that a targeted share of population has ready access to social housing, or at least all those whose incomes are below a certain threshold, so that the living conditions of the poorest section of society are improved and made more secure? On the other hand, as Ireland already has a comparatively large social housing sector and there are at least some problems of ghettoisation in urban areas, should the level of subsidised housing be reduced?
To my knowledge there has been no discussion around this issue despite its importance to the large numbers of people affected and its importance to broader society. It is one worth having.
If informed discussion on what is the desirable level of social housing has been non-existent, the same cannot be said of what is going on in the private housing market. Last week’s myhome. ie report was one of many on that market’s functioning. It highlighted — almost a decade after the property crash began — the continued failure of the market to normalise in terms of the number of homes changing hands.
There are a little over 2m homes in Ireland currently. Last year, according to CSO figures, around 50,000 homes were bought and sold, or around one in 50 of the entire stock. While that is up on the depths of the recession, it was down on 2015 and around half — and possibly less — of the turnover one would expect in an economy that is growing solidly and has high levels of labour mobility.
One reason (of many) for the low level of transactions is the fear of losing one’s tracker mortgage in the event of a move. While it may be understandable that banks will do their utmost to reduce the numbers of loss-making tracker mortgages on their books, and for the authorities to support that aim given that much of the banking system remains owned by the taxpayer, there are clear negative effects on the wider economy of limiting people’s capacity to relocate.
That is particularly the case if the reason for moving house is to move off benefits or to take up a better paying job. From a regulatory perspective there would appear to be a case to oblige banks to allow people retain trackers in such circumstances.
It should also be said that a cursory glance at European Central Bank figures shows that not only has the Irish banking system returned to profitability, but that it is now among the most profitable in Europe across a range of measures. Allowing more people to move with their trackers would not reduce already high profits and would be improve the functioning of the labour market. It should be allowed to happen more often.
‘Ireland already has a large social housing sector’