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VOICES

Analysis Housing in Ireland won’t look any better before the next general election

Economist Victor Duggan looks at the continued decline of housing supply in this country – he doesn’t hold out hope of it improving any time soon.

BREXIT AND COVID have dominated headlines – and politicians’ preoccupations – at different times over the past decade.

Health is a perennial concern. Referenda on same-sex marriage and abortion passed overwhelmingly. But, it doesn’t seem controversial to say that housing is the defining political issue of our times. This perma-crisis is unlikely to improve before the next general election.

There were 90,000 homes built in Ireland in 2006, but that past feels like a foreign country. The global financial crisis and the homegrown property crash decimated our construction sector and much else, so very few houses at all were built in the decade that followed. By 2016, the economy was back on its feet but it already felt like a housing crisis was brewing. After the general election that year, the Fine Gael-led government made housing a priority and unveiled the Rebuilding Ireland plan targeting 25,000 new homes annually by 2020.

Targets were missed, rents soared, homelessness kept increasing, Fine Gael lost votes and seats in the 2020 election. Perhaps bravely, Fianna Fáil insisted on the housing Ministry in subsequent government negotiations. They hoped to end the housing crisis and reap the political benefits. As we were coming out of the Covid pandemic, we got a new housing strategy. Housing for All was published in September 2022, targeting average annual housing construction of 33,000 until 2030.

New strategy, same result: targets continue to be missed, rents continue to soar, homelessness keeps hitting new records. That’s not to say there has been no progress at all. More homes are being built. Money is being set aside that could see record social housing construction if it was all spent. Cost rental schemes are proving wildly successful, and new subsidies are being introduced that could see these being scaled up to become a real alternative for more families.

A little done, a lot more to do

Even if the Housing for All building targets were met, they would not be sufficient to meet the needs of our growing population to 2030 and beyond, yet alone to address the housing shortfall that has been allowed to build up over the past 15 years.

Politicians operation with a shorter time horizon. We are now less than two years out from the next general election, and a year out from the staging post that will be the 2024 local and European elections.

Nobody seriously thinks that the housing crisis will somehow be magically solved on that timeframe, but could we even see meaningful improvement?

Homelessness hit a new record high just short of 12,000 in March. The numbers in emergency accommodation were at all-time highs even before the end of the no-fault eviction ban on 31 March. With private rental supply near record lows and rents continuing to hit record highs, it’s hard to see how homelessness won’t continue surging in the months and years ahead.

The cost of renting a home continues to drive consumer price inflation. Private rents increased by 8.8% in the 12 months to April. Thankfully, this marks a slowdown from a peak of just under 13% in the middle of 2022. But, private rents are still increasing faster than both wages and headline inflation, to which rents are an important contributor.
Daft.ie reported only 959 rental properties available on 1 May. Even if this is up marginally from the 851 available a year earlier, it is still one of the lowest rental stocks recorded since 2005. Nationally, Ronan Lyons, author of the Daft.ie rental price report for Q1 2023, notes that the total stock of rental properties, whether available or occupied, is actually falling. Looking forward, it’s possible that rental price inflation will continue to moderate, but this is more likely to be due to a weakening economy than increasing rental supply.

A material improvement in the rental market over the next two years looks unlikely at this point.

Writing last October, it looked inevitable that house price growth would slow, and could turn negative. When data for that month was published, it turned out to be the first month that prices in Dublin fell, and they have fallen every month since. In January of this year, prices in the rest of Ireland followed suit. New data published recently confirmed these trends. With the economy slowing, real wages falling and interest rates increasing, it’s hard to see these trends reversing during 2023.

The good news is that falling prices means improved affordability for first-time-buyers. But, if higher interest rates mean banks are willing to lend less, increased affordability is only theoretical. The bad news is that the majority of households own their own homes, these homes constitute the bulk of household wealth, and falling house prices mean homeowners feel poorer. Falling prices also reduce the incentive for private property developers to start building. We shouldn’t take it for granted that the up-tick in residential unit commencements in the first three months of the year will continue. Because of the tail-off in commencements through 2022, it is quite possible that Housing for All construction targets, inadequate as they may be, will be missed in 2023 and 2024.

All in all, if the next general election is to be a ‘housing election’, it’s really hard to see how the situation will have improved between now and then.

What to do?

If 90,000 new homes were built in 2006, then surely it must be possible to consistently build at least half that number every year. Even that would mean a 50% increase in construction from where we are now. We have seen plenty of demand side policy interventions – whether budgeting for social housing or subsidising private purchases by first-time buyers – but not enough has been done on the supply side to make sure the construction sector has sufficient capacity.

A shortage of workers and finance, as well as a dysfunctional planning system, are critical constraints.

As was the case in the early years of the century, with the economy at what economists call full employment, we urgently need tens of thousands of immigrant construction workers. This pool of workers will also need to be counted on if we are to meet the national target of retrofitting half a million homes by 2030. Just as Irish immigrants are often credited with building England and America in the 19th and 20th centuries, Ireland now needs an influx of construction workers. Specifically, as the ESRI has suggested, we should expand the occupations eligible for the critical skills employment permit.

With interest rates on the increase, lack of financing is becoming increasingly acute. Understandably, the Irish banks have become risk averse when it comes to property lending. For them, the pre-2008 period really is a foreign country.

The availability of public resources is not the issue. The Ireland Strategic Investment Fund (ISIF) already has about €15bn under management, of which more than €900m has been committed to residential construction.

Annual budget surpluses are expected to amount to a further €65bn over the next three years, a good chunk of which is to be squirrelled away into a sovereign wealth fund. The ISIF shows that we can target a double bottom line: support housing investment and save for the future. What we need is a vast scaling up of ambition.

Victor Duggan is an economist.

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