There are two fundamental forces fuelling the housing crisis here: supply and price. One is too low, the other too high. Everything flows from these two points, the rest is just noise. The Government – as illustrated by its new housing strategy, which promises 33,000 homes a year out to 2030 – is wedded to the notion that supply will resolve the pricing issue and make homes more affordable.
The problem is, it won't. If that was the case, we wouldn't – as supply accelerates – be rolling out help-to-buy schemes (we'll soon have two on the go) or be forcing developers to set aside parts of their schemes for social housing or be setting up a Land Development Agency (LDA) to build affordable housing on State lands.
These measures implicitly acknowledge that the market isn’t producing affordable outcomes and that housing is more complex than a simple supply-and-demand dynamic.
When prices start falling, landowners and developers, sensing a riskier financial proposition, reduce their output. This isn’t a cynical ploy to screw over would-be buyers, it’s just the way the market operates. The private speculative model that we rely on for our entire housing supply is high-risk and it incentivises suppliers to hold onto land and drip feed it into the market to maximise returns, which in turn bids up house prices, creating the sort of boom-and-bust cycle that we’ve seen over the past 20 years.
Pricing metrics
The Government’s existing Help to Buy initiative and the incoming shared equity scheme may help a certain cohort of first-time buyers and others, and help elicit more supply, but they will also prop up the current pricing metrics that elude so many others.
The average price paid for a home in Dublin in the 12 months to the end of June was €474,080, according to the Central Statistics Office, which is nine times the average full-time salary.
Anyone who thinks that when we start building 33,000 homes a year young people or those on moderate and middle incomes will suddenly be returned to the buyers' segment of the market is indulging in wishful thinking. A casual glance at property markets across the world, where those on the middle and lower rungs of the economic ladder are priced out of urban markets, underscores this. Are we to presume all these markets are simply undersupplied like Ireland and would be fixed by a bump in construction? Even Germany, once the exemplar of a stable, low-cost housing market, now finds itself in the grip of a housing crisis. Inflation in Germany's "big seven" cities – Berlin, Hamburg, Düsseldorf, Cologne, Munich, Frankfurt and Stuttgart – averaged 123 .7 per cent between 2009 to 2019, bigger than the rise seen in London and New York over the same period.
Prevailing dynamic
The Government’s new housing plan is a turbo-charged version of its predecessor, Rebuilding Ireland. That plan made big promises around supply, social housing, affordability and homelessness. It delivered in some areas – the supply of social housing was accelerated and housing waiting lists reduced – but it failed to change the prevailing dynamic.
The new blueprint promises more measures and more initiatives to fix the problem and an even bigger housing delivery target, 300,000 by 2030. But it’s not within the Government’s gift to deliver this target. The Government won’t be building these homes. Approximately 156,000 – 52 per cent of the total – are to be delivered exclusively through the private market, but only if the price dynamics are right, while most of the 90,000 social homes will come via turnkey acquisitions or so-called Part Vs also from the private sector. In other words, the State’s reliance on the private speculative model of homebuilding is not being diluted, it’s being reinforced. And this is the trap that housing has become for governments across the world. To overhaul the existing system and produce more affordable outcomes, they have to become the developer like they were in the social housing programmes of the past, but on a much bigger scale. This would involve displacing a certain section of the private market and potentially pushing down house prices, something the banks and a majority of voters, who are homeowners, may not like.
