Today’s shortfall in housing supply has its roots in the economic crash of 2008, and the failure to anticipate how the surplus housing of the recession years would rapidly become a shortage as the economy recovered.
A decade ago, there was still profound pessimism about the future of the economy. Emigration was high, there were many vacant properties, and rents fell. This enabled young people move out of the family home or house-shares into their own apartments, and spread out to fill the available rental space.
However, because few expected a very vigorous recovery, and because rents had fallen dramatically, no preparations were made for a future where emigrants returned and where net immigration was the norm.
Today the strength of the economy has resulted in a big increase in population trying to squeeze into a limited supply of dwellings. The consequence is that rents and house prices have rocketed, forcing a return to involuntary shared living arrangements.
Ireland is unusual in the significant imbalance between the number of new households being formed as young people fly the nest, and the number of homes becoming available as those in the older generation die. In Germany, for example, such vacancies and new demand are closer to balance.
In Ireland, however, there are roughly twice as many young people entering the housing market each year as people leaving it through death or entering long-term care. That means we need to keep adding to our building stock to match the demand for accommodation.
Demand-side pressures
That’s not happening as quickly as it needs to, putting continuing upward pressure on house prices and on rents. Continued economic success will attract net inward migration, so the demand-side pressures on the cost of accommodation look likely to continue for some time to come.
Faced with escalating rents, the Government has introduced rent controls, limiting the rate of rent increase that can be charged. New apartments are free to set initial rent levels, which means new supply is not discouraged.
A recent study by the Economic and Social Research Institute shows that these controls have significantly modified the growth in rents. However, it also concluded that the benefits of rent controls accrue to existing tenants, but that other groups (such as potential new tenants) are often negatively affected. This is through higher prices on properties that are not covered by the regulations and, in the medium term, by lower availability of properties more generally.
For example, in San Francisco, as a result of rent controls, landlords reduced supply by 15 per cent and sold to owner-occupiers or redeveloped the buildings. This eased problems for new home owners, at the expense of those dependent on the rental market.
The only solution to the domestic housing crisis is to increase supply. However, unwise regulatory and planning policies continue to stymie this. Government needs to ensure that our regulatory framework supports the provision of good-quality housing and doesn't inhibit investment in providing new homes.
Planning restrictions and judicial reviews slow down the provision of new homes, with those looking to enter the housing market losing out. At a time when there is a huge shortage of supply, opposition to new building, especially of high-density schemes, holds up supply that could ease the availability of homes for young people.
There is a crying need for more rental accommodation at a time when it costs more to rent than to buy, so opposition in principle to build-to-rent schemes makes no sense in that context.
Strategic development zones
Strategic development zones were meant to speed up planning; instead many of these applications became mired in legal proceedings. We need to rationalise the rules around environmental regulations, which feature so often in such cases.
The scale and urgency of the influx of Ukrainian refugees may require temporary legislation to bypass normal planning regulations. Beds in community halls, in tents or in former institutions offer just a temporary answer. Given the scale of needs, house-sharing with host families will have only a limited role to play.
We will need to build modular housing rapidly to provide own-door accommodation. Some of this may be temporary in character, to be disassembled at a later date if demand subsides. Modular building, however, provides rapid-build long-term accommodation across most of the United States, providing good-quality, well-insulated homes.
What we must do to act quickly for Ukrainians can also offer more general answers to the housing crisis facing other groups such as young adults, homeless or those in direct provision. The urgency of the Ukrainian housing crisis can unlock new thinking that benefits all.
