The affordable housing scheme is in crisis and it could end up costing the State millions to sort out

AN INCREASING number of local authorities are running into trouble with their affordable housing schemes because of rapidly falling prices and a general reluctance by qualifying buyers to make commitments in the present unsettled market.

To deal with the problem, some councils are to offload affordable apartments and houses on the open market at a loss, if necessary, to ease the overall financial burden. Other councils have put developers on notice that they may not be able to honour commitments to purchase further homes as long as they have a backlog of unsold properties.

In essence, the whole scheme is no longer viable in its present form because of a drastic change in market conditions which has triggered a virtual collapse of the housing development sector. With most people on the affordable housing lists no longer interested in buying, local authorities are coming under increasing pressure to review their involvement in a scheme which has serious financial implications for them.

Though all the ominous signs are there, the councils are unlikely to look for guidance from the Minister for the Environment John Gormley who seems more concerned about blocking an incinerator in his own constituency and banning country sports than in formulating a housing strategy for the younger generation.

Construction Industry Federation executive Hubert Fitzpatrick says there is clearly no demand for affordable housing in many local authority areas. For that reason some councils are now to put their affordable housing stock on the open market in direct competition with the same builders who were legally obliged to hand over 20 per cent of their output to the State sector.

Watching the various local authorities getting into ever deeper water with their affordable housing schemes, it is just as well that most of the housing needs of the future will be met by private industry rather than the dysfunctional public sector.

Many of those still hoping to acquire their first homes at the lowest possible price may not be aware that throughout most of the 1900s their parents and grandparents probably had to rely on the local authorities to provide them with housing.

In the 1930s, 60 per cent of all housing built in the State was constructed by local authorities. With increased prosperity, the proportion declined but, even into the late 1980s, over a quarter of all new houses were still being built by the public sector.

It was at that stage that the private housebuilders came into their own and, though price increases remained on the modest side for several years, the whole picture changed in the late 1990s.

A study by UCD academic Michael Punch shows that the average price for a house in 1994 was €72,000. If subsequent increases had been in line with average earnings, the price would have been €124,000 in 2007. Instead it was €323,000. The writing was on the wall.

With builders continuously bumping up prices because of the housing bubble, it was no surprise that the Government eventually intervened and insisted that from 2002 onwards, 20 per cent of new stock should be made available as social and affordable housing. The discount for those on the affordable list was initially in the region of 30 to 35 per cent and, in a buoyant market with prices continuously rising, there were long waiting lists.

Few buyers were concerned about a “clawback” condition under which an owner must pay back a percentage of the discount if they sell their house within 20 years. That condition will inevitably be dropped in all areas. Even as the first signs of a slowdown appeared in 2008, local authorities acquired a total of 4,518 social and affordable homes in that year. It has been all downhill since then and, with many developers now under pressure to sell completed homes at below cost, there are few takers for affordable houses which don’t always have the same standard of finish and are generally located in the less desirable part of a site.

With more than 1,100 affordable homes now overhanging the market, local authorities are increasingly looking for cash payments from developers instead of qualifying homes. That is a complete change of policy because, in the early years of the Part V housing provision, councils frowned on the idea of accepting financial compensation. With builders, like everyone else, unable to get their hands on cash these days they are increasingly pushing for payment from the councils for newly completed affordable homes.

The logjam proves yet again that local authorities are not good housing managers. They should continue to look after social housing and leave the “affordable” sector to private industry. They will obviously need deep pockets if they don’t exit that market immediately.