Housing: no surprises

17/01/2017
Tom Healy

It is now generally accepted that the Republic of Ireland has a ‘housing crisis’. Though the causes are many and interlinked it would be astonishing to deny the obvious: not enough houses have been built in recent times at the right price in the right places for the right people. Result: escalating homelessness, escalating non-affordability and escalating rents. The housing crisis is probably a good but tragic textbook case study of what economists call ‘market failure’.  In other words, markets do not deliver enough houses to meet demand not because prices are too low but because a dominant developer-led, land-speculative and profit dominated sector has different priorities to what society might regard as optimal. In a different sense of the term, there has also been a ‘government failure’. The latter is to do with conscious decisions over three decades to outsource activity more and more to the private sector, to fail to get to grips with the price of development land and to under-invest by huge amounts in necessary ‘social housing’. Take a look at Chart 1.

If charts and picture could tell a story this one does. It speaks for itself.  Just when the market pulled back from building too many houses (related to unwise tax policies coupled with bad banking and light-touch regulation and low interest rates in the Eurozone) what did the State do? It reinforced the slump and laid the basis for a storm in terms of a housing crisis. Put another way, this housing crisis was entirely man-made due to a combination of market failure and ideological capture of the political space.  The current government is long on promises and short on delivery.

Preliminary estimates for 2016 indicate an output of approximately 14,800. This contrasts with 14,602 in 2010 – two years into a severe recession. Even as recently as 2009 when GDP was contracting significantly output was 26,402. The peak output figure was 93,419 in 2006.  Within the overall total the component of local authority social housing sharply contracted to such an extent that a total of 75 were built in the year 2015. This corresponds to a little over 1 new house per week for the entire jurisdiction. In the first half of 2016 a total 117 new social housing units were built by local authorities. This compares with a total of 20 in the same period in 2015. (Data are not yet available for social housing output in the latter half of 2016). Taking all social housing into account including new builds by voluntary and cooperative entities the total of social housing increased from 177 in the first half of 2015 to 237 in the first half of 2016. Clearly, the scale of activity up until very recent times was wholly inadequate to the need and accumulative demand following the bust of 2009 and onwards.

The solution to the housing crisis will require a number of vital policy actions carefully planned and put in place. It appears that, at last, the Government is getting the message and undertaking some of the necessary steps. Yet, it is striking that the approach is characterised by three fatal flaws:

  • An ideological clinging to the market as the key driver and supplier of housing need with the State playing an entirely secondary role by way of regulatory provision, tax incentives and modest outlays of grant assistance.
  • The scale of ambition let alone delivery is wholly inadequate to the extent of need.
  • A reluctance to deal with the problem with the urgency and cross Government drive to get to the grips with this problem. Lost somewhere in ‘fiscal space’ is the bean-counting that confuses short-term cost with long-term investment that will save the state, the market and society much by way of hidden costs and social damage.

In the coming months, the NERI will be devoting some effort to analysing the issues and proposing possible ways forward involving agency, funding and planning.  However, in the meantime, the housing crisis will not go away. It may very well get worse before it gets better. In this regard one is mindful of one of the key messages of the National Economic and Social Council (NESC) landmark report on Housing Supply and Land: Driving Public Action for the Common Good (July, 2015):

The public system should use its authority, capacities and resources to take the lead on the resumption of housing supply.

Indeed.

This blog first appeared on the Nevin Economic Research Institute (NERI) website and is reproduced courtesy of the author.

The views expressed in this blog are those of the contributor and not necessarily those of the IPI nor are they intended to reflect IPI policy. 

Tom Healy is Director of the Nevin Economic Research Institute (NERI). Tom has previously worked in the Economic and Social Research Institute, the Northern Ireland Economic Research Centre, the Organisation for Economic Cooperation and Development, the National Economic and Social Forum and the Department of Education and Skills.

He holds a PhD (economics and sociology) from UCD. His research interests have included the impact of education and social capital on well-being.

Tom Healy
Director, NERI