Housing crisis requires approach based on solid foundations
National authority headed by senior minister is needed to plan housing policy
Developers require financing up front if they are to embark on projects, affordable finance. Photograph: Bloomberg
The new government must adopt a new approach, new ideas and new structures if the housing crisis is to be addressed.
Multifaceted and complex problems tend not to lend themselves to simple or even palatable solutions. Sometimes a mixture of short- and long-term measures is required, often accompanied by vigorous bouts of nose holding. As multifaceted and complex problems go, our housing crisis is right up there.
Why are we not building houses at the required level of 25,000 per annum? The main reasons include the lack of affordable development finance and the overall cost of constructing a residential unit.
Developers require financing up front if they are to embark on projects, affordable finance. Builders – and lenders – also need to know that a project is commercially viable.
Currently the costs of constructing a house in Dublin are considerably higher than the price of similar second-hand homes, while 35 per cent of the costs of a new home finds its way to the exchequer. Why would any builder build in such circumstances?
Other contributory factors include our protracted planning process, a skills shortage – including the skill set required for “developers” – and a lack of zoned land.
Lending rulesOne of the external factors which has affected the property market is the Central Bank’s new lending rules. The rules were introduced by the bank as part of its macro-prudential policy to help curb inflation and to reduce over-exposure to high levels of property lending. In this regard they have been successful. However, a year down the road they have also had some unintended consequences and may require tweaking.
For example, because larger deposits are required in Dublin, first-time buyers are unable to buy as quickly as they did in the past and have to remain in rental accommodation for longer while saving. This has led to an increase in rents which adversely affected renters’ ability to save for the larger deposit.
Access to finance and the higher cost of that finance relative to other EU states are other factors which weigh on prospective buyers.
Yet rents have not risen just because of more demand but also because of a reduction in supply. While many would argue that measures regulating the standards of rental accommodation were long overdue, the timing of their introduction was unfortunate.
Left the marketFor many landlords the cost of maintaining their properties – together with local property taxes, USC and PRSI taxes on rental income – proved too much and many appear to have left the market.
The rent freeze announced by the Government, the fact that landlords are liable to Irish Water in the event of default or non-payment by tenants and the fact that disputes over rent with tenants at the Private Residential Tenancies Board take too long, convinced many other landlords it was time to walk away.
So while recent media reports may have focused on boom-time rents, the media has largely ignored the falling number of landlords and the increased costs associated with property management.
The lack of any meaningful social housing programme and the increase in rents – due to increased competition amongst renters – meant many lower-paid workers or those dependent on social welfare have found themselves at increased risk of homelessness. Many families are being forced to live in hotels which are totally unsuitable.
A new approach, new structures and new ideas are required to tackle this issue. That is why the Society of Chartered Surveyors Ireland has been calling for the establishment of a national housing authority, headed by a senior minister, to plan and implement housing policy.
Such a minister – and here’s the nose-holding bit – might have to introduce a builders’ finance fund, a property tax exemption for people trading down or even tax incentives to encourage an urgent increase in the supply of property units.
Inaction allowed a dysfunctional property market to become a housing crisis. Urgent remedial action is now required. John O’Sullivan is chairman of the Society of Chartered Surveyors Ireland residential agency professional group