Eddie Hobbs: Only structural political change will solve our housing crisis
THE Rubik’s cube is a three-dimensional puzzle with six faces, each with nine moving parts, but it can be solved.
It is hopelessly unsolvable if you concentrate on just one colour or moving part, because each wrong move has knock-on effects elsewhere.
The housing market is no different, which is why rent controls, and other demand side stimuli, in isolation, cannot solve it. These further restrict supply, while stimulating demand, making matters worse.
An OECD study immediately following the global financial crisis fingered poorly managed housing policy as key in the tragedy that unfolded. Ireland isn’t unique. Housing is difficult to get right, but it won’t require an external shock from a hard Brexit, from Donald Trump’s targeting of US FDI, or from a Chinese credit implosion to stall the Irish economy.
The Irish recovery will choke on its own weight without any help from the outside, unless unpopular choices are made. House valuations and rents cannot be affordable for those on modest pay without slashing the wealth of existing stock owners. That’s the truth of it; if prices come down, someone else pays. House prices have already run away in many parts of Dublin. The city’s arteries are choking with traffic, because of failed transport policies, and the latest foray, rent control, is a political response to a chronic under-supply issue.
Sweden, with a population of 10m and the doyen of modern socialists, has a capital city with a chronic under-supply issue and Dublin is now tracking Stockholm’s rent-control policies.
Stockholm, with a population of 1.2m, has imposed rent controls for many years, on top of its under-supply problem. The result? It now takes nine-20 years to get an apartment, the waiting list is a half a million long, and in a study of 18 cities, Swiss bank, UBS, has identified Stockholm as one of six in a housing bubble, ranking it at higher risk than Sydney, Hong Kong, and Munich, and just below London and Vancouver, which top the list.
Those lucky enough to get a unit are quick to sublet into the secondary market at double the controlled rent prices. Meanwhile, businesses like Spotify are threatening to exit the Swedish capital, because of staffing problems.
On a Facebook page followed by 65,000 people and dedicated to searching for living space in Stockholm, one frustrated local posted: “Hi, I’m hiring out my cellar, 11,000 kronor (€1,150) a month…. there’s no shower or toilet, but it’s near the local petrol station where you can wash in the carwash and use the toilet etc. Nine months’ deposit, but the cellar is rented out for two months. Only men who are exactly 27 years, nine months and seven days old can reply. You should own at least one dog, two ostriches, and have four kids. Respond via PM.”
Luckily the Swedish population is well spread-out. But the Irish population is highly concentrated in Dublin. Should Irish economic concentration radically shift elsewhere?
Getting housing right, given the lag between completions and consumer demand, is a tricky business, but, like the Rubik’s cube, it can be done, as demonstrated elsewhere.
The solution is multi-faceted and not a series of disconnected, one-off measures that comply with the political clock, but, instead, a series of interlinked parts that have to fit together.
These include fast-track planning, dense housing structures, modern and competitive public transport, pricing against land-hoarding, large-scale social housing that’s driven by pension fund capital, portable housing allowances that aid mobility, non-recourse mortgage debt, and tax incentives that do not misallocate capital towards bricks and mortar over other aspects of saving, including business expansion and start-ups.
Each country has its own legacy issues in getting housing working at a level that does not create an underclass and which makes it affordable to buy a home for anyone prepared to save, while protecting those that choose to rent.
But rent controls in isolation can lead to unwanted outcomes, like scarcity, or large volumes of poor-quality, tiny units, reminiscent of the failed socialist economics that dot much of the European landscape. Uncontrolled free-for-alls, on the other hand, lead to nasty crashes when the bubbles they create eventually collapse, destroying wealth and harming society.
The depressing thought is the feeling of ‘here we go again, a health crisis and a housing crisis’, both of which are firmly grounded in a dysfunctional political system that rewards short-term stunts and punishes long-term planning, producing an endless stream of local politicians best at playing the short game. Ireland must adopt a political system that removes the circus of multi-seat constituencies which forces TDs into races to claim ownership of local client fixes in the interface with State services. That new system must promote statesmen and stateswomen possessed of the administrative skills necessary to solve large, complex puzzles and whose oath of allegiance is to the country. Unless this happens, we will remained mired in the current crisis and dependent on a political class that appears unfit to solve it.
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