Housing dysfunction is a political failure, not an economic one

Housing dysfunction is a political failure, not an economic one

There is no doubt at this stage of the dysfunction of the housing market.

Rents have reached levels not seen since the Celtic Tiger. Provision of social housing has stalled. House prices continue to inflate. Plus there is a growing, scandalous homelessness crisis.

This is almost entirely a political, as opposed to an economic, failure.

There is an assumption that there is a single creature called ‘the housing market’. There is not. There are several, any of which require different treatment and some of which will cut across the treatments of others.

We first of all perhaps need to think about what it is we’re exactly examining. There is one ‘market’ for emergency housing accommodation for those who find themselves homeless. This is not the same market as that for single-family homes, nor the markets for apartments in which people may consider making a long-term family home.

Then there is the market for suburban and ex-urban housing estate-type homes with gardens front and back. There is a separate market for one-off rural houses, and a separate market entirely for above-the-shop living.

Decisions taken in order to increase the attractiveness and supply of one kind of market may well have a knock-on effect of reducing supply in another.

However, then there is another matter entirely, one which is the market for the supply of housing services.

When economists think about the markets, and more particularly when they think about what kind of market it might be, they think in terms of two dimensions.

The first dimension is around what is called ‘rivalry in consumption’. Put simply, if I consume, does that prevent somebody else from consuming?

The second dimension is around what is called ‘excludability’. Is it possible to ensure that only certain types of people consume the good or is it one that can be consumed by all? Something which is non-rivalrous, when my consumption does not prevent somebody else’s consumption, and which is non-excludable, whereby all who turn up can consume — this is a public good.

Arguably, housing services in aggregate are a public good. Highly individual markets that make up the overall provision of housing services may well allow people who do not pay to be excluded, in general a well- functioning housing services markets is not excludable.

Similarly, there is no rivalry in consumption of a well-functioning housing market. What are the characteristics of a public good is that in general it is not well provided for by the private market mechanism.

There is nobody who would claim that the aggregate housing services market in Ireland is being well provided for. There is a market failure. When market failures happen governments must step in, or else dysfunction continues.

At the root of much of the problem lies a political failure over decades. We have failed to ensure that tenants have security of tenure in anything that would be familiar to modern European society. When you consider that the modern Irish State traces its origins to the battle for security of tenant tenure of the land league, you have to conclude that we have fallen far from our origins.

Having security of tenure on a European style would almost certainly result in reduction in the supply of rented dwellings. This would further increase rent. However, this is where the Government needs to step in, and to ensure the supply is sufficient to ensure there is an adequate balance between demand and supply.

It is shocking when you consider that a rapid build housing scheme is considered to be rapid build if it is done in 18 months or less — 18 months is not a rapid build. It is also shocking when you realise quite how few social houses, houses from social and local authorities, are being built. We have a Government, which despite its rhetoric, is overly reliant on the market to solve market failure. This is simply an impossibility.

Financing of house building is not, per se, the binding constraint. The binding constraint appears now to be the rapidity with which houses can be brought onto the market.

Of course, different markets will have different needs for different kinds of houses. Let’s consider the market for large mixed-use apartments or high-density housing.

There exist in India and China, in particular, a myriad of firms with extensive experience of rapidly building houses and apartments. Entire skyscrapers can be built in a couple of months.

Some firms are able to build two-bedroomed apartments and duplexes at the rate of one unit per day. There is nothing to stop a contract specification requiring that persons have experience in rapid build, and that they be able to provide the building of these homes in a certain, number of days per unit, or face financial penalties.

Rather than being content to wait for 18 months we should be looking at the provision of housing units in 18 days.

It’s failure of political imagination that we don’t do so.

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