Fergus Finlay: Housing crisis shows we’re not heeding the lessons of the past

Fergus Finlay: Housing crisis shows we’re not heeding the lessons of the past
There is a huge shortfall of newly-built homes to fulfill demand, and over half of new apartments in Dublin are being bought by investors. Picture: iStock

Well, at least we’ve learned lessons from our recent past, thank goodness. And when you learn lessons, there’s less chance of repeating the mistakes we made before. Isn’t that right Taoiseach?

There was a host of reasons for the collapse of the economy in 2008 (11 years ago, in case you think I’m talking ancient history). Buckets of money, wildly extravagant public spending in the run-up to elections, desperately poor regulation of the banking sector.

They all contributed. At the core of many of our problems then was awful policy-making based on cheap and readily available money.

We used the money, in very large part, to incentivise a building splurge. Office building everywhere, shopping centres everywhere else, car parks for the offices and shopping centres, student accommodation.

There was even one year that we built far more houses than we needed, in places where no-one wanted to buy and from where no-one could commute.

And when we couldn’t build them there, we built them on concreted-over flood plains.

We were building so fast, we ran out of builders. So we imported thousands from Eastern Europe. And they were good, hard-working. (Sent money home to their families of course, but we didn’t mind that because they were all white, even if they had foreign accents.)

And we ended up employing thousands more foreign workers to build housing estates to be rented to the families of the foreign workers.

None of it mattered. The more we spent by way of tax incentives, the more we built. The more we built, the more the money rolled in, in Vat and other tax receipts.

It was the perfect virtuous circle.

Except for a few things we didn’t notice. The more and the faster we built, the worse the quality got. Even worse than that, the more houses we built, the more expensive they became.

For a while there, we turned the law of supply and demand on its head.

When supply exceeds demand, prices are supposed to fall. But not in Ireland. Not with all the cheap money.

And then suddenly it stopped dead. With a bang. And we went through an incredibly painful adjustment, which affected — and continues to affect — the hopes and aspirations of an entire generation.

Because in the process we created a generation that finished their education with fewer expectations than the previous one.

We call them millennials and we sneer at them. But my generation, and every generation before mine, believed that we owed it to our kids to give them a start.

For many of the kids affected by the collapse of the Celtic Tiger, that didn’t happen.

But at least we learned a few lessons. Like, for example, that we’ll never allow ourselves to become so dependent on one form of taxation, like the money that came in from property transactions. Until the day it stopped.

Except, what’s this I hear?

The Taoiseach is being quizzed the about that fact now we’re becoming a bit too dependent on another form of steady but maybe volatile income — the enormous corporation tax receipts from American multi-nationals and others.

Sure not to worry, says he.

Even if the corporation tax revenue falls off, there’ll be loads coming in as the building industry ramps up again. That’s the sort of thing our Taoiseach says that makes you sit bolt upright.

This, after all, is the same Taoiseach who was reported last July in this newspaper as saying that it was better to solve the housing crisis slowly than with a quick fix.

Fergus Finlay: Housing crisis shows we’re not heeding the lessons of the past

“A return to building 80,000 homes a year would only fuel the boom-bust cycle we have seen in the past,” he said then.

Whatever about the rest of us, you do get really worried when the Taoiseach hasn’t learned the right lessons. Ireland needs to build, we need to build quality, and the state needs to lead it.

The reason — the one and only reason — that the Taoiseach and his government have failed to make a serious dent in the housing and homelessness crisis is because they refuse to accept that the State must have a much more significant role.

Just look at what’s happening —and don’t take my word for it. Here’s what a leading private sector company has to say.

Hooke and McDonald are a respected firm of estate agents, with an awful lot of experience of the Dublin market particularly.

During the week they sent me their most recent Dublin Private Rented Sector Investment Report. It’s genuinely shocking.

Here’s the overall summary: “Private Rented Sector transactions have continued to dominate the Irish property investment market, accounting for 55% of all property investment transactions in Dublin in the third quarter of 2019, the same percentage as in the second quarter, followed by 37% for offices. … However, there is still a significant shortage of new apartments under construction.”

That bears repeating. Fifty-five percent — more than half — of newly-built apartments are being built for rent. And they go on to say that the total of new apartments built in the quarter is less than one fifth of the market requirement in the Dublin area.

Later on in the report they publish a table which shows where we stand in terms of apartment completions by comparison with 13 other European countries. We’re just marginally better than the UK, but we’re way behind everyone else. Way behind Slovakia, Spain, and all the rest.

And we’ve managed a fraction of the performance of the table-topper, Finland. Which incidentally has a similar population to us, although it’s a lot less densely populated.

And it lags behind us in terms of wealth. Despite that, they’re completing more than six new apartments for every 1,000 of their population. We’re completing 0.7. This is just an example.

The figures are for apartments in the Dublin area. The reason I single it out is because it’s the part of the market where demand is highest.

And look what a reliance on the private sector has brought us to. It’s a completely unsustainable position. We’re building far fewer apartments than we need.

More than half of the apartments we do build are being sold to investors to be rented to others.

The vast majority of newly-built apartments, whatever their quality, are attracting extremely high and (despite the protestations) largely uncontrolled rents.

How can there be a future in this? Massive rents coupled with inadequate supply means that we are building a sort of landlords’ market, where home ownership of any kind becomes less and less possible for more and more people.

It’s no wonder that politicians shy away from any idea of rent control, because the private rented sector now has the market by the throat.

The evidence of our own eyes shows that the housing problem can only get worse and worse as home ownership becomes more and more of a commodity.

We have to start from the position that access to affordable and decent housing is a right of the citizen and a responsibility of the state, not a thing to be sold to the highest bidder.

Leo needs to get his head around that.

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