Housing shortage needs Government intervention

It is somewhat bizarre that, less than a decade after one of the biggest housebuilding binges ever experienced in a developed economy, we are now trying to grapple with the issue of housing shortage in some areas.

The moral of this particular story is that one should only build houses in areas where actual demand exists, and that the nature of the housing should be capable of satisfying future demographic developments.

One cannot escape from the conclusion that we built a lot of houses of the wrong type and in the wrong areas.

The requirement to raise revenues probably has a lot to do with decisions that were contained in the Fianna Fáil election manifesto of 1977, which effectively destroyed the funding base for local authorities.

Since those politically driven initiatives, the funding of local authorities has never been on a sound footing and we are still paying the price.

The reality of the housing market at the moment is that the rental market is in total chaos.

Social housing is totally and utterly inadequate in Ireland.

House prices are looking dangerously hot in Dublin in particular, notwithstanding some cooling in recent months on the back of the eminently sensible lending restrictions introduced by the Central Bank earlier this year.

Private rents have increased by around 36% since the bottom of the market in 2010, and clearly something had to be done about this.

This week, something was.

The package of measures introduced this week in an effort to increase housing supply and solve the crises in the social housing and rental sectors represent a serious level of intervention in the market by the Government.

Some will criticise this level of intervention, but when market failure occurs, government intervention is the only option.

There is certainly evidence of market failure in the housing market at the moment and hence the compelling requirement for the State to get involved.

On the supply side, a number of measures will be introduced in January.

Where housing is supplied in Cork and Dublin below a certain price level, in other words, affordable housing, there will be a targeted rebate of development levies.

New guidelines for apartments will be introduced, which in theory will not undermine building standards, but which will reduce the cost of apartment building by around €20,000 in Dublin.

Changes will be made to the operation of strategic investment zones in order to facilitate a speedier reaction to changing housing requirements, and housing finance may be provided by the State’s strategic investment fund for housing investment.

On the rental side, the Private Residential Tenancies Board will be given increased powers that will aim to ensure that landlords behave properly.

There will be a two-year freeze on rent rises and there will be a 90-day notification of a rent increase; and 100% mortgage relief will be given to landlords who have taken on social-security tenants.

The ultimate impact of government intervention into any marketplace is always difficult to predict, but such intervention is deemed necessary at the moment.

The Irish rental market has too many hobby landlords, many of whom are totally unprofessional, and the sector is not regulated in a manner that recognises the rights and responsibilities of tenants and landlords.

Many of us have been the victims of such landlords. Tenants, of course, must also behave properly, and this is not always the case either.

It would be interesting to see the impact of getting institutional investors, such as pension funds, involved in the rental market, as is the case in countries such as Germany.

This would have the effect of getting landlords with a long-term time horizon involved in the market and a greater level of professionalism should follow.

All we can do for the moment is sit back and see how the market develops, but Government should stand ready to deal with any unforeseen consequences.