How should the Government address the housing crisis?

With rents rising, we asks experts what they think needs happen to ease the housing crisis.

Wed, 11 May, 2016 - 01:00

Audit the costs

Ronan Lyons, Economist at Trinity College Dublin and author of the Daft.ie report

We know that investors involved in renting out accommodation require a net yield, or annual financial return, of at least 5%. The maths of finance means that once we know this, we can scale up from the monthly rent to construction costs. A monthly rent of €1,300 converts into upfront construction costs of €260,000.

Even if the developer required land for free, it is not possible to build either a two-bedroom apartment or a three bed semi-detached house in Ireland currently for €260,000. There is a fundamental problem in construction costs in Ireland being too high relative to our own incomes.

The first item on the agenda needs to be a government-sponsored audit of construction costs for the most common types of homes built in Ireland. This should be done not only for Ireland but also for other countries, including Northern Ireland, England, Denmark, and other economic peers.

This will firstly create a consensus on construction costs. Perhaps more importantly, this will also identify the three, four or five policy measures that would have the greatest impact in bringing construction costs back in line with real incomes.

There are three core issues (in the housing market) that need attention from policymakers. Construction costs; social housing — how we subsidise those on lower incomes who, even if we address construction costs, will not be able to cover the costs of their accommodation; land use — tendency in this country is building more housing estates further away from the urban cores but that is not always the solution.

Switch focus from effects to causes

Pat Davitt, CEO of the Institute of Professional Auctioneers and Valuers

IPAV strongly supports the Daft emphasis on the need for urgent attention to building costs.

However, an equal focus needs to be given to the cost of finance for builders by making building finance available at interest rates of between 1% and 3% and the need to change the remit of Nama so that more properties become available to Irish residents and that the acquisition of properties by vulture funds be conditional upon their building an equal number of units to those which they acquire.

The issue has been bedevilled by a lack of overall focus with the emphasis on the downstream effects of the crisis rather than the causes.

IPAV last week told the Dáil committee on housing and homelessness that mezzanine finance is available at exorbitant rates of 15% to 20% and all such costs are passed on to the house buyer.

A Government finance scheme for builders who may wish to participate in an agreed price building scheme (APBS), which would be in the region of €100 per sq. foot, excluding site costs and works, could slash €25,000 from the cost of a home. The monies would be repaid to the Government as the properties are sold.