Anthony Foley: Housing crisis can be fixed, but it won't be quick and it will be painful

As a society, we must be prepared to carry and share the financial burden. And we need to do it quickly, writes Anthony Foley

Sun, 18 Jul, 2021 - 20:35

Anthony Foley

Between 2013 and 2019, according to the CSO, residential property prices increased by 74.5% while average earnings increased by only 12%.

The Residential Tenancies Board (RTB) reported a rent increase of 55.1% between quarter two 2013 and quarter two 2019. These figures starkly illustrate the increased difficulty of achieving home ownership and affording rent. The Central Bank residential mortgage rules have increased the difficulty of home purchase for many people.

Between 2013 and 2019 the number in the 25 years and over age group increased by 7.8%.

Supply of new houses and apartments improved from a low of 4,600 in 2013 to over 20,000 in 2020. However, the recent increase has not been sufficient to prevent price increases.

A recent analysis estimated that on average 37,000 new housing units would be needed each year to 2036 to cater for the possible growth in population.

Of course, it is not only the physical availability of housing units which matters but also the price at which they are available and whether they are for the rental or purchase market.

The hope is that substantially increased supply will prevent continuing large price increases.

We can deal with our housing crisis.

The big confidence booster is that there is not fundamental skill, technology or expertise barriers to building homes.

We know how to build, notwithstanding issues such as mica, pyrite and inadequate standards.

But the housing crisis will not be solved without pain for many people. Taxpayers will have to pay more.

Local populations will have to accept additional units in their areas as opposed to resisting new developments.

The allocation of additional production capacity to housing may necessitate the deferment of other construction projects. Existing homeowners will experience lower property price appreciation.

We have a contradictory attitude to some aspects of housing. For many years the quality and structure of the rental sector was criticised.

There was a desire to replace small-scale providers with well-organised, large, knowledgeable and efficient providers.

But now, as these operations enter the market we criticise their acquisition of large numbers of properties on the basis of their profit-making approach.

Emeritus associate professor of economics at Dublin City University Business School, Anthony Foley.

It should be recognised that residences such as these would be rented to citizens to occupy, they would not be left empty. Every sector in the accommodation market provides competition to the rest of the market and displaces other market operators.

It is appropriate that the Government should be more involved in the direct generation of increased supply. It is too important to leave housing supply almost exclusively to the private sector.

Government can benefit from economies of scale. It can source funds at very low interest rates. Of course, it does not have to directly construct the houses and apartments.

Does the existing and potential future construction industry have the capacity to significantly increase the volume of house building in addition to other construction projects? If not, there will be a need to redirect construction capacity towards housing.

We do not want increased Government home construction to be offset by reduced private-sector home building. Government may have to cut back on other construction projects to shift capacity to home construction,

We can deal with the housing crisis but it will not be a quick fix. It will cause difficulties for other groups in society and all will not get their preferred housing type and location.

We need to state our expectations for the quality and accommodation level of social and affordable housing, we need to reform the planning process to significantly reduce the timeframe and cost involved arising from objections, we need to implement and inspect appropriate quality standards, and we need to identify the minimum cost for construction of appropriate quality units.

As a society, we must be prepared to carry and share the financial burden. And we need to do it quickly.