JIM POWER: Jim Power: Housing policy based on shaky foundations

As we approach the end of 2016, it is clear that our weak and fractured Government faces immense challenges in 2017 and one would have to question its chances of survival. More pertinently, if it does actually survive, one would have to question if it actually has the strength and coherence to govern the country in a sensible and prudent manner. I fear not.

The public sector unions are jumping on the weak government bandwagon at the moment and are quite simply looking for pay increases that will either soak up all available fiscal resources over the next couple of years, or force a significant reduction in the quantity and quality of public services.

In an environment of scarce fiscal resources, there is a choice between increasing public sector pay, cutting back on public services, or increasing the tax burden. Different people will have different views on which of these choices would be preferable, but such choices will have to be made.

The behaviour of the public sector unions is understandable and predictable, but represents the very worst demonstration of short-term thinking. Against a background of an ageing population and a creaking public infrastructure after years of under-investment, it is clear that the natural demand for resources will increase exponentially over the coming years.

Few could argue with the notion that further significant investment in public services such as health, law and order, and education, as well as infrastructure, would be very desirable, but fiscal resources are scarce and hard decisions must be made. The public sector unions should have a voice, but should not be allowed to dictate the agenda.

Apart from these challenges, there is also the small issue of present and future housing requirements. Housing is now justifiably recognised as one of the key economic and social challenges facing Ireland.

Despite the unprecedented level of house building that occurred up to 2006, Ireland is now experiencing a significant shortage of social housing, owner-occupied housing, and rental properties.

In this year’s general election, housing was highlighted as a significant economic, political, and social issue and it forms a key element of the Government’s agenda. Following the formation of the Government, a minister with specific responsibility for housing was appointed and a detailed action plan for housing was subsequently published.

The overarching aim of this action plan is to ramp up delivery of housing from its current undersupply. The plan sets ambitious targets to double the annual level of residential construction to 25,000 homes and deliver 47,000 units of social housing in the period to 2021, while at the same time making the best use of the existing housing stock and laying the foundations for a more vibrant and responsive private rented sector.

In February 2015, the Central Bank introduced sensible and prudent guidelines to restrict the amount of money that the banks could lend to those borrowing for housing purposes, with a particular focus on first-time buyers.

Following what happened in the run up to 2007, these regulations represented a very sensible step. Alas, many powerful interest groups in the property and construction sector, not to mention many politicians, jumped up and down in anger, and they effectively achieved victory last week, albeit to a limited extent.

Starting in January, the Central Bank will change its lending regulations in response to intense political pressure and a sense that the lending guideline introduced in February 2015 were having an inordinate impact on first-time buyers in Dublin, in particular.

The measures that were introduced in October’s budget for first-time buyers, which have yet to be fully clarified, and the modest amendments to Central Bank regulations last week, will just serve to strengthen demand in the market and will risk sending house prices higher.

Opponents of the Central Bank’s formerly prudent approach have argued that higher prices will elicit more housing supply.

While higher prices may elicit increased supply, they will in the meantime create significant difficulties for those struggling to get on the housing ladder. It would be more appropriate to focus exclusively on improving the economics of house building through the relaxation of development levies, access to cheaper financing, a reduction in the Vat rate, as well as speeding up the planning process.

But try telling that to our political system.


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