Are we dysfunctional when it comes to housing?
A variety of indicators suggest that we as a nation are not creating enough new houses to meet the demands of our population.
The effects of this are perhaps magnified across the more marginalised elements of our society, hit worst by house rental prices increasing in some cases by double digit percentages over the past year.
The highly useful information published in DAFT’s National Rental Index shows that the average asking rent has increased by 8.5% nationally.
Meanwhile, the number of units available to rent has decreased rapidly, to almost record low levels.
On the ground, the effects of the squeeze have manifested in an increase in the numbers of families becoming homeless.
Likewise, third level students have faced their own challenges in sourcing affordable accommodation.
Just this week, four of Dublin’s local authorities have put pre-fabricated homes on display, as their potential solution to the homeless crisis in the capital.
In 2014, just 7,710 houses commenced construction, this is about 10% of the level of commencements of 2006.
It’s over a year ago since the ESRI’s Summer Quarterly Economic Commentary predicted that house prices and rents would continue to rise, with house prices expected to rise at about 6.5% per annum from 2014 through to 2017, due to the shortage of housing supply.
That report suggested that the underlying “structural demand” for housing is about 25,000 to 30,000 units per annum.
Figures released by Fianna Fáil in the past week put the number of persons waiting for social housing at a startling 130,000, suggesting there is a serious pent-up appetite for housing.
Ultimately, the solution to this housing crisis is to ramp up the supply of new residential accommodation.
It is interesting to note that NAMA was responsible for underpinning 40% of Dublin’s new housing supply in 2014, which suggests that without their support the number of houses built would be significantly lower that the meagre level of just 7,710 units last year.
The supply of new residential units depends on access to appropriate sites, availability of planning permission, access to capital, skilled labour and materials and, of course, a market with buyers willing to pay a sufficient price for new houses which will leave a profit margin for the developers involved.
To address the crisis, each of these elements should be examined, to determine what obstacles exist, how can they be removed or mitigated with appropriate policy.
Tax policy in this area can give a stimulus to this under-performing section of our economy.
On the availability of land, a reduced rate of capital gains tax of 20% has been proposed by the Construction Industry Federation, to encourage land owners to offer development sites for sale.
Meanwhile, it has been suggested that developers and investors could be charged annual rates on lands which have been granted planning, this would act as a disincentive to holding onto land banks for long periods of time without carrying on development.
The government could also consider broadening tax reliefs, such as the recently introduced “living city initiative” which offers tax relief for regeneration of specific areas of Dublin, Cork, Limerick, Galway, Waterford and Kilkenny.
This scheme could be broadened, similar to the previous country-wide refurbishment scheme.
A scheme which would grant tax relief for restoration of buildings out of dilapidation would have the advantages of bringing existing housing stock back into use, improving our landscapes and cityscapes, and would be likely to result in a quicker turnaround of new housing, as planning permission may be easier to attain.
Sticking with tax, investors could be encouraged to buy and rent out residential units, through tax incentives such as restoring the tax deductibility of mortgage interest relief back to 100% (it’s currently 75%), and granting tax allowances on a temporary basis aimed at those purchasing new houses or restoring unused houses.
Such a scheme would avoid competition between landlords and first time buyers.
Access to affordable finance remains a significant obstacle to both developers and home purchasers.
On that point, the most recent ESRI Quarterly Economic Commentary suggests that our higher standard variable rates for mortgage lending owe much to the weak levels of competition currently in the Irish financial sector.
As Budget 2016 approaches, hopefully the Government will take all-round action to address our dysfunctional housing market.
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