Innovative thinking needed on housing

THERE is a country where house prices have spiralled out of all proportion to inflation, where home ownership is no longer within reach of the average-wage family and where heads have been scratched bald in bafflement over what to do about it.

Mortgage interest rates have halved in the past decade, with the response that borrowers doubled their loans, driving a demand for houses that policy makers failed to anticipate and landowners and developers were too slow to match.

Marriage numbers have been on a downward trend, resulting in more single people looking for homes of their own. Job security has lessened so more people are anxious to have property as a pension.

In addition, something in the national psyche compels the citizens to want their own patch of earth and see their own bricks and mortar rise upon it. Renting is just no substitute.

It sounds like familiar territory and indeed the description does apply equally to Ireland, but the country in question is Australia, where a major public inquiry is underway to find out what can be done to ease the problem.

After thousands of pages of submissions and hours of public hearings, the Productivity Commission, the government's research and advisory body on economic and social issues, is due to make the findings of its Inquiry on First Home Ownership known at the end of March.

The Government here has gone down the research route already, although in a more restricted manner. The much-hyped Bacon Reports, published between 1998 and 2000 and containing proposals for changes to taxation, grants and stamp duty, produced a lot of sizzle but little substance.

The Planning Acts were the next target for intervention but the plan to force developers turn over 20% of their stock to the State for distribution as social housing proved just too radical for investors and developers.

Amendments were made to the offending legislation but developers are still smarting and while the Department of the Environment says it expects the impact of the initiative to be seen in the form of significant numbers of homes on sites this year, some observers believe some developers are still preferring to sit on land rather than hand over a chunk of it for free.

After fiscal policy and legislation, the only other area left to try in search for a solution was the Constitution. Articles 40.3.2 and 43 collectively declare that the State shall vindicate the right of the individual to private ownership of property and guarantee no law will be passed to abolish the right to sell such property or otherwise pass it on or inherit it as they choose.

There are provisos, however, which allow the "principles of social justice" and the "exigencies of the common good" to take precedent over individual rights compulsory purchase orders (CPO) would not be possible otherwise but in practice the landowner and the free market determine the value of any piece of land.

Over the past 10 years, local authorities on tight budgets competing with developers with endless investment capacity have been pushed so far out of that market they have not been amassing land for social housing.

The requirement that land acquired by CPO be paid for at market value is a serious drain on resources. A local authority trying to get land for housing, or to build roads and other infrastructure that would allow it rezone private lands for residential development and so increase the supply of private homes, has to haggle over the price in the knowledge that the land owner will argue it should be based on its development potential rather its existing agricultural status.

Taoiseach Bertie Ahern responded to this dilemma by asking the Oireachtas All Party Committee on the Constitution to examine Articles 40.3.2 and 43 to see if they would prevent the legislature changing the CPO regulations or intervening in the land market in other ways.

His request, received by the committee on February 29, 2000, asked for submissions by the end of last May and, during July, it began a series of hearings. Its final report and recommendations were due by the end of last year, but although the draft is ready, the final version has been delayed and the most recent prediction is it will be published in late March.

By contrast, the Productivity Commission in Australia were handed their terms of reference last August and will have their report out on March 31. "It makes watching paint dry look interesting," says Ciaran Cuffe, the Green Party's spokesman on housing and member of the committee.

"It's been a long drawn-out process and a lot of people have been suffering in the meantime. The request by the Taoiseach to look into the issues of housing was received four years ago. In that time the price of housing has gone up by 50%."

Even more frustrating for those who would have hoped for a faster approach is the fact the committee is going over old ground, reviewing recommendations first put forward in the Kenny Report of 1971.

And they have come to the same conclusions that radical changes can be made to legislation without the need for a referendum to amend the Constitution. Their recommendations will be wide-ranging, covering everything from scrapping ground rents to stamp duty relief for empty nesters trading down.

Most importantly, they have all but rubber-stamped a "use it or lose it" price-capping proposal that the law be changed to allow local authorities buy up unused private land for residential development at agricultural prices plus 25%.

The committee can only say what can be done, however, not what should be done. That's up to the Government, but even if it were to announce legislative changes in the near future and the anti-cap PDs and the desire to avoid controversy coming up to local elections have to be considered there is a question over whether it matters at this late stage. The construction industry has long argued that the only way to tame house prices is to increase the supply of houses to match demand and, at last, it seems the two are balancing out.

Department of Environment figures show a record 69,000 new homes were built last year, three times the figure in 1993 and double what was built in 1996. If output continues at this level over the next three to five years, house prices will moderate with annual increases of 3-4% predicted rather than the 10-15% of the last year or two and the 20%-plus of previous years. But just 5,000 of the new homes started this year will be council houses and, at best, there will be only 3,000 affordable housing units begun so the pressure is still on the private market to supply the bulk of new houses and the pressure remains on the home-seekers to try to find a house through the private market.

For many home-seekers already priced out of that market or on the verge of exclusion, any price increase, no matter how small, is too much.

Lucinda Creighton, a local election candidate for Fine Gael and member of the Housing Forum set up as one of the conditions laid down by the unions under the Sustaining Progress national wage agreement, did a survey of her Dublin South East constituency last month which showed 89% of businesses were losing staff because of lack of affordable accommodation.

She says the high-rise, high-density approach to building in urban areas may be the only way to bring about real price reductions.

Borrowing ideas from abroad could provide part of that mix. As the Productivity Commission in Oz nears completion of its inquiry, the National Economic and Social Council (NESC), the Government advisory body on social and economic issues in this country, is also close to finishing a review it has been working away quietly on since last summer.

Both reports are due in the coming weeks and should make for illuminating reading or, at the very least, a welcome diversion from the property pages.