‘Affordability’ is the smokescreen concealing rip-off reality of housing boom

A RECENT theme in the discussion of house prices is ‘affordability’, which has apparently stayed the same despite the huge price increases.

This is true because interest rates have reached historic lows, but imagine going into a car dealership and being told: “Well, this car was €15k last year but, because interest rates are low, we’ve put the price up to €30k”.

I think you can imagine the reaction, and it wouldn’t be polite.

Despite the apparent silliness, that is exactly what’s been happening in the housing market and everyone seems happy about it.

For the moment at least, affordability seems to be the perfect excuse for expensive housing. It may be a fiddle, but it’s a great sales tool for developers and a way for people to convince themselves they’re not being taken to the cleaners by the developer.

There are two issues here. Firstly, people shouldn’t expect any refunds from developers if interest rates go up and prices come down. Affordability might stay the same, but buyers stuck with big 40-year mortgages won’t get any refund from the developer.

Secondly, such a discussion is only relevant because there are artificial restrictions on the supply of housing, otherwise competition would keep prices low and people could actually take advantage of low interest rates.

While places like Dublin — apparently due to previous planning corruption and planning errors — may actually have some real limitations on the supply of suitable land, the rest of Ireland has a limitless supply. Similarly, whatever the capacity of the Irish construction industry, the German industry could supply much of Ireland’s needs with thousands of warm, well-built houses delivered (already part-assembled) on trucks to your door.

There is no real practical limit to housing supply in most of Ireland, yet people are paying exorbitant prices for houses which are getting smaller every year. How can this make any sense?

In the interim, all these discussions about affordability in housing are supporting a lie: a wonderful smokescreen to keep people from looking at the underlying facts. Building a house is no more expensive than it used to be and farm land isn’t even worth as much as it used to be. Something is broken in our system — to the advantage of a comparatively small group of landowners and developers who have been making huge profits while Mr and Mrs Housebuyer are paying an entirely unnecessary bill.

Hugh Sheehy

Marina 48, 6-A

08005 Barcelona

Spain