We're very used to reports on the Irish housing market from the country’s economic think-tank and the number crunchers at the Economic and Social Research Institute (ESRI) – but, one report out at the start of this month, June 2021, appeared to be quite different.
Instead of looking back, or forward in a short time frame, it took quite a seismic shift, in making a case for the Irish Government to take advantage of the windows of continuing ultra-low interest rates to run the country’s books at a fundable deficit of €4bn-€7bn a year and invest in capital infrastructure, most notably to fund construction of social and affordable housing on a scale not seen for decades — possibly for over a half-century.
In what may be a significant (yet, non-political) intervention into the area of policy, the ESRI has suggested that the Government fund the construction of new housing to the tune of €4bn a year, twice the 2021 Budget allocation of €2bn, which was to fund 12,750 units, the majority to be built, some bought, and over 2,400 leased.
The report came as the country (like just about every other country in the world) necessarily got a taste for borrowing on an unprecedented scale to weather the storm of the global Coronavirus pandemic, necessary to keep an economy from going over a precipice; necessary to keep businesses on a lifeline until the worst of the pandemic passes; vitally necessary to enable individual and families to put food on the table, and as vital to keep a roof over their heads.
The ESRI made the case for the enormous Governmental fiscal boost to the Irish housing sector at a time when governments, economies and economists reassess the whole basis of debt vs credit and the normal rules of fiscal rectitude seem to be heading out the metaphorical window, into expansionary fiscal policy for a post-Covid-19 era, ignited in a time of low, and even negative, interest rates.
It also made the case against a backdrop of figure showing marked slump in new homes supply across the board, with supply lagging demand for the best part of a decade.
Noting the generally high cost of housing in Ireland, and the impacts of such high costs on household incomes and in turn on wages, the ESRI acknowledged that ”without significant investment in residential construction, we risk experiencing another decade of inadequate housing supply and resulting upward pressure on residential prices and rents.” This is at a time when we need 35,000 units a year across all tenure types, home to buy, homes to rent, homes to be provided by the State, and as the impact of the proposed new Affordable Housing provisions are awaited, with supply/delivery under this new model possible by later this year.
Supply to date since Covid-19 imperilled our housing stock (as much as it did public health), fell further thanks to the combined negative impacts of repeated lockdowns, supply chain blockages thanks to Brexit as well as to the virus, rising materials prices and labour shortages: we’ll be very lucky to produce 18,000 homes by this year’s end, less than the 20,000 which managed to get built in 2020, so in broad brush strokes, output will be not much more than 50-60% of estimated annual need.
And, as each year’s supply levels underperform, the pressure on the demand/need side escalates further, adding to the imbalance, impatience, and to the lives on hold.
The most recent Central Statistics Office (CSO) figures on the construction sector show that in the first quarter to 2021 (Q1) the volume of new home completion plummeted 52% compared to the same quarter in 2020, with residential sites largely furloughed by the long lockdown since Christmas.
It wasn’t just the on-site delivery that collapsed at the year’s start, as within days the CSO was also reporting that grants of planning permission for new homes had also been slashed by as much as 50%.
Even though planning approvals don’t immediately translate into housing starts, the (temporarily induced, hopefully) trend is deeply worrying: there were 6,960 units approved in the year’s first quarter, with apartments slightly the higher volume than traditional houses (3,874 apts vs 3,089 houses) and one-off houses accounted for 23.9% of these.
It’s all likely to translate into even higher frustration levels for all of the participants in the housing sectors, from buyers to builders, to renters, and to those hoping for a State intervention to help them with a home.
The ESRI has acknowledged the private sector’s inability to meet current housing demand over a number of years, for a variety of reasons including overall costs.
Surely the high values attached to/allowed for of land will have to be addressed sooner or later as our overall house prices and, indeed, rents, are at the upper end of the scale for western societies?
Difficulties with financing remain, post-crash (up to 80,000 units were being built in a year about 2006/07 when things spiralled out of all control and beyond sanity levels thanks to easy credit), and as the State takes a bigger portion of output, there’ll be less for the private purchaser/home buyer segment: “private sector housing supply is likely to be less than 10,000 units for both this and next year,” the ESRI posits, while saying that its policy recommendation of a doubling of investment in State-provided housing to €4bn could result in 18,000 homes for this sector of society.
Should the Government choose to follow the logic of this report (as it should), it could be a game-changer across all of Irish society. The Government has already acknowledged that housing is now – Covid-19 notwithstanding – its No 1 priority.
In effect, it has been green-lighted to borrow and spend on an area that otherwise will come to bite its component parties hard, in the next General Election, and that approval is coming from an esteemed economic body the has not been shy in the past to condemn expansionary spending for political gain or purposes.
A paradigm property, political and housing provision pivot awaits: nothing less will do.