Time to get serious about addressing the housing crisis
An adequate supply of new homes delivered annually over the next five years is crucial in tackling the housing crisis and is essential for our economy, says property developer Michael O'Flynn.
No problem can be solved until it is confronted. The housing crisis is no different. There can only be meaningful resolution if we face certain realities and make some radical changes. The real issue is whether there is an appetite for those changes.
I sincerely wish that we would begin to deal with this prolonged housing crisis in the same way that we have so successfully dealt with Covid-19. The response to the pandemic has seen fast and major decision making, urgent action, weekly assessment of performance and above all joined-up thinking across Government.
While a long-term solution was being developed by the best talent across the private and public sectors, short-term solutions were put in place to protect members of our society, particularly the most vulnerable.
Had we seen a similar approach to the housing crisis in recent years we would be in a far better position today and we would certainly be out of intensive care! Put simply it’s time to stop debating, it’s time to deal with all the blockages in a coordinated fashion so we can focus on a complete solution for all.
The delivery of a complete housing solution requires a holistic approach to deal with the many blockages to housing delivery including affordability and viability, the outdated and complex planning system, lack of infrastructure, cost of construction, cost of finance and density guidelines. I don’t believe any solution will work without some flexibility from the Central Bank on the macro-prudential rules which go to the heart of the affordability issue.
An adequate supply of new homes delivered annually over the next five years is crucial in tackling the housing crisis and is essential for our economy. In a competitive global economy, an insufficient supply of affordable housing is a huge disadvantage for Ireland.
Last year, new housing completions amounted to just over 20,000 units and this year the figure is likely to settle somewhere between 17,000 to 19,000, a good result considering that the sector was shut down unnecessarily due to Covid restrictions.
However, these results fall well short of the target required to address the shortage of supply in the market. The Government target and one held by many observers is in the order of 35,000 new homes per year. In reality, the longer we under-supply on the 35,000 units required annually, the greater the number of units we will be required to deliver year on year to make up the shortfall which will only serve to compound the supply v’s demand imbalance for some years to come.
A key component to increased supply is certainty of policy. For too long, housing has been used for political point-scoring. The cost has been uncertainty and further stagnation. Responsible cooperation towards consensus is now required from our politicians. Those who continue to denigrate initiatives designed to assist delivery must be called out and asked to articulate alternative policies which are stress-tested against potential for immediate delivery in sufficient numbers.
One of the astounding things about property is the number of people who know very little about it but yet have an incredible arrogance about their opinions. The property market is extremely sensitive to intervention and, unless the impact of those interventions is fully understood, they can exacerbate rather than improve the problem.
Those who have decades of experience do not have all of the answers and obviously vested interest has no place in policy formation, however, ignoring the wealth of experience available from those who have actually delivered housing is inexcusable.
Clearly, more public investment in housing is required but that does not mean that housing must be delivered by public agencies. The important outcome is obtaining value for public investment and ensuring affordability of the end product. Achieving this without adversely impacting the supply of private housing requires understanding and sensitivity to the market.
When assessing the cost of the delivery of housing units by public authorities, we are fooling ourselves and deceiving taxpayers if we do not include all the costs including finance, administrative etc. Equally, any agency involved in housing delivery must be subject to performance audits, both in terms of cost and timescales.
Viability of housing delivery rarely grabs the headlines or the attention it deserves even though it is key to addressing the supply shortage and affordability. Tackling viability is crucial if we are to start meeting our supply targets. There are many factors that influence viability.
For example, land, the main raw material in the cost of a house, is too expensive and there is a shortage of serviceable land which is available to the market. The IMF recently called on the Government to release more land for housing and to reform the planning system. I am concerned about the availability of suitably serviced land for housing, and I believe that we may have as little as two years of land supply left. Clearly this needs to be addressed as a matter of some urgency.
Brownfield development is, of course, essential but very often it is not viable. Well-meaning people are striving for perfect environmental sustainability. But perfection may come at the cost of productivity and of economic and social sustainability.
Planning policies which disregard viability are extremely problematic and those insisting on such policies must be made to answer for their role in the exacerbation of the crisis.
If there is a willingness to subsidise brownfield development, then such subsidisation is urgent. If there is not, then until a long-term resolution to viability is identified, alternative solutions must be found to meet short-term demand without compromising the plan to render those brownfield locations viable for the medium and long-term delivery.
The lack of investment in infrastructure which is a key enabler to building new supply urgently needs addressing. I am personally aware of many developments both with planning permission and those planned that are stalled due to capacity issues with the Irish Water infrastructure. This is no fault of Irish Water and is a major issue which Government needs to immediately inject substantial investment into the state body to resolve the current demand and to safeguard for future capacity.
A more recent development impacting the supply of new homes is the alarming increase in construction costs which is now becoming a major problem. We have seen an ongoing rise in building input prices and this is very worrying in a sector where build costs are already too high.
The prices of building materials such as concrete, timber, insulation, steel etc have been rising due to a number of factors. Some of these are Brexit related and some due to global supply issues.
It is vital to the supply of housing that costs are kept under control because ultimately it impacts the end price to the house purchaser. Investment in training courses and re-establishing trades as attractive career options are essential.
The macroprudential rules set by the Central Bank in relation to mortgages provide a perfect example of the sensitivities of the housing market and of how interventions can have unintended consequences. The macroprudential rules limit the ability to borrow to a multiple of income.
The gap between the cost of delivering an average house and the maximum amount the average person can borrow has excluded a huge cohort of our society from taking on a mortgage to assist home ownership. There are no rules, however, which limit the proportion of income which may be applied towards rent.
Those who are excluded from home ownership are trapped a cycle of high-cost rent and inability to save. A recent ESRI study found that, in addition to poorer prospects in the labour market, a growing share of young adults are facing high housing costs.
The report found that home ownership rates for young adults have collapsed — from over 60% at age 30 for those born in the 1960s to less than 20% for those born in the late 1980s — leaving them more exposed to rapidly rising rents, especially in urban areas.
The macroprudential rules have played a major part in the collapse of home ownership rates and in the consigning a generation of our citizens to the application of their earnings to high-cost rental rather than home ownership.
I am not for one minute advocating that we abolish the macroprudential rules, but I do believe that the current 3.5 times loan to income ratio needs to be reviewed as it does not in my view account for external factors which are influencing the volume and the current cost of supplying housing.
Other jurisdictions have a 4.5 multiplier and, indeed, some others are even higher than that. The key question is how much of a purchaser’s salary should be allocated to mortgage repayment and this is a far more important test than the multiplier currently in existence.
Helping first-time house buyers is directly linked to the supply issue. The Help to Buy and Shared Equity schemes are two vital initiatives in this regard. Here certainty is key for the house purchaser as it is to those investing in housing delivery. I believe the Help to Buy scheme should be extended to 2025 at least as the current regime of extending for a year or two is too ad hoc.
The first-time buyer needs a reasonable time to save and equally needs to know that the grant will be available when they come to purchase their first home. Equally the Shared Equity proposal being brought forward by Government is crucial as it will result in many more purchasers being in a position to purchase their first home, thereby taking them out of the trap that is the rental market.
I am really concerned that a whole cohort of people will arrive at pension age and not be able to pay rent on a reduced income. It is critical we start dealing with this future problem.
With regard to the Cork Housing Market, the reality is the same as it is nationally. All of the above points such as lack of serviceable and available zoned lands, viability and affordability also apply in Cork. Having said that I do believe that we have a unique opportunity locally to deal with the supply issue.
The current review of the City Development Plan, including the area recently included as part of the boundary extension of the City, presents a fantastic opportunity for the Local Authority to have the vision to provide for the zoning of land at strategic locations. This vision would greatly assist in providing the raw material for housing in Cork.
Policies that accommodate residential development solely or principally in uneconomical brown field sites would be a retrograde step and one I believe we would live to regret as it would only serve to intensify the already strained supply chain of new homes and disadvantage Cork as it competes for international investment.
I fully support the need for a vibrant City for Cork., Much as I support a vision for brownfield development, it is unrealistic to consider that City centre brown field sites will deliver the short to medium-term solution to the current housing crisis in Cork.
Higher density development of these sites must remain part of an overall plan but the reality is that, currently, they are simply not viable to develop. Apartments are the most expensive and unsustainable type of home to deliver and current rents achievable in Cork City, even at current unsustainable levels, would not merit their development.
Until a means of dealing with the viability of delivering housing on these sites is found, we urgently need green field sites located in Metropolitan Cork, located within both the City and County Council administrative areas.
There is no one solution to solving the housing crisis. The solutions are complex and require informed and sensitive management. I have always readily accepted that private housing developments alone will not solve the housing crisis. Neither, however, will public agencies alone solve the housing problem. A joint approach involving the state and private developers is needed and the potential impact on each of policy proposals needs to be gauged.
We need data in relation to demand and preferences for housing types, in terms of structure, location and tenure. We need a national housing strategy which, having regard to reliable data, to viability and to availability of public and private investment, sets out short-term and long-term plans as how we will deliver the required housing at affordable prices or at affordable rents.
We must act now in pandemic style mode to remove the roadblocks to the supply of housing. We must develop meaningful policies for both short term and long-term delivery and provide the necessary supports to make homes affordable to all.
The establishment by Minister Darragh O’Brien of the new proposed Housing Commission could be the vital step in a new way forward on housing delivery. Change will not come if we wait for someone else to enact the change, we are the ones that must act now to bring about the change for the benefit of current and future generations.
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