How should the Government address the housing crisis?

With rents rising, we asks experts what they think needs happen to ease the housing crisis.

Audit the costs

Ronan Lyons, Economist at Trinity College Dublin and author of the Daft.ie report

How should the Government address the housing crisis?

We know that investors involved in renting out accommodation require a net yield, or annual financial return, of at least 5%. The maths of finance means that once we know this, we can scale up from the monthly rent to construction costs. A monthly rent of €1,300 converts into upfront construction costs of €260,000.

Even if the developer required land for free, it is not possible to build either a two-bedroom apartment or a three bed semi-detached house in Ireland currently for €260,000. There is a fundamental problem in construction costs in Ireland being too high relative to our own incomes.

The first item on the agenda needs to be a government-sponsored audit of construction costs for the most common types of homes built in Ireland. This should be done not only for Ireland but also for other countries, including Northern Ireland, England, Denmark, and other economic peers.

This will firstly create a consensus on construction costs. Perhaps more importantly, this will also identify the three, four or five policy measures that would have the greatest impact in bringing construction costs back in line with real incomes.

There are three core issues (in the housing market) that need attention from policymakers. Construction costs; social housing — how we subsidise those on lower incomes who, even if we address construction costs, will not be able to cover the costs of their accommodation; land use — tendency in this country is building more housing estates further away from the urban cores but that is not always the solution.

Switch focus from effects to causes

Pat Davitt, CEO of the Institute of Professional Auctioneers and Valuers

How should the Government address the housing crisis?

IPAV strongly supports the Daft emphasis on the need for urgent attention to building costs.

However, an equal focus needs to be given to the cost of finance for builders by making building finance available at interest rates of between 1% and 3% and the need to change the remit of Nama so that more properties become available to Irish residents and that the acquisition of properties by vulture funds be conditional upon their building an equal number of units to those which they acquire.

The issue has been bedevilled by a lack of overall focus with the emphasis on the downstream effects of the crisis rather than the causes.

IPAV last week told the Dáil committee on housing and homelessness that mezzanine finance is available at exorbitant rates of 15% to 20% and all such costs are passed on to the house buyer.

A Government finance scheme for builders who may wish to participate in an agreed price building scheme (APBS), which would be in the region of €100 per sq. foot, excluding site costs and works, could slash €25,000 from the cost of a home. The monies would be repaid to the Government as the properties are sold.

How should the Government address the housing crisis?

Tax treatment driving landlords from sector

The fundamental difficulty in the sector is the tax treatment. The State takes approximately 60% of rent in taxes and charges. It is the State that mainly benefits from increased rents, which may be the reason that the State has not addressed the issue. However, tax treatment is driving many landlords from the sector and the losers are tenants. For every two investment properties sold only one is returning.

Landlords are selling investment properties because it is not sustainable to keep them and the private rental sector is at a loss going forward.

We ask the new minister to review the housing standards to allow for the letting of bedsits with designated bathrooms solely for the use of the unit. This would allow for some people currently in hostels to have homes. There is a large amount of housing stock lying idle and no one has tackled the matter. Local authorities must join with property owners and put initiatives in place to facilitate the refurbishment of empty properties which would increase the supply of rental accommodation considerably.

Infrastructure

How should the Government address the housing crisis?

The housing supply crisis that is driving up rents across Ireland cannot be solved without first addressing the infrastructure gap.

Without addressing both housing and infrastructure, Ireland risks embedding the two-tier recovery permanently where the Greater Dublin region surges ahead and our rural economy stagnates. In this scenario, rents will continue to rise because we do not build houses in towns and villages that are adequately serviced by roads, rail, broadband and water.

The Government has committed to ramping up supply to 25,000 houses per annum by 2020. We only began building 8,000 houses in 2015. For sustainable house building at this level we need adequate infrastructure to transform them into viable communities. House building, large estates in particular, require huge investment in roads, rail, broadband, water, and the other vital infrastructure to transform them into sustainable, vibrant communities. The programme for government envisages a €100m housing infrastructure fund being hived out of the public capital programme. This figure would appear inadequate to service the level of housing we hope to build. What’s more, this fund will be taken from the already inadequate public capital programme. An overall increase in infrastructure investment is required to achieve both. The CIF believes that the new Government must establish a fund through ISIF to provide affordable development finance to the construction industry so it can deliver on the housing and infrastructure to meet Ireland’s economic and social requirements.

Increase rent supplement and link rises to rate of inflation

How should the Government address the housing crisis?

Between 80 and 90 families are losing their homes every month in Dublin alone, and the key reason is that they can’t afford the rent rises already been imposed upon them.

If the new government is serious about tackling the homeless and housing crisis, immediate action must be taken to link rent rises to the rate of inflation and raise rent supplement so it reflects market rents, as this will help to keep families and individuals in their current homes and prevent them from becoming homeless.

While the proposed 15% increase in rent supplement agreed between Fianna Fáil and Fine Gael is welcome, Focus Ireland have warned that these latest rental figures show that it falls far behind meeting market realities.

It is simply too little too late and the Government needs to face up to the scale of the problem that hundreds of families face.

We recognise that increasing rent supplement and curbing rents are not the long-term solutions to our housing crisis, but they are the essential emergency responses to prevent the situation spiralling out of control while the long-term solutions kick in.

Borrow from European Investment Bank

How should the Government address the housing crisis?

There is one clear solution to the housing crisis: it involves the National Housing Agency borrowing up to €10bn from the European Investment Bank and elsewhere.

This is not counted on the Government’s balance sheet, in the same way as the borrowings from the ESB are not.

The NHA can get very low-cost money and lend to not-for-profit housing social enter-prises such as Clúid or Respond. Rents to tenants are charged at the low cost of borrowing without any extra margins. Rents can be increased or decreased depending on the economic circumstances of the tenant.

Long-term leases can be granted. Similar models are run in Germany and Austria — far more wealthy countries — and I think the rate of private home owners in Germany is around 45%.

The benefit of this scheme is that the Government does not do any borrowing and thus there is no impediment, except of course, the political will, and the fact that neo-liberal governments are keen to keep housing totally private, serving the needs of the construction industry, and in tune with their own ideological aversion to what could be perceived as increasing the welfare state.

Social housing needs innovative financing

As per the housing strategy, the focus has to be on building 25,000 houses between now and 2020.

Builders don’t have the finance they once did.

Before, the banks would lend 70% of the cost of a social housing project and they would put up 30% but now builders don’t have that.

The Government needs to look at innovative ways of financing social housing construction.

I would have no issue with a temporary reduction in Vat for builders if they could demonstrate that cost is preventing them from starting projects. Also, as we need to make more houses available for renting in the short to medium term while we are waiting for new housing to come on stream, there should be incentives for private landlords to more take in HAP tenants.

Local authority rental income should also be ringfenced for spend on housing stock and improvements so there isn’t such a delay in re-renting homes. Also as a housing agency, we have no problem accessing finance from the Housing Finance Agency (HFA), but we need to be able to access it faster.

There is a case for linking rent increases to the consumer price index (CPI) as rents have gone beyond the ability to pay of many.

Also, the Central Bank rules mean that aspirant house buyers will live in rented accommodation longer and need security of tenure.

Even if rent was linked to the CPI for a short period until more social houses come on stream, it would help.

 


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