HOME-OWNING PARENTS need to accept a drop in their property values for their children to be able to afford to buy a home, Ciarán Lynch, who chaired the Joint Committee of Inquiry into the Banking Crisis has said.
Speaking to The Journal, Lynch noted parallels between the current situation and the run up to the 2008 crash.
While noting that the situations are not the same, Lynch warned of grave knock-on consequences if the housing crisis was not managed.
“I see the societal problems coming down the tracks – albeit, maybe with a different complexion – but a disaster nonetheless, like we had in 2007, if this problem isn’t fixed,” Lynch said.
“We are hitting a space – particularly with interest rates being set by the ECB and all the rest of it – where affordability will cease. What we’ll see then is a halting of house construction because the only people that can get in there are people who are investing, not people who are buying for homes.
“You could call that a manufacturing crash, no one can buy the product anymore.”
Lynch pointed out that there was a stark generational divide in housing, and claimed that the “absence of a national, residential house-building programme for the last 10 years has brought us to where we’re at”.
“The housing market is never neutral,” Lynch, who also served as a Labour Party TD for Cork South-Central until 2016, told The Journal. “There are people who will always do better than others.
“And the people who have been doing best over the last 10 years, have been those who own property, have acquired property and have been renting out property.
“People who’ve been trying to buy homes have been the losers in the market since the crash. There was a massive missed opportunity around 2011, 2012, 2013.
“That was the time that we should have been building new houses, when the cost of building was cheap. And when there was still demand. In fact, after the crash there was still demand, but people just couldn’t get access to credit.
“Any child born after 1985 is in a serious dilemma right now,” Lynch said.
“They can’t afford to buy a house and they’re paying extraordinary rates of rent that they will never be able to meet when they’re retiring. So do we kick this can down the road for another 10 to 20 years?
“When the time comes when they hit the pension age, they will not be able to afford to rent in the private sector.
“They can’t afford to buy a house and they’re paying extraordinary rates of rent that they will never be able to meet when they’re retired.”
Lynch also said that billions of Euro worth of rent was transferred from people born after 1985 – who are “income wealthy, but asset and security poor” – to their parents’ generation each year.
Lynch said that the massive increase in the price of recently mortgaged property, or equity, seen before the crash was similar to that seen now, and reducing this was key to avoiding future problems.
“In the early noughties, everybody was saying ‘I bought my house six months ago. It now costs €50,000 more if you were to buy it today’.
“That is something that was happening in the noughties and that is something that’s happening now.”
The former Labour TD said that more moderate increases in house prices would be a sign of success.
“What we should then see is house price inflation being a very low figure on an annual basis,” said Lynch.
“But we’re not seeing that now. We’re actually seeing it at very, very high figures.”
While Lynch told The Journal he is “not one for giving tax breaks to developers or to the building industry”, he said he would be “very interested in looking at tax relief being applied to construction firms to innovate, modernise and create better efficiency in how they build”.
“With our housing, the installation and the energy rating and fireproofing requirements and the rest of it has become more regulated.
“The construction industry has not been able to adapt its building model to actually deal with those requirements and has led to further costing as well,” Lynch said.
“What’s happening on the continent instead, is a lot of the manufacturing processes of our construction are done off-site and put together on-site.
“You’re getting quality assurance. You’re getting in a more efficient and cost effective means of construction.
“And you’re also enabling people who work in the construction industry to be able to work in a better environment, as opposed to being out in the cold in the middle of January.”
Lynch, though not a fan of Henry Ford of Ford Motor fame, said that he was interested in one of his principles: “the people manufacturing the product should be able to afford it. And what happened in the lead up to the crash is that houses actually moved beyond affordability.
“The question is really: what is it that you’re trying to avoid?” Lynch said. “Are we trying to avoid a crash of property values? Or are we trying to ensure that people have affordability in terms of being able to buy their home?”
To embed this post, copy the code below on your site
have your say