THINK THE GOVERNMENT has a clear-sighted policy on housing?
Impressed by last week’s choreographed media leaks suggesting that building output could double in quick time, taking 60,000 idle workers off the dole?
Don’t hold your breath.
The government owns the banks that could drive the recovery but those banks are run by people who are sitting on their hands. The scale of the damage that needs to be undone is awesome.
Post-2007, the house building industry did not decline, it imploded. Mortgage credit dropped from €40bn a year to €3bn and shows no signs of growth. The number of new house completions sank from 93,000 in 2006 to 9,000 right now. Those builders still at large were exiled, bankrupted or co-opted into the State-funded asset run-off programme, Nama.
Now the theory goes that an equally rapid resurrection is to follow. Builders will suddenly emerge from the ditches to soak up vast pools of unskilled labour. Armed with development capital from hedge funds they will treble housing output to 25,000 units by 2016, operating on much tighter margins than they earned during the boom. They’ll even arrange alternative mortgage finance for house purchasers.
In short, you are about to witness an economic and social miracle performed for the political elite by a re-invented private sector.
Driving the process forward will be new policy measures including an end to the 20% social housing obligation, an end to development levies, a faster planning process and a new tax on unused land to be imposed by local authorities.
Levies and site taxes
Development levies which hit €17,000 a unit in north Dublin during the boom were supposed to pay for local infrastructure. Now the councils have Local Property Tax (LPT) instead. So, yes, kill the levies, by all means.
But this won’t alter the economics of building. The levy was added to the price of a house or apartment and paid by the purchaser, probably out of borrowed money. It was never paid by the builder.
The LPT is a self-assessed full value tax on dwellings. Revenue rules exempt property not fit for occupation from that tax. But there’s no tax or levy on unused development land, the very existence of which may impose costs on local authorities.
Now, government may force those holding unused, zoned land to pay a site tax to local councils.
Taxing sites or land makes good sense. In Britain the proposal for a land tax is a respected economic philosophy called Georgeism.
A site tax does not penalise people who improve existing property, as the LPT will ultimately do. But it could force holders of land to use it or pass it to others. And this could be critical to any recovery. At the top of the boom, site costs accounted for 40% of the price of a new home: we don’t want to return to this horror.
There are two big questions, however. First, the government – including Nama – could become the biggest payer of site tax leading to significant cash flows from the Exchequer to the councils. Second, why did we not introduce a comprehensive site tax which induces good behaviour instead of the LPT which penalises good behaviour when we had the chance in mid-2013?
(The following video shows Dublin Lord Mayor Oisín Quinn moot a vacant site levy to TheJournal.ie in an interview back in July 2013:)
TheJournal.ie/Youtube
Social housing
This government, like its predecessors since the mid-1980s, has not got the stomach to build a new generation of social housing.
We never had Thatcherism in Ireland but we sold off council homes with an enthusiasm unmatched even in the most Tory boroughs of southern England. And unlike the English we never developed not-for-profit housing associations that act as a kind of ‘middle way’ between private landlords and the state. Housing associations now control and maintain nearly two million good quality homes in Britain.
Neither did we make serious efforts to use the monies controlled by pension funds to develop a large stock of new, privately-owned rented property.
When we had finished asset stripping the inherited public housing stock, we shifted the moral obligation to house the poor and the less well-off to developers, using a legal device called Section Five.
This, if it had been enforced, would have obliged the builders to allocate 20% of newly completed homes to ‘social and affordable’ housing. It did not really happen. Some builders bought out their obligations under Section Five. And it certainly did not augment the depleted stock of public housing.
Not surprisingly, we have 90,000 on the public waiting lists today. We have a similar number of people claiming supplementary rent allowance from the Department of Social Protection at a cost which is north of €500m a year.
If this persists the Irish government, which has not got the bottle to build modest homes, will channel €5bn in rent subsidies into the pockets of private landlords in the next decade decade. If that €5bn was put into a leveraged fund, which also enjoyed strong cash flow from rents, it could meet the public housing needs of the next generation.
The measures suggested by government in last week’s media leaks will affect local authorities and their finances. But they won’t transform a building sector that is on its knees.
The rental market
Tick the box? Vacant private accommodation is in short supply. Housing image: Shutterstock.com
The housing policy muddle reaches its zenith when you turn to the private rented sector.
There are 127,000 Buy-to-Let (BTL) mortgages in existence, mostly advanced by banks which are owned by or answerable to the Irish or UK governments. Some 34,000 or almost 27% are in arrears, most for long periods. These mortgages financed speculative investments by those who now legally own rented property.
The owners of this BTL property are protected by the voluntary Code of Conduct on debt forbearance agreed between the banks and the government. No similar protection is afforded to those who rent property from the same private owners.
As set out above, the State is also paying (via rent subsidies) a very sizeable proportion of the rents collected by private landlords.
The supply of vacant private accommodation is tiny. The state has no plan to compensate for this shortage: instead it has eviscerated the Public Capital Programme which used to build social housing.
Tracker mortgages
Permanent TSB launched a mobile tracker mortgage last Thursday. This is a welcome development which may improve mobility in the housing market. But study the fine print and you’ll see that the proposal is stacked in favour of the bank.
There’s no write-off, no lump sum paid as an inducement to the borrower to make the change.
Anybody trading up under the new scheme will keep their tracker for the remainder of its lifespan. But they’ll pay an extra 1% margin on top of what they pay already, thereby cutting the net cost of the product to PTSB.
The bank in turn will lend the borrower a top-up mortgage at the Standard Variable Rate, which yields a profit.
The original home of the borrower goes onto the market, improving the supply of housing, perhaps providing a further lending opportunity for the bank.
Good. But not great.
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