LAST UPDATE | 5 May 2021
THE PUBLIC IS right to be enraged and worried about global investment funds buying up entire estates and apartment blocks. These homes are going to be rented out at inflated rents forever and will lock out those seeking to buy a home.
The Government has been called on to do something to stop this. Even Fianna Fáil politicians have come out crying crocodile tears of outrage. But the truth is the investor purchase of housing in Ireland on a major scale is actually Government policy and has been for the last decade.
The Government does not actually want you to be able to buy or rent an affordable home. They have created an unaffordable housing system that is focused on delivering housing as an investment asset, not a home.
I have been warning for years about this impending disaster that is embedding a permanent unaffordability into our housing system and will cause unprecedented inequality.
Continuous bad policy
This current crisis has been brewing for a long time. It goes back to the Celtic Tiger days of the late 1990s and early 2000s when the Fianna Fáil-PD Governments encouraged the shift from housing to be treated as a home, to people buying it up as an investment asset.
They told people to speculate in the property market and gave tax breaks for landlords to buy a second, or third, home to rent out. These became the ‘buy-to-let’ investors. The banks lent out massively which added fuel to the fire of rising housing prices, and the inevitable crash happened in 2008 and 2009.
As their response to the disaster they had created, Fianna Fáil turned to global ‘vulture’ funds to buy up the bad loans and failed housing projects. They set up the ‘bad bank’ NAMA, which went on, under the Fine Gael Government from 2011 to the current day, to sell off (at a discount) huge land banks and billions of euro worth of properties to vulture and real estate investment funds.
In 2013, house prices had crashed, and rents were half of what they are today. Our housing system at that point was actually relatively affordable. For example, the average priced home in 2013 in Dublin City was €185,265, in Kildare, it was €177,040, in Galway, it was €159,000, in Wicklow was €225,674. But what happened over the following years was Government policy made these homes completely unaffordable.
As the economy began to recover, and rents and house prices started rising, the Government was called on to implement rent controls and to build social and affordable homes. But it refused over and over to do this. This is why we have the crisis.
This is why you can’t afford to rent or buy a home. Because, for the last decade, Government has done everything possible to inflate house prices and rents, in order to attract in the global property investment funds and to recover the profitability and balance sheets of the banks.
The Government should be honest about this and stop pretending otherwise. For over a decade it has prioritised the interests of property, finance, developer, investor, landlords over those who are looking to get an affordable home.
Their policies over the last decade have doubled the price of a home in Dublin City, meaning you have to pay an additional €178,000 over what you would have paid in 2013. In Kildare, you have to pay an additional €114,960 for a home over what you would have paid in 2013. In South County Dublin, house prices have risen from €344,988 to €625,000.
The winners? Banks and investors
Rising prices benefit existing homeowners – but only if they are selling their home, and most of those same homeowners who think they are winning from the huge rise in house prices, have children stuck as adults living at home because they cannot afford to get a home.
So in actual fact, inflated house prices do not benefit many homeowners either.
But when it comes to rent we really see how the Government has made housing unaffordable.
The average national monthly rent was €825 in 2013, while the average rent in Dublin was €1,148 per month. The rents were much more affordable. Now the monthly rent is €1,414 and in Dublin 1,948.
The aim of policy was not to provide affordable housing – but to facilitate and support rising housing prices and rents, so that property would be an attractive investment to global investors, and to provide rising values for banks balance sheets, and recoup more value when they repossess and sell homes in mortgage arrears.
So Government policy, rather than a failure, has been a success in raising house prices and rents, and selling off our homes to global investors and making banks profitable again.
Housing policy was used as a tool to achieve this. Making house prices and rents more unaffordable has been an accepted consequence of Irish economic and housing policy over the last decade. The evictions of families and children into homelessness has been an accepted consequence of Government economic and housing policy.
While they express their disappointment at evictions and say they are tackling homelessness, and while they say they are committed to homeownership, their policy is doing is the opposite. Their policy is creating homelessness. Their policy is making home ownership unaffordable.
Irish Governments have created an investor paradise for vulture and cuckoo funds through our housing and economic policy. It introduced the Real Estate Investor Tax (REIT) break in 2012. This is still in place. This means the funds and REITs buying up homes pay little if any tax on profits made.
In 2012 the new Fine Gael Minister for Finance, Michael Noonan, said that the REIT framework was intended to “facilitate the attraction of foreign investment capital to the Irish property market”.
He further argued that “the acquisition and management of properties by professional REITs is part of a more sustainable, long-term property rental market for both investors and property tenants”.
Fine Gael lead Governments from 2011 up to today’s coalition with Fianna Fáil, allowed rents to increase year after year. When the opposition proposed measures for rent controls and rent freezes, Government ignored it until eventually, it put in place a 4% annual cap.
But why did it not freeze rents, or link it to inflation, meaning a 1% annual increase? It is because 4% is the rate of return investment funds seek. Our rents are set to ensure investor funds make the profits they want.
When homeless NGOs called for stronger protections for tenants from evictions and give them lifetime leases, the Government said, it wouldn’t do it as it might affect the interest of investors in buying up property here. The easy eviction of tenants is an attractive feature of Irish property investment, as it means they can get in higher-paying tenants, or cash in their investment through a sale if needed.
Devastating change to housing model
It gets even worse. From 2014 onwards the Government also changed from building social housing to getting social housing through paying the rent to landlords (like the HAP scheme), or long term leasing. These schemes create an attractive guaranteed income stream for investors.
The Real Estate funds know if they buy up property in Ireland, and even if they can’t find private renters who can afford their rent, the state will pay to rent it out or lease it. Another way housing policy entices these investors.
The investor buy-up of homes shows the folly of David McWilliams’ idea of first-time buyers going on strike. They are stuck renting, stuck living in parents’ homes, they need a secure affordable home. If they do not buy a home – the investors will just buy up more and more.
Just look at how much they have invested already. Private residential investors have invested more than €6.6 billion in the Irish residential market since 2011. Investors doubled their purchase of property over the lifetime of the Government’s Rebuilding Ireland plan, from 6,266 a year in 2016 to 12,378 in 2020, where investors bought a third of all homes purchased.
One investment fund laid it bare when it said, “We also like the private rented sector because of the increased propensity to rent and the unaffordability of housing markets generally.”
There are solutions
Government could and should remove the Real Estate Investment Trust tax break, introduce a foreign property purchase tax, implement a vacant homes tax, introduce a property speculation tax in areas of high housing need and require new homes being offered for sale to be sold to home buyers first.
It could set an allocation, e.g. 70% of new developments to be sold to home buyers. It should also immediately remove the ability of landlords to evict on sale of property, or ‘no-fault’ evictions – this would make housing less attractive to speculative investors.
It should also set out to hold the referendum to insert the Right to Housing in the Constitution. There is a possibility, that investor landlords could claim such measures would interfere with their ‘right to property’ set out in the Constitution. Inserting the Right to Housing will send out a clear signal to global investors that we are reforming our housing system to ensure housing provides a secure affordable home as its primary function.
Government is arguing that these investors are necessary to provide a supply and if we do these things it will reduce the supply of housing which these investors are providing either through build-to-rent from developers, co-living, or leasing for social housing. But this is a flawed approach.
What is the point of a supply of expensive rental homes that nobody can afford to live in, that will be left vacant, that will push renters into poverty and convert a Generation into wealth generators for global wealth funds? Why are we making our housing system unaffordable for our people in order to make it profitable for vulture and cuckoo investors and property speculators?
Another demonstration of the state’s reluctance to provide affordable housing is shown in how it still refuses to direct NAMA to build social and affordable homes. NAMA has completely paid off all its associated debt, is now 100% state owned and yet is still focused on flogging property and building high end unaffordable units to maximise a commercial return to the state.
Tomorrow, the Government could direct NAMA to deliver 70,000 completely affordable units on its land – providing the entire housing supply needed for the country for the next three years. NAMA has 7000 units construction-ready, 8600 in planning, and 10000 in pre-planning. That’s an entire year’s supply of the country’s housing need. It still owns 747 hectares of residential development land – enough for 75,000 dwellings.
Yet what is it doing? It is drip-feeding housing for sale at expensive unaffordable prices. Why on earth is it still pursuing a model of speculative development?
The current trajectory of housing will mean inequality will worsen dramatically – between those on extremely high incomes who can get a deposit off the bank of mum and dad to buy a home, and the majority stuck in the private rental market transferring their income into wealth for investors, or living in overcrowded housing, resulting in delayed adulthood and independence as they’re unable to leave their parents’ home.
And there is a ticking time bomb of a social crisis as those in Generation Rent hit retirement and can no longer afford the rent, facing a future tsunami of homelessness.
Courage and creativity are needed
The reality is that the interests of real estate investors and banking dominate housing policy and thinking. There is a reluctance on the part of Government to do anything significant that would disturb or disrupt the market and make house prices and rents actually affordable.
This is because they have hitched their wagon of housing supply to the REITs, and ultimately the state ideologically still does not want to take responsibility for housing provision – which it should – it wants to leave it with the market and investors. The underlying reason for their failure to provide affordable homes is their ideological opposition to social and affordable housing and their capture by investor interests.
The government must accept that its policy approach of promoting the private speculative market and global investors to supply housing is an utter failure. It does not provide affordable homes.
The Government has created an artificial scarcity of homes, which keeps prices and rents high, by not providing a large supply of state-funded and building of public and affordable homes.
The Government did not build one affordable home in the last decade.
The state must take responsibility for ensuring everyone in this country has an affordable, secure, decent standard home. It should use its huge state land bank and access to low-cost finance and build actually affordable homes on a major scale.
The not-for-profit affordable home builders Ó Cualann show it can be done. The current planned affordable and cost rental homes are drops in the ocean in comparison to the scale of what is required.
Let’s have a real honest conversation about all this. It is time to treat housing as a home and a human right not an investment asset for the global wealthy.
Dr Rory Hearne is Assistant Professor at Maynooth University and author of Housing Shock: The Irish Housing Crisis and How to Solve it (Policy Press, 2020).
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