WATCHING IRELAND’S HOUSING crisis unfold has been like watching a slow-motion car crash.
Surging numbers of rough sleepers around our cities were an early sign, shortly after the economic crisis struck. As job losses mounted, and wage cuts began to bite, more and more people struggled to pay their mortgage and keep a roof over their family’s heads.
Meanwhile, the shutdown in house-building was storing up problems for the future. Chronic shortages in housing supply have sent rents surpass their boom-time peaks, while house prices have increased by half since they bottomed out four years ago. Record numbers of families are forced to stay in hotels or in emergency accommodation. Some have had to resort to sleeping in their cars or putting themselves at the mercy of the local Garda station.
Ireland’s housing crisis was predictable, and it was predicted
But, the government was more focused on doing the bidding of the troika to solve first the fiscal and banking crises.
The policy response, when it came, was too little, too late. Bizarrely, the centerpiece of last year’s otherwise well-intentioned “Rebuilding Ireland” initiative was “Help-to-Buy“, a tax break of up to €20,000 for first-time buyers of new-builds. Anyone who has just sat Leaving Cert economics knows that this would increase demand and prices, making the problem worse.
At best, higher prices might encourage developers to put more houses on the market. We are still building 10,000 houses a year less than we need to meet growing demand, let alone address the shortages built up in recent years.
Now that we have a new Taoiseach and a new Housing Minister, there is an opportunity to turn over a new leaf and get serious about tackling our housing crisis. Other than dealing with Brexit, it is the most pressing public policy challenge we face. Unlike Brexit, however, it is already causing untold misery for too many Irish families.
The first signs are at least encouraging. Leo Varadkar has ordered a full review of “Rebuilding Ireland” and signalled that “Help-to-Buy” is likely to be axed. Hopefully, this is a sign Varadkar, a trained physician, will apply one of the main tenets of medical practice to the emerging doctrine of Leo-nomics: first, do no harm. But, while removing government intervention where it is making the situation worse is to be welcomed, there is a range of areas where we need more government, not less. Because, the market is clearly failing.
It’s a cliché to say there is no silver bullet, and the problem has become so acute that it probably needs the kitchen sink thrown at it. Drawing on what has worked elsewhere, here are twelve steps our new governing team should consider, reconsider or get moving on:
Become the builder of last resort
A quarter of a million social houses were built between the 1930s and 1980s in Ireland. So long as the market fails to provide enough homes, we need a return to the level of ambition that served us well when the country was far poorer.
“Use it or lose it” land zoning
When land is rezoned, it brings a huge financial windfall to the owners. For decades, speculators and developers have bought up and hoarded land, particularly on Dublin’s periphery, drip-feeding houses onto the market with a view to maximising profits, not meeting housing needs.
This practice should be discouraged by local authorities attaching sunset clauses to zoning decisions. For land already zoned, local authorities could be permitted to acquire it by compulsory purchase order (CPO), as the Tories have been suggesting in the UK.
Cut red tape, carefully
Maybe every apartment near a public transport hub doesn’t need a dedicated underground parking space. Without going back to shoddy building standards of the past, perhaps there are other regulations that could be eased to reduce the cost of building. But, we should never scrimp when it comes to safety.
A noted Irish housing economist suggested only days after the London’s Grenfell tower inferno, for example, that apartment buildings could dispense with obligatory fire doors to cut costs. As well as sprinklers, these can stop fires spreading through common areas, and should have contained the Grenfell fire.
Clamp down on abuse of airbnb
There are indications that the overuse of short-term letting of private dwellings through airbnb and other channels has already led to a reduction in the supply of long-term rented accommodation in Dublin, further pushing up prices.
This is in line with the experience elsewhere, and cities like London and Berlin have already moved to curb their excessive use. This could be a surcharge – like that paid by hotels in many countries – or even a limit or a ban.
Further streamline planning
A balance needs to be struck between the interests of local stakeholders, including residents, and the societal interest of building more homes in the right places. Provision has already been made for the fast-tracking of developments of 100+ units, but the Irish Planning Institute argues what is needed is some legislative housekeeping.
There is a need for an official, consolidated Planning and Development Act as well as a National Planning Guidance document that could act as a one-stop-shop for planning queries.
Ease process for change of use
Another worthy proposal from the Irish Planning Institute is to make it easier for office or commercial buildings to be switched to residential use by making them “exempted developments” in priority locations, as already happens in the UK.
They argue that this could be aligned with the Living City tax incentive scheme that aims to revitalise our urban areas.
Increase density
Urban sprawl has been a feature of our cities’ development for decades. Whether through the proliferation of suburban housing estates or one-off housing down the country, low population density makes it more difficult and more expensive to provide appropriate infrastructure and public services, whether rail links or Garda stations.
In Dublin, we need to build up rather than building out. High-rise developments can be clustered in areas where it is most appropriate, such as in the docklands.
Tax foreign investors in Irish homes
Foreign investment in housing has been found to increase prices across the board, particularly where there are supply shortages. It also reduces home ownership rates without increasing the housing stock. At a minimum, the government needs to further crack down on the perverse situation where vulture funds pay little if any tax.
Going further, we could look to Canada where a 15% tax on foreign buyers is being introduced in Toronto in the face of galloping house prices. This follows a similar initiative in Vancouver.
Replace the local property tax with a progressive land value tax
There were many who argued at the time Ireland was introducing its local property tax that it would be a better approach socially, economically, environmentally and fiscally to opt for a tax on the value of the land under the property rather than the value of the property itself.
The big attraction is that property owners are not penalised for investing in improving their property, but are taxed instead on the value of the land itself. The value of the land is sensitive, for example, to its amenity value and public investment in transport links, for example, rather than the best efforts of the owner. It’s never too late to do the right thing.
Be careful with VAT
There have been calls from the developer community and others to cut VAT on new builds from 13.5% to 9%, similar to the support given to the hospitality industry in recent years. Firstly, this is likely to be very expensive, the main reason the Department of Finance has vetoed it thus far.
Second, it may be complicated under EU legislation. Third, such temporary measures have a tendency to become permanent in the face of special pleading. Fourthly, and most importantly, it is not clear that this would in any case greatly boost supply or reduce prices for prospective homeowners.
Strengthen tenants’ rights
One reason Irish people traditionally prefer owning rather than renting is that, compared to many continental countries, for example, here the deck is stacked in favour of the landlord. Many countries have effective rent control, limits on maximum deposits and better security of tenure etc.
Since the relevant legislation was enacted in December 2015, the government and Residential Tenancies Board (RTB) have dragged their feet in establishing a “Deposit Protection Scheme”, whereby a tenant’s deposit would be lodged with the RTB, who would then be responsible for returning the deposit to the tenant when the lease expires or for mediating any dispute. This should be introduced as a matter of urgency.
Help rough sleepers
No matter what public supports are put in place, complicated challenges like family strife, mental health and substance abuse mean that a small share of the population is always likely to be homeless. Such hard cases do not explain, however, the surge in the numbers sleeping rough since Ireland’s economic crisis hit.
As well as providing more direct accommodation – and sufficient funding to independent bodies like the Simon Community, Threshold, Focus Ireland and the Peter McVerry Trust – more needs to be done to provide ancillary support services in health, education and counselling.
Victor Duggan is an economist and public policy expert, having worked in the OECD, World Bank, European Commission, European Investment Fund and the Irish Labour Party, as well as in the private sector.
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