In the midst of a mounting frenzy over the Central Bank’s plans to introduce new rules relating to mortgage lending, Rory Hearne offers a detailed and sobering analysis of the bigger picture housing crisis. Published in today’s Irish Examiner.
Providing solutions to the housing crisis have to be central to the forthcoming Budget. But the government needs to be willing to radically transform how the housing market operates in Ireland and reorientate housing policy to meet the needs of the majority of the population rather than the interests of the property development industry. It is surprising how much rising house prices are being celebrated as a new property boom in the media including interviews with buyers (often engaged in cash purchases) about how they are being ‘outbid’ for properties in wealthy Dublin suburbs.
Meanwhile the real housing crisis is affecting hundreds of thousands of households (who are mainly lower income). Fr Peter McVerry has described the growing ‘tsunami’ of homelessness on the streets of our cities and towns. Between January and July of this year 267 families became homeless in Dublin, including 549 children and some of those have been housed in hotels.
But the crisis is much, much, larger than these figures suggest. Almost 90,000 households are defined in housing ‘need’. The majority of these are living in private rented accommodation. Rapid rent increases in recent years (most significantly in Dublin) and the introduction of rent ‘caps’ by the Department of Social Welfare, has meant that more than half of those receiving rent supplement (40,000) have to top up their rent in order to get access to housing.
Then we must include the 132,000 households in mortgage arrears on their principal residence. The government appears to be just hoping they will sort themselves out somehow. But a staggering 70% of these households are over 720 days in arrears and the banks are silently, but steathly, increasing repossessions and evictions. In the first four months of this year the banks have issued legal proceedings in 3,093 of these arrears cases and 281 properties were repossessed further adding to housing pressure.
Overall then, approximately 262,000 (16%) of the total 1.6 million households in the state are in serious housing need. This doesn’t include those who are forgoing basic necessities to cover their mortgage or rent nor does it include those affected by substandard conditions in social housing estates throughout the country. This is not a crisis. It is an emergency.
The standard explanation for the current crisis is that rent and house prices are rising dramatically because of a lack of supply of accommodation and increasing demand. It is true that demand is growing with projections of an additional 8000 units per year required in Dublin. However, a significant factor in the lack of ‘supply’ is the reduction in social housing provision from 7,000 units in 2008 to 750 units in 2013 and the budget cut from over €1.5bn in 2008 to €500m in 2014. The much hyped NAMA delivery has only provided to date 600 units out of a promised 4000 social housing units. The Minister’s recent announcement of changes to Part V will add little to social housing provision. Indeed, his aim is to provide only 4,000 additional social housing units by 2020. This is clearly inadequate relevant to the need outlined earlier.
Property Industry Ireland, representing developers, real estate agents, Ireland’s largest banks, financial institutions, and legal firms is making the case for reducing ‘the cost burden’ and speeding up ‘the development process’ through incentivizing private development (such as reducing VAT on construction, development contributions along with reducing Part V – which they achieved). The increased supply of private housing will ensure, they claim, market principles will operate and prices will drop.
However, this policy did not work in the Celtic Tiger housing boom. Additional supply did not reduce prices. Government, banks, property developers and the media fuelled the ‘property ladder’ homeownership frenzy. So how is it logical policy to now expect a private market approach to work? The property industry is interested primarily in profit and a booming housing market provides this. Vested interests appear to be creating a mirage of a ‘property bubble’ way beyond what exists in reality in order to pump up prices. The media too often takes as gospel the analysis of property economists, who themselves work for institutions that have a direct interest in rising property prices such as banks, mortgage brokers and stockbrokers.
The issue is about supply. But supply of what and for whom? The emergency is for those who need, want, and have a right to, a secure and affordable home in a safe and sustainable community. We can see that the last two decades of housing policy which was based on promoting homeownership and the private property market as its priority failed to deliver this. Continuing these policies will only worsen the housing crisis and condemn further generations to homelessness, poverty and punitive and enslaving mortgage debt.
Unfortunately the fate of housing has been tied up with politics. The government has been using all possible opportunities to point to their success in achieving economic ‘recovery’. Therefore, we have witnessed government ministers welcoming property price growth and international capital investors buying up distressed Irish homes as signals of a return to economic growth. They have lauded the sales of NAMA properties in particular. Indeed NAMA was given the task of a ‘property development company’ recouping losses through maximising income from its properties. This means that NAMA also has a direct interest in a rising property market. So we see it selling its substantial stock (14,000 residential units with a further 22,000 being developed in Dublin) to Real Estate Investment Trusts (which are often international capital investment companies). But the sale of these properties to speculative investors is adding a further inflationary pressure into the housing market. Thus, government policy on NAMA contradicts wider housing policy objectives outlined in Construction 2020. Through NAMA they are part-fuelling the new property ‘bubble’. In the Budget, however, the government could introduce legislation to convert NAMA into a non-commercial social housing agency with the aim of using its property portfolio to ensure the housing needs of the population were met.
Government could also introduce a temporary measure whereby residential property can only be bought as a primary residence and thus stop speculative investment in property that should be first available as a home for those who need it.
Social housing provision could be dramatically increased if local authorities and housing associations were given state guarantees to enable them borrow finance and start developments. One local council in London has started using this model which includes building private and social rented with the private subsidising the other. Government could also introduce a temporary 0.5% levy on multinational profits to contribute toward a social and affordable housing fund. This would raise approximately €350 million which could build 6,000 social housing units per year. It would seem a small ask from a nation devastated by a crisis through which these companies have made ever increasing profits.
Furthermore talk of a lack of supply ignores the issue of vacant properties and land within our urban centres. There are a staggering 106,658 vacant properties in Leinster according to the CSO 2011 data. There are 43,707 vacant in Dublin including 16,321 apartments. There are also 6,168 vacant in Cork city and 3755 in Galway city. Bringing these into use would significantly address the supply issue. But then refurbishment is not as profitable for developers. Dublin City Council also recently identified over 300 vacant sites. It will be interesting to see whether the Minister’s new vacant site tax will include vacant units, will it be delayed, and most importantly will it be enforced?
But this raises a more fundamental issue of the price of land that was raised in the famous Kenny Report in 1974. There are 6400 acres of zoned serviced land available in the four Dublin authorities which could provide 132,000 housing units. The government (through local authorities and housing associations) could implement the Kenny report and compulsory acquisition this land using emergency legislation whereby landowners are only paid a small premium on top of the existing value of their land.
Housing in Ireland has transformed during the crisis with the overall home ownership rate dropping from 74.7% in 2006 to 69.7% in 2011. 17.8% are now in the private rented sector and 12.5% are in social housing. There is clearly an opportunity to move towards a more effective, successful and sustainable housing system. Our European neighbours have such systems where Social housing in the Netherlands, for example is 33% of all housing. In Austria its 22% and England 17%. Owner occupation is only 53.2 % in Germany. Most of these countries also have significant rent controls on increases in the private rented sector, long-term leases and a strong security of tenure where the tenant has a right to remain in the dwelling as long as they comply with the terms of the lease. They are the policies required to be introduce to make the private rented sector an affordable and secure one for families and individuals in Ireland.
There is, unfortunately, little evidence of government policy taking implementation of social housing policy seriously. A Labour minister for Environment would be expected to embark on radical approach to dealing with the housing crisis by moving away from home ownership and providing high quality social housing and a tenant oriented private rented sector. Perhaps the fact that at least 41 of the 166 TDs in the Dail are landlords is mitigating against this (with some notable landlords including Alan Shatter who owns 14 properties, Tom Barry 10, Frank Feighen 10 properties and John McGuinness 8).
Even from a mainstream economic perspective rising property prices and rents affects competiveness and is ‘wasted’ money removed from the domestic economy. The Budget, therefore, must take bold and radical steps to address housing through systemic policy transformation.
It should enact legislation to remove the pressures of the speculative market and profiteering. Remove it from economic growth calculations and the sense of our national psychological ‘well being’. Introduce rent controls, mortgage debt write downs, and a massive social housing building programme through Housing Associations, Local Authorities and NAMA. We will all be better off when everyone has high quality and affordable homes in sustainable communities.
We should not allow fear of upsetting international institutions such as the IMF, EU and OECD hold us back. Iceland just recently successfully implemented, against the wishes of IMF and the OECD, a second round of household mortgage debt relief to the value of 8 percent of GDP (the Irish equivalent would be €14bn – a significant part of the €17bn in principal mortgage arrears of more than 90 days in Ireland) part funded by a levy on banks. It includes a 13 percent write-down of the principal of mortgages coming to approximately €24,000 from every household’s mortgage. If Iceland, a country with a much smaller economy than ours can do it. Why cant we?
Our President described what is needed to be done very well recently when he said: “These are needs that are in fact citizenship needs …it isn’t a matter of waiting for approval from external ratings agencies or for financial matters to be made secure…It’s about democracy. You can’t leave the provision of housing to a residual feature of the market place…We have to accept that we need a great, huge increase in public rental accommodation.”
Rory Hearne is author of chapters on social housing in two new edited books on housing in Ireland: Renting In Ireland (IPA) andSpatial Justice and the Irish Crisis (RIA) he is also author of Public Private Partnerships in Ireland