I think you might be getting me mixed up with someone else
Thought you were from the Naynagh District?
I am, not a publican though
Ah…
There’s space in that kitchen for a big island
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You’d want your wallet examined to go building a house these days
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But a mobile home and sit it out for a while lads.
There’s literally 19 one bed properties to rent in all Munster for under €1,000 on daft, so if you can get out of the rental game soon, it’s advisable
Good article (below) by Ronan Lyons in The Currency today.
A question I’m frequently asked is whether I can see an end to Ireland’s housing crisis. The framing of the question is inherently pessimistic: things are bad and thus the baseline is that they will stay bad. It is certainly the case that, since I started analysing the Irish housing system over 15 years ago, there hasn’t really been a point at which I could declare that the system was in rude health.
Indeed, for the majority of that 15-year sentence, I have been reduced to one main message: Ireland is suffering from a housing shortage. The Daft.ie Rental Report covering 2009 Q4 found the earliest signs of a shortage of rental homes in Dublin. Since then, the shortage of homes has spread to rental segments in other cities. It then spread in the second half of 2013 and 2014 to the sales segment in Dublin and later its surrounding counties and the other main cities. As of 2021, the housing shortage affects pretty much every single postcode, city and county in the country in both sale and rental segments.
Ironically, the picture in the second half of 2019 was quite different. The rate of construction had picked up, there was a pipeline of newly built rental homes due to come on-stream in Dublin, and inflation in both sale and rental segments was at its lowest in years. There were even some commentators declaring that the new balance between demand and supply in the sale market meant that Ireland’s housing crisis was over.
Oh, that things were that simple! Just because you’ve stopped gaining weight doesn’t mean that you are now slim. And in the case of Irish housing, weight gain and loss is perhaps the best metaphor with which to understand recent trends. High sale and rental prices are a bit like a high reading on your weighing scale. Getting those prices back down to affordable levels is like trying to lose weight: it will take lots of supply (exercise) given Ireland’s voracious appetite (demand) in order to bring those prices back down.
Reasons to be cheerful
Nonetheless, a few months ago, as vaccination held out the promise of a return to some sort of normality after or with Covid-19, there were – believe it or not – reasons to be cheerful about Irish housing. The four core ingredients of a healthy housing system include a sustainable mortgage market, an efficient construction sector, responsive social housing, and a healthy land-use system. With these four core ingredients, housing prices are anchored to the real economy, while the resources – both construction and land – required for housing are minimized, and the market is not relied on for providing housing to those on the lowest incomes.
Ireland has a sustainable mortgage system, thanks to the Central Bank’s mortgage rules. While it might be a stretch to say that they are hated, it is probably fair to say that they are not popular. But what they effectively did was lock in lending conditions as they stood in 2014 – rather than allow another bubble of unrealistic expectations powered by dangerous lending to emerge. It’s probably pretty convenient, in fact, for private banks to be able to blame the Central Bank for rules that, in reality, they would have to abide by themselves if they wanted to survive. Those rules are also being substantially reviewed, a little over five years in – with some changes likely, to reflect the swathe of new research on macroprudential rules that has emerged in recent years.
We cannot let anti-scientific thinking become normalized in Ireland.
This year has also seen the government move away from relying solely on market-based mechanisms to provide social housing systems. These include Part V, where market developers set aside a fraction of their homes for social housing – but what happens when no market housing is being built? – and HAP, where social renting competes directly with market renting. From now on, a core element of social housing policy in Ireland will be cost rental. Cost rental, which ties the provision of social housing to the cost of construction, and not to market conditions, is recognized as by far the most comprehensive and cost-effective way to provide housing for those with incomes too low to afford housing in the market. There are still lots of details to be ironed about how exactly the system will work and how comprehensive it will be – but getting the government to embrace cost rental as a principle has been something of a ten-year crusade for me and others in the housing space.
And a third reason to be cheerful is that land-use policy is also improving. Things are a lot more uncertain here – Ireland’s land-use policy notoriously suffers from hysteresis and rather than a ‘best use’ policy, things have effectively been a ‘last use’ policy. In addition, the scales of power are tilted to a farcical degree in the direction of incumbents in an area and neighbours to a would-be new home. But the emergence of the Land Development Agency, together with talk of a rezoning land-value tax, signals a change in direction, however modestly, and one to be welcomed.
As things stand, the LDA will have control over a number of key urban sites around the country. It will not own every last home and office in each of these sites, as some demand, but as a ‘ground rent’ landlord, it doesn’t need to. Instead, it can use the equivalent of a land-value tax – charging the developer of a particular site based on the value associated with its optimal use – to steer the market to provide for society’s needs. A rezoning tax on sites outside the net of the LDA will have similar effects.
So, in relation to three of the four core ingredients of a healthy housing system – mortgages, social housing and land use – things are either in the right ballpark or at least heading that way.
The vexed issue of construction costs
The fourth – construction costs – shows little sign of getting policymaker attention at the moment, unfortunately, let alone remedial action. But all going well, in a year’s time, thanks to work I’m undertaking at Trinity, we will hopefully have some more insights into why Ireland is one of the most expensive small countries in the world in which to build a home. And with insight comes an ability to focus.
Even with construction costs, however, policymakers had managed to find a quick win. The introduction of build-to-rent planning codes in 2018, together with related regulatory changes, switched Ireland almost overnight from a reliance on US venture funds, to fund the construction of new rental homes, to being open to European pension funds.
This may seem like an unimportant change but consider the maths. Currently, it costs something like €500,000 to build a two-bedroom apartment in Ireland right now. (Obviously, lots of specifics matter, like the cost of the site and how the developer is structured and financed, but all in, this is a useful starting point.) If these new rental homes are being paid for by a venture fund, their required rate of return might be something like 7 per cent. In other words, they will need 7 per cent of that €500,000 cost – in other words €35,000 – each year in rental income. €35,000 translates into a monthly rent of over €2,900.
A European pension fund, however, is likely to have a required return closer to 4 per cent. So, with the same €500,000 cost for a two-bedroom apartment, the rental income they need is just €20,000 per year or €1,670 per month. In other words, by making Irish rental homes attractive to European long-term savers, the break-even rent fell by 40 per cent. This is not an argument against venture funds per se – that kind of capital has its role – but for a long-lived asset, like a home, it makes sense for it to be funded by “long” capital, rather than shorter or medium-term capital.
It’s also not something that Ireland can depend on in perpetuity. It’s true that European pension funds are happy to invest in the construction of new rental homes for a return of 4 per cent now. But that is in part a function of how odd the wider macroeconomic environment is at the moment: you have to pay for the privilege of lending to a government at the moment, so housing, with actual positive returns that are not that risky, looks quite attractive. A change in the international macroeconomic environment, however, could turn off that tap pretty quickly.
So, with international capital looking for places to build new rental homes, and Ireland in the midst of its worst-ever surge in rent prices, unsurprisingly things started to turn fast once build-to-rent came in. By mid-2020, there were about 30,000 new rental homes – by my estimates, about half of Dublin’s ‘missing’ rental homes – at various stages of the pipeline, with a few hundred even completed by that stage. A couple of thousand were planned for Cork also. None were planned, yet, for elsewhere in the country because even with long-term investors and their lower yields, there is effectively no way to turn €500,000 in up-front costs into a viable rental home in a provincial town in Ireland, where two-beds currently rent for less than €1,000.
When theory meets reality
But this is where theory meets reality. For all these reasons to be cheerful about housing – or at least less fearful – there is one dominant force pushing the other way. That force is one that is at risk of becoming a defining feature of our age across a number of crucial elements of our lives – anti-science. It is perhaps best summed up by Michael Gove’s quip in June 2016, ahead of the Brexit vote, “the people of this country have had enough of experts”.
We are well used to thinking about the dangers of anti-scientific thinking when it comes to climate change and, more recently, when it comes to Covid-19, both infection and vaccination. And, as Gove indicates, it is commonplace when thinking about international trade and investment agreements too. (I’m sure there are a few wry smiles from those who argued in favour of various EU treaties in Irish referenda to see some of those, who had argued that those treaties would result in an EU army and that this would be an awful thing, react to the unfolding situation in Afghanistan by suggesting that the EU should go in.)
But anti-scientific thought does not respect the boundaries between topics, and it is increasingly commonplace in the housing debate. Last week, for example, a planning application for 1,600 badly needed rental homes on the site of the old Holy Cross seminar, in Dublin 3 resulted in a variety of extraordinary claims. Some claimed that having a rental-only development would “push up rent prices” as existing landlords in the area would increase their rents “to match those of the new development” – while at the same time the same development would also push up sale prices, because they were all rental homes.
Such extraordinary mental gymnastics represent, to my mind, a new and disturbing development in the housing policy debate here: one that is free of any connection to fact and science. It is true that this is just one of many arguments put forward by those opposed to the construction of new rental homes on this site – or indeed elsewhere. In a recent column on this site, I outlined a few of the long-standing ones, including an anti-profit stance, the weaponization of environmental regulations, and existing homeowners looking to protect their interests.
But there is an important difference those arguments against development and the one put forward last week. Being anti-profit might be self-defeating, because by limiting investment in housing you are making it more expensive, not more affordable, but that is ultimately a policy preference – and preferences, unlike facts, are unique to individuals.
Environmental regulations are important components in the fight to reconcile humanity to its natural habitat. We certainly cannot blame pro-environment groups for ensuring they are upheld, even if the cynical and temporary enthusiasm of local incumbents is distasteful. Rather, we can blame instead the State for not setting out a process for the clear and efficient upholding of all sorts of regulations, environmental and otherwise, when seeking permission to build new homes.
And, of all the social science disciplines, economists should be least surprised by existing homeowners using the system any way they can to protect the value of the largest asset in their wealth portfolio. Bill Fischel has written for decades about the “Homevoter Hypothesis” and its impact on planning in the US. Ireland is just another example of existing homeowners looking out for their own interests.
What makes this latest claim – that new rental homes will drive rental prices (and indeed sale prices) up – different is that it is a factual claim (or prediction), one that finds no support whatsoever in the scientific literature. A substantial – and rapidly growing – literature is almost unanimous in finding that, when rigorous scientific methods are applied, new rental supply lowers rents in the area. This is exactly as theory would predict. The consensus is so overwhelming, something that rarely happens in social science, that there is even an open challenge, by Todd Littman, as to whether there is even one study anywhere that shows that upzoning and additional housing fails to improve housing affordability.
We cannot let anti-scientific thinking become normalized in Ireland. Yes, when it comes to complex systems such as the Earth’s climate, human public health or the housing system, researchers cannot simply run experiments in expensive labs and come up with unequivocal results. However, what policymakers must do is rely instead on the overwhelming consensus of the body of scientific knowledge. We know beyond any reasonable doubt that human economic activity is heating up the planet. We know beyond any reasonable doubt that vaccines work. And we know that additional rental homes will make rents more affordable.
The huge concern I have is that the housing policy system in Ireland has become contaminated with this anti-scientific idea that extra supply does not improve housing affordability. In my next column, I will examine how it is embedded in Ireland’s ‘Housing Need & Demand Assessment’ exercise, which is supposed to underpin the provision of new homes for the rest of the decade.
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The Irish Times: Government aims to deliver 300,000 new homes by end of 2030 under plan to be unveiled.
I found myself nodding along with that
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“End homelessness”
What does that even mean like?
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People who don’t vant houses vill be rounded up and shot.
We’ll probably sell the homeless to a vulture fund and pay them 5% per annum to keep them
Not sure about the truth in this but I was told in Vancouver that the city officials in Toronto used to give homeless folks a one way bus ticket (it’s like a 3-4 day journey) to Vancouver and they all ended up living on the beach there.
We’ll sell the homeless to a vulture fund, and they’ll rent them back to us
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The zero tolerance policy deemed such a success by new yorkers mainly involved taking undesirables outside the city limits and abandoning them like unwanted dogs.
Vancouver is a beautiful city, but the amount of homeless on the outskirts was mental. They all live under bridges like in those US cop shows or whatever. It actually happens.
Supposedly states in the US bus them all down to California