Housing is inelastic in demand; everyone needs it (both renters and owner-occupiers). There are two barometers of housing: one is the yield (relationship between sale and price), which reflects a user cost but also finance technology and confidence and is useful for policymakers to make informed decisions. Secondly, the other measurement is the elasticity of supply.
The lack of policy response to housing in the Greater Dublin Area is the most challenging issue facing policymakers or indeed-the future policymakers. The 2016 census found that there was a total of 2,003,645 houses in Ireland, with 1,697,665 occupied and a total of 183,312 vacant properties. A total of 47,000-50,000 homes per year are needed to meet the demands of the future, it is estimated.
The housing market provides several things to us: shelter, an investment opportunity, and pensions. It also offers social needs aside from shelter, such as renting for those who cannot afford to buy or need accommodation for whatever purpose. Made up of buyers and renters, the market centres on housing availability, be that new builds, social housing, and affordable housing. As we well know, housing has considerable costs these days and has social costs in the long run, with Ballymun being an example of the long-run effect of a poorly and overly ambitious social housing experiment.
Within the property market within Ireland, according to the OECD, 45% own their house outright (no debt), 26% own with a mortgage, 10.6% rent privately with 14.3% in a rent subsidy situation. (Rented accommodation builds often result in high rents to cover the costs of the original build.)
Altogether, nearly 71% own their property and 24.9% rent, the CSO reports slightly different figures, with home ownership standing at 67.6%, 26th of 36 European countries, which paints a very other picture than a nation of homeowners, as stated by Leo Varadkar. Of course, home ownership plays an essential role in democracy and liberal market economics.
Across the board, developed nations in western Europe have seen a decline in home ownership apart from the likes of Norway. Eastern European countries have the highest proportion of homeowners due to the fall of the Soviet Union. With ownership declining and renting increasing, it is not unusual for a 50-50 split in owners and renters, which could be desired. The only issue is affordability.
During the Celtic Tiger, houses were thrown up, and rental accommodation slowed. When the financial crisis struck, housing was abundant with little demand—leading to ghost estates and a hole in state finances. Over time, these estates were sold off to private individuals and as part of NAMA. Because of this abundance of housing stock, no new housing was built, which leads to today.
Housing as investment works through converting a value of wealth into a store of wealth. Essentially, purchasing a property is a store of wealth that can accumulate and depreciate. It is one of the most popular forms of wealth investment in Ireland. When prices rise, it is suitable for homeowners as they can borrow against and sell to claim the profit.
However, when a market is constantly increasing in value, it presents challenges to homeowners. Rising prices can mean further accumulation when trying to sell, leading to a longer time on the market and reducing opportunities for potential buyers. Rising prices also mean homeowners are more likely to downsize to pocket the difference or lose out entirely and only increase their debt.
According to the Irish Institutional property, some of the main drivers of price increases in the Irish property market are increasing population, both birth rates and immigration, changes in household sizes, separations, and divorces contributing to rising demand. The cost of construction is also high. Per square foot, it is estimated to be valued at €35-€45 for labour. During the pandemic, shortages in raw materials drove up construction costs. On top of labour and material costs, land, VAT, levies all add to the total cost of housing.
Dublin has the highest cost of property in Ireland for various reasons; Dublin 2 has a square meter value of near €5,600 while anywhere in Longford values at near €700 per square meter. Some reasons for Longford’s low valuation are demand, lack of nearby infrastructure, transport connection, low investment, low employment opportunities and amenities.
Social housing construction is mixed with new developments; aside from being under-produced for what is needed, the reason for mixing social housing with standard building is to negate the long-run social consequences of social housing. Issues arising from social housing are that they were overly ambitious, ignored social concerns such as unemployment, transport connections, crime and drugs and because councils allocated problematic tenants to social housing projects. Given that all new dwelling constructions must have 10% allocated for social housing, we can see how the lack of supply is created.
Ireland’s social housing is further hurt by a lack of clarity regarding welfare and where the rent subsidy is fixed. This hurts vertical equity, while its on and off nature has implications for horizontal equity across working and unemployed households. Social housing in Ireland used to be funded through debt, financed publicly and used to finance the construction of new homes directly. The 10% requirement of social housing used to be 20% before changes in the Planning and Development Act.
Additionally, developers can get around these requirements through arrangements with local councils and building social housing that is pro-cyclical—the provision of social housing is inadequate. A private development build of 12,000 homes results in just 1,200 social homes-well below the demand for those unable to compete in the property market.
One other cost driver behind the cost of housing is land value. Land markets operate through net present value calculations and speculation. The calculations also consider market rents and the cost of building. An acre of land in Dublin 2 may be sold for €2 million, resulting in another nearby site not willing to sell for any less than €2 million. Regardless of rents to builds cost. There is no penalty for keeping houses empty,, and anyone can hold vacant land with the anticipation of future capital gains.
So, what can be done? Some, like New Zealand, have introduced a law that bans foreign buyers from purchasing a property. Ireland is unlikely to introduce anything of this nature as it would severely hurt FDI. A right to housing means a constitutional change that would be challenged and appealed. Still, if such a thing were ever introduced, it would be a form of universal basic income, subsidy or an effective negative income tax.
Another solution is a land value tax (LVT) would result in taxing the value of land that would stop land speculation and hoarding, promoting land development. Additionally LVT promotes further investment into properties and location to increase land values. The main problem with housing is costs; the government’s fixed income supplements don’t work because they are set regardless of income levels and costs of accommodation, such as rent and has been critiqued by local authorities. Income-based income support would reduce the break-even costs of building new homes.