Opinion: Government policies are simply not at the radical scale required to reduce costs and prices enough to eliminate the affordability gap
In an episode of RTE's Frontline from 1978, reporter Forbes McFall says "there’s now a general feeling that something has gone wrong in the housing market. Thousands of people can no longer afford to buy’. 40 years later, this statement provokes a strong sense of déjà vu. Housing shortages are just one of those few societal problems in life that just never seems to go away.
Currently, we are living through one of the most acute supply-demand misalignments of housing in the state’s history. The data paints a miserable availability and affordability picture. Residential property prices increased by 12.4% between September 2020 and 2021, which is on the back of almost a decade of house price inflation. House prices have more than doubled over the past eight years, increasing by 106.5% since the trough in 2013.
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From RTÉ Radio 1's Morning Ireland, economist and Daft.ie housing report author Ronan Lyons on how housing prices show no signs of falling
The number of properties currently available to buy on property site Daft.ie is the lowest ever recorded by the platform. Where previously you had 60,000 properties for sale a year after the financial crisis, there are now only around 11,000 properties advertised. This is despite significant population increases over the same period. The shortage of housing availability has pushed house prices to ‘seriously unaffordable’ levels and the situation is particularly acute in the capital. The housing crisis has further spilled over into a rental crisis, where the data indicators are even worse. Rental prices are now well above the pre-financial crisis peak (32% higher), with Dublin, Cork and Galway particularly feeling the rental squeeze.
Supply, supply supply?
The answer often provided by policymakers and experts to the housing problem is supply, supply supply. However, the ability of market-driven supply to solve affordability problems has been questioned recently in national media outlets and in heated social media debates among Irish commentators, that include contributions from planners, geographers, architects, economists and housing advocates. Supply scepticism is rife and build-to-rent developments have received a hammering. This is despite a shortage of one and two bed housing types in the face of decades of undersupply and falling household sizes.
Critics of build-to-rent argue that they are not suitable for long run community development and offer many disadvantages including high rents, a lack of living space and insecurity of tenure. But overly focusing on their costs ignores the benefits such as providing flexibility to mobile workers who desire short-term letting opportunities.
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From RTÉ Radio 1's Drivetime, reporter Fergal Keane visits a huge buy-to-rent apartment site in Dublin's Drumcondra
In a global city and in the face of modern labour market realities, it is crucial that Dublin can offer flexible accommodation options. Commitment to a mortgage and the inflexibility it entails is not for everyone. Many individuals may simply like the lifestyle and amenity options build-to-rent developments offer. I find it difficult to comprehend the narratives around build-to-rent, as they represent a minor share of recent housing stock and a tiny proportion of overall housing stock in Ireland.
Supply scepticism is certainly not unique to Ireland or isolated to media commentary and social media debates. A heated housing supply and upzoning debate occurred recently between a group of internationally eminent regional and urban scholars. On one side, urban planners, like Michael Manville and others, make the case that the key challenge facing cities are restrictive housing densities. This results in a lack of housing supply, disabling filter down mechanisms of housing supply to middle- and lower-income households. They contend that economic development is suffering as a result, and many urban ailments like unaffordability, segregation and inequality are because of this problem.
But on the other side, Andrés Rodriquez-Pose and Michael Storper argue that demand through the geography of jobs, wages and skills are the source behind these regional and urban ailments. They argue that loosening land use regulations will only improve housing outcomes for the affluent and increase gentrification, harming lower income groups and will also further exacerbate regional inequalities between superstar cities and lagging regions.
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From RTÉ Radio 1's Drivetime, Minister for Housing Darragh O'Brien responds to criticisms of affordable housing supply
So who’s right?
The evidence that increasing market-based supply reduces house prices in Ireland and internationally both at the city-wide level and neighbourhood level is overwhelmingly strong. At the same time, the geography of jobs and the influx of high-income individuals into certain cities and neighbourhoods does certainly drive-up demand and house prices.
But on both sides of the debate, we are still discussing the supply and demand framework. If one contends that unique demand factors through the geography of jobs (and income) increase prices, then it must be the case that factors on the supply side (cost and scale) can decrease them. And that is supported by evidence.
A paper by Bernard Fingleton and others examining housing supply and demand across London boroughs constructs three scenarios with housing stock increases of (1) 5% (2) 15% and (3) 48%. The three scenarios lead to a decrease in prices of £4,000-£12,000, £30,000 and a whopping £70,000, respectively. But at the same time, the authors identify that the housing stock increases under scenario 1 and 2 have little impact on affordability, as the influx of workers due to positive agglomeration effects (leading to better jobs and higher incomes) disguises the benefits of supply increases.
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From RTÉ Radio 1's Drivetime, Orla Hegarty (Assistant Professor of Architecture at UCD) and James Benson, Director of the Irish Home Builders Association) on the Housing for All Plan
Is Housing for All the answer to our woes?
The benefits of increased supply are clear, as more workers and families are accommodated at more depressed prices than would have been in the case in the absence of supply increases. But, whilst free-market housing supply, urban infill and filtering mechanisms are important in curbing prices and providing housing, it is also clear that following a market-only housing production path will certainly not be sufficient in solving the affordability problem. Simply put, large segments of the population on lower incomes (and even middle incomes) are still priced out.
It is also important to note that there will be increased demand pressures in the future from agglomeration forces due to increased automation and AI disruptions. This will make Irish cities more attractive (particularly Dublin) and more polarised in terms of incomes, which will exacerbate housing affordability pressures even further.
Until we get a handle on land costs, I fail to envisage a time when we will get a handle on affordability
This is why policy cannot rely on the market to solve the affordability problem. To be fair, the Government’s Housing for All to 2030 plan is sending the right signals in terms of public housing provision, cost-rental, land value capture and vacant property levies. But while the interventions in these areas are the right ones, they are simply not at the radical scale required to deflate production costs and prices enough to eliminate the affordability gap.
There is also little detail available on some of these vital mechanisms. With the cost of delivering social housing 40% cheaper than the private sector (with land, profits and VAT savings), it seems like a better time than ever to ramp up public interventions in this regard. Until we get a handle on land costs, I fail to envisage a time when we will get a handle on affordability. In this regard, it would be wise to go ‘back to the future’ to learn where it all went wrong when we failed to implement the Kenny Report from 1973. The ‘housing for all’ framework is on the right track, but tweaking around the edges won’t cut it.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ
