‘It’s Not Possible To Make Housing More Affordable By Just Increasing Supply’


From top: Taoiseach Leo Varadkar and Minister for Housing Eoghan Murphy at the Housing Summit in the Custom House, Dublin in 2017; architect Orla Hegarty; Morning Ireland clip on Soundcloud

This morning.

On RTÉ’s Morning Ireland.

Dr Lorcan Sirr, lecturer in Housing Studies at Dublin Institute of Technology, and Orla Hegarty, architect and assistant professor at the school of architecture at University College Dublin, spoke to Audrey Carville about the housing crisis in Ireland.

It’s possibly the calmest conversation aired about housing so far in this election.

From their discussion:

Audrey Carville: “How do we get to a point where we’re building the number of houses that we need?”

Lorcan Sirr: “There’s a huge confusion, Audrey, about the number of houses that we need and the number of houses that the private sector, in particular, can supply.

“So when you listen to the experts, like the ESRI, they will tell you that you need something like 34,000 houses a year. And they’re absolutely right, when you look at the demographics of Ireland, and if houses were free, we could give out 34,000 houses tomorrow and they would all be taken up.

“The problem is the market, there isn’t a market there for 34,000 houses, by which I mean there aren’t enough people out there, mortgage-approved, who will buy 34,000 houses.

“Typically, in any year, only about half the houses that are built come on the market for sale. One quarter go for social housing, one quarter are one-off houses and the other half then come to the market.

“In 2018, we saw about 10,000 or 11,000 houses come to the market and last year we built about 21,000 houses, just over half of those will come to the market. Already, prices are slowing down which means there isn’t a market for 34,000 houses.

“So the problem, builders are obviously not going to build when there isn’t a market there and we see the rate of housing output slowing down every year from 2017 to 2019.

“So the difference between the 12, 13, 14,000 houses that the private sector can supply and the 34,000 houses that we need is the issue for Government and that’s probably where some sort of concept like public housing comes in.

“We didn’t have this issue before because we didn’t have macro-prudential rules that limited the amount of money effectively that people could buy. Now people are much more limited in what they can borrow. So therefore the amount of people out there available to buy is less. So that’s a huge issue…”

Carville: “Ok.”

Sirr: “…around the housing output.”

Carville: “And I do want to talk about the availability of land and those issues that are actually involved in getting houses built but Orla, to you, will increase in supply make houses affordable?”

Orla Hegarty: “It’s not possible to make housing more affordable by just increasing supply because there are capacity constraints in the construction industry and we would have heard that earlier in the programme in terms of skill and our boom/bust cycle actually exacerbates that because people with skills lose their skills or they leave and we don’t train apprentices.

“So we’re now in a situation where the industry is effectively at capacity but that capacity is all concentrating into the niche markets where there are high returns.

“So what we’re seeing is the median price of new housing in the country is up at €350,000 even though the target about four years ago was to have this sort of starter homes in Dublin at around €260,000 so the costs have gone out of control but that isn’t to do with the construction sector making more money or construction costs being out of line.

“That’s got to do with what’s going on in the land market and the amount of disruption  with all the changes in planning have been brought into it.

“I mean on the department’s own construction figures, for example, we can see that in Dublin, we could be providing housing under €250,000 for people. And that would give so many people some choice. It would give them control and it would mean they didn’t need subsidies.

“So that type of housing, whether it’s three-bedroom houses, or two-bedroom apartments would meet an enormous need in Dublin.

“Obviously some people will always need some subsidy on their housing but this has broader implications for, generally, for the economy. Because what’s happening in the new supply is it’s happening in three areas really.

“It’s high priced rentals that are owned by institutions in Dublin city. There’s very little else coming to market in Dublin city…”

Carville: “And rental security as well?”

Hegarty: “Security is important but the next wave of supply that we’re seeing at the moment is more commuter-belt housing which is contrary to all of our broader Government policy to do with climate change and transportation and engagement in the workforce.

“Students and people are commuting long distances. It’s a barrier to women staying in employment.

“It means more infrastructure has to be built, to get people to work. And all of that is a policy in housing that is pushing people out into the periphery and causing other problems in the economy.”

Carville: “Lorcan, some of the parties talk about the availability of public land for social housing and who will build it and they argue that the land is there, it’s owned by the State, it’s public land, the local authorities should use it to build and they can do it for much cheaper than the private developers who do it for profit.

“So what’s the obstacle to more of that happening and building houses, as Orla says, so people can buy for €250,000 which is still an awful lot of money.”

Sirr:In theory, Audrey, the State could build houses for X and sell them for X and the State doesn’t really need to be making profit and we have hundreds of thousands of acres of State land out there, available and ready to go, or ready to go with very little input.

There is an ideology, I think, on policy-making level against competing with the private market.

“And I think that’s a big one where the Government are afraid to start building houses at any scale because then you’re starting to compete with private sector and that would be an ideological barrier from the Government’s perspective.

“They have set up a thing called the Land Development Agency [launched by the Government in September 2018 with the promise of building 150,000 new homes by 2038] whose remit is to go and take land, public sector land and use it for lots of things, including housing.

“The problem there is that they, of course, want to involve the private sector, and do partnerships with the private sector and when you bring the private sector in, the profit motivation of the private sector is not compatible with providing housing that’s affordable for your average household.

“So between the ideology and the way they’ve set up this new Land Development Agency which, in theory, is good but, in execution, is not going to provide housing that is affordable for most people is going to be a problem.”

Carville: “Do you agree with that, Orla?”

Hegarty: “I think a lot of people would see the LDA as being a new venture that could provide affordable housing. In fact, they have no remit for affordability. The remit for the LDA is to return a profit in some ways in the way that Nama was so what that means is: in the short term, it may return a profit to the State from the land value. But all of that will be paid back, over time, by the people, the residents…”

Carville: “So from your point of view, what are the key areas that the next Government that takes office, later this year, will need to address urgently?”

Hegarty: “Well what we have in our favour is we have a lot of land compared to a lot of cities that have a housing crisis, we have a lot of land. We also have a lot of vacancy. A lot of money, up to a billion next year, this year, will be spent on rent subsidies into the private sector.

“By moving that into more efficient means, and that would mean using vacancy, using EU funding for energy upgrades and commercial vacancy – every town in Ireland has vacancy. That would start to free up some funding for seed capital.

“And the important thing with housing development is, it’s not like university building or a children’s hospital. You don’t need all of the funding. You need the money to start because housing is built incrementally.

“And if it is phased, the first billion can do a certain amount, that can roll over into the next phase. So it’s a strategic approach. A finance to procurement and a design that’s going to be important now.”

Listen back in full on Soundcloud above or here


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10 thoughts on “‘It’s Not Possible To Make Housing More Affordable By Just Increasing Supply’

  1. Pat Harding

    Dublin Institute of Technology doesn’t exist anymore, it’s Technological University Dublin. Just saying.

    1. Con Kennedy

      What that man said. TUDublin is Ireland’s newest university. DIT hasn’t existed for over a year.

  2. D

    s’whappens when you push the national reserves into a failed banking and construction industry. only way these property owning politicians will get their retirement money is to float them.

    consider what happens when your rent goes up 100 euro. you have to earn 200 euro. then the govt takes 100 euro of that and 50 of what you give the landlord, assuming he’s in profit already.

    1. Cian

      This is unfortunately not how our mortgage market works. If house prices fall, the value of the mortgages owned by the banks fall. This means the banks need to acquire more capital, and also make the banks require higher deposits (to prevent the same thing happening again).

  3. class wario

    the commodification of a vital part of human life/survival (shelter) is vile and it’s laid bare here

    1. Rob_G

      Food is also a commodity; so far, we haven’t been able to come up with a better system to deliver more of either than through their commodification.

  4. Treasa

    “In theory, Audrey, the State could build houses for X and sell them for X and the State doesn’t really need to be making profit and we have hundreds of thousands of acres of State land out there, available and ready to go, or ready to go with very little input. There is an ideology, I think, on policy-making level against competing with the private market.” FG and their ilk are clearly sociopathic.

    Oh, and how devastating is it to be so completely taken aback to hear two people intelligently and clearly discussing an issue constructively, and with the common interest at the forefront of their rhetoric. Politicians really are the used car salespeople dregs of society.

    There it is kids, they know how to solve it, they can solve it, they have always been able to solve it, but they won’t because … FG and their supporters are sociopaths.

  5. DaithiG

    A more informed person than myself could tell me, but if lending from the bank is so tight, could the government not set up some mortgage system for working class earners with good credit, but little capital to put down?

    We hear that young families cannot save money to buy, so have the state provide the lending, which can be more difficult to default on, since the revenue can start to withhold on your earnings?

    Obviously to do this, it would be in their best interest to build more housing to try and bring the property values down a bit. Kind of tackle it from both ends?

  6. Mike Baldwin

    Per the comment about commoditization, food isn’t a commodity as an absolute, not even bananas are a commodity as they can vary in size, shape, weight, color and flavor. A Commodity needs to be perfectly fungible to meet the definition.

    By extension, ‘housing’ falls very short of the definition of a commodity. Some houses are ‘better’ than others simply put, hence they command different prices. Social housing for 34,000 people requiring (different categories) of accommodation, almost by definition, needs to be demonstrably ‘worse’ than that which is brought to market by the private sector (or conversely, private sector housing output needs to be economically ‘superior’ to social housing in order to combat a drop in market value to a level that causes private developers to exit the market).

    Essentially, the 2 markets need to be totally segmented and strict regulations around who qualifies for social housing implemented.

    There are too many people just straddling an arbitrary precipe with regards into which category they qualify for, doing well enough to save for a deposit or in the depths of emergency homeless crisis? – this divide needs to be bridged.. then you have ideological considerations around what an ’emergency’ is defined as. Is a family of 3 living in the parents’ box room an ’emergency’? Is a couple without kids living in a hotel an ’emergency’…

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