To bridge the affordability gap in housing markets, governments can in theory do one of two things: lower house prices or bolster the purchasing power of buyers.
Irish governments have continually opted for the latter. The idea behind the various Help to Buy, First Home, Local Authority Home Loan schemes is that by helping people pay more, this will encourage developers to build more, which will increase supply.
Except by underscoring the current price dynamic, the schemes don’t alleviate the affordability gap so much as kick it down the road.
So we have prices on a perennial upward curve and fewer people able to buy and the corollary of this, more and more people renting and more people in need of social housing or the Government’s preferred option, rent supports.
The percentage of households renting in the Republic rose from 18 per cent to 29 per cent in the 20 years between 2000 and 2020, according to a recent report from the Economic and Social Research Institute.
The report notes that number of households renting in the State had been in long-term decline over the second half of the 20th century but this trend has been turned on its head in the 21st century.
The report also indicates that 54 per cent of renters in the Republic require some form of State support.
Much of the increased supply of housing flowing out into the Irish market in recent years has been gobbled up by financial institutions for the lucrative buy-to-let market
Ireland’s housing market, like those in many other countries, is a byproduct of three mega-trends. First, prices have become a gross multiple of income, making housing unaffordable for the average worker and, some might say, unavoidable for investors chasing a return on their money in an financial era defined by low interest rates.
Central banks have egged on this trend by flushing the global financial system with money which has produced asset price bubbles in several sectors, most obviously in housing.
Ifac’s new report: more ‘fiscal gimmickry’ from the government
Much of the increased supply of housing flowing out into the Irish market in recent years has been gobbled up by financial institutions for the lucrative buy-to-let market.
Cheap money and the gradual financialisation of real estate is perhaps the best explanation for why house prices have detached themselves from their former anchor, income.
The second big trend, an annex to the 1980s shift toward market-orientated policies such as privatisation, relates to social housing.
Somewhere along the way, governments stopped building public housing to the same extent, selling off a significant amount of existing stock while switching to providing rent supports instead.
But with more people renting because of higher prices and more people in the private rental market because of the lack of social housing, this policy has spectacularly backfired.
In many cities, including Dublin, the pressure on private rental markets means it’s easier to get a job than a home.
The third mega-trend in housing is the arrival of institutional investors into the equation. Before the 2008 banking crisis, we didn’t have them here.
While the trend is global, Irish governments facilitated the influx of funds by removing toxic property assets from the balance sheets of banks and holding a giant fire sale auction under the auspices of the National Asset Management Agency.
Sherry FitzGerald estimates that private rental sector (PRS) funds have invested close to €10 billion into the Irish property market since 2011, including €8.4 billion between 2018 and 2022.
The recent hike in interest rates has checked this trend but most of the apartments schemes built in Dublin in recent years were done so on the basis of a presale arrangement with the developer financed by the end buyer or PRS investor.
Housing is a tangled mess with no obvious solution.
The units in the main bypassed the sales market in favour of the rental sector, hence the perception that domestic buyers are being squeezed out.
Ireland has had a unique experience with housing – centring on a spectacular build-up and blow-up in the 2000s and then a near zero build rate post 2010, culminating in the current crisis – but it is also a microcosm of a global housing problem that is causing an major intergenerational divide.
The latter is feeding anti-establishment politics and political grievances the world over. According to a Reuters poll of property analysts, major economies grappling with the problem will struggle to crank up the supply of affordable homes in coming years. Most highlighted the lack of starter homes. Housing is a tangled mess with no obvious solution.
More than 750,000 jobs have been created in the Irish economy over the last decade, the strongest level of job growth ever seen in Ireland, but the achievement is overshadowed by the Government’s record on housing.
We’re now heading into a period of pre-election auction politics with Government and Opposition parties likely to promise new measures or a ramping up of existing measures to a crisis-weary public, ones that will fail to alleviate the central problem, affordability.
- Sign up for Business push alerts and have the best news, analysis and comment delivered directly to your phone
- Find The Irish Times on WhatsApp and stay up to date
- Our Inside Business podcast is published weekly – Find the latest episode here
