It's tempting to view the perennial calamity that is housing in Ireland as unique. Half a century of lousy, at times corrupt, planning has left us with a countryside full of one-off housing and cities full of low-density developments.
This makes the roll-out of infrastructure – health, transport, water and broadband – complicated and costly. Hence we have congested roads and transport systems, overburdened health services and a standard of living that belies our income.
Even the boom and bust of 10 years ago – when the banks led a speculative frenzy that would have made a derivative trader blush– seemed to have a distinctly Irish flavour.
Winter Nights
Yet the problem of housing is endemic the world over. Homelessness rates have risen in most industrialised countries. Low and middle-income earners, are priced out of urban markets in the UK, Canada, the US, Hong Kong, New Zealand.
Even Germany, the envy of the world in terms of planning, finds itself in the grip of a housing crisis. In Germany's "big seven" cities – Berlin, Hamburg, Düsseldorf, Cologne, Munich, Frankfurt and Stuttgart – house prices for existing homes rose by 123.7 per cent on average from 2009 to 2019, according to Deutsche Bank.
This far exceeds the increase seen in London or New York. Back in the 2000s we used to berate ourselves for being too attached to owning property and for not being more like the Germans, who seemed happy to rent. No-one mentions this anymore. The Boston versus Berlin argument is defunct.
And the coronavirus crisis, instead of halting the prevailing dynamic, has only cemented it. At the outset, commentators predicted the pandemic would depress house prices. The opposite has occurred.
Now we’re talking about a Covid property boom. Maybe “boom” is overstating it, but prices, transactions and mortgage activity have been on the rise since last summer and the lifting of the first lockdown.
Whether people are rethinking their living arrangements because of Covid, and/or have built-up savings, or are returning from the UK in the wake of Brexit, property markets here and elsewhere are buoyant in the face of the worst global recession in a 100 years.
House prices shouldn’t rise in a recession. But if the trend is so global, what’s behind it? In the 1970s and 1980s, property morphed from being simply a good produced like any other on the basis of demand and supply – one that delivered modest returns for builders and developers – into an asset, a high-flying financial asset, and the focus of speculative behaviour based around yields and interest rates.
Prospective buyers aren’t so much vying with each other to get on the ladder, they’re having to navigate land speculation in the background and the investment patterns of large financial institutions in the foreground.
Social housing
The main drivers of residential construction in Ireland are currently private rented sector (PRS) investors with up to 80 per cent of the money coming from abroad.These investors have flocked to Ireland to avail of comparatively strong returns from the rental sector and are buying apartment developments off the plans as single lots.
It’s no longer economic for developers to build apartments – the very units we need for our cities – for the sales market as people on average incomes can’t afford them. The Society of Chartered Surveyors Ireland (SCSI), the professional body for the industry, puts the cost of delivering a two-bedroom, medium-rise apartment in suburban Dublin at €400,000-€481,000 and €470,000- €578,000 in the city centre.
Another observable dynamic is the exit of governments from the social housing sector. Local authorities here now rely on so-called turnkey acquisitions from the private sector for around 70 per cent of their housing needs while the focus of central government is increasingly on subsidising rents rather than building directly. Even the penniless Irish administrations of the 1950s and the 1970s built more social housing than the current one, despite the latter being awash with tax revenue from the multinational sector.
And then there’s the elephant in the room, interest rates. The four-decade long boom in house prices – apart from the short-lived decline after 2008 – coincides with a period of historically low interest rates.
For decades we’ve been told that house prices are driven by demand and supply. The mainstream narrative here is still dominated by the notion that housing is expensive because there are simply not enough homes to go around.
However, a seminal Bank of England study suggests the surge in house prices in the UK, where property prices have quadrupled since the 1980s, has been driven not by a lack of supply but by low interest rates.
And that’s because housing is an asset and low interest rates increase the value of future income flows. This incentivises banks to lend more, investors to invest more and people to borrow more, thus inflating housing values. Conquering the supply problem won’t change this. If anything rising house prices tend to entice more people into the market. And feeding into this equation are central banks and their massive quantitative easing (QE) projects, which are keeping interest rates at record lows.
Whatever you think about these policies, they have flooded the world with cheap money, creating a series of asset-price bubbles, none more so than in housing.
This is not say that Ireland’s housing woes are identical to those in other countries, just that in broad brushstroke terms, we’re part of a wider whole.
