The general election housing auction has started. The Opposition parties are putting in the bids for how many houses they could build each year. Social Democrats leader Holly Cairns was out at her party conference last weekend promising that the party in government would “deliver” 50,000 new homes every year. Last month Labour matched this number for new-builds and said a further 50,000 refurbished homes should be delivered each year – adding up to one million more dwellings over a decade. Sinn Féin has focused its numbers on social and affordable housing, where it says 21,000 additional homes could be delivered over the next year.
But are these promises realistic? Last year, with the Government throwing literally billions at the issue, the level of completions was 32,7000, up 10 per cent on the year before. True, a significant part of the State spending is via initiatives which will take a few more years to boost supply significantly. But there are familiar barriers to accelerating the supply of new housing.
The next government will face three big challenges if it wants to accelerate the supply of new homes – overcoming structural barriers such as the holdups in planning, ensuring there are enough resources available in the construction sector, and dealing with the viability gap, which means that if it was all left to the market, many people could never afford to buy.
None of this will be straightforward and a problem for any government is the degree of control it can exercise. Promises to “deliver” houses overlooks the fact that the minister for housing of the day can only do so much. Sinn Féin has been critical, for example, of the Government’s reliance on the private sector and of some of the incentives it has offered – particularly in the area of the tax breaks for build to rent. It promises to boost State-controlled building. But this requires the necessary capacity in the wider State sector to act as the developer – and also the availability of builders to actually do the work.
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This will be a key constraint on whoever is in power – the capacity of the building sector needs to be significantly increased if higher building targets are to be met. Building consultants Mitchell McDermott have estimated that 50,000 more workers across the industry would be required to increase output to 50,000 houses annually. It believes it would take to the end of the decade to achieve this level of recruitment. It would mean attracting Irish people working overseas to come home and also more immigrant workers, according to Paul Mitchell, a director of Mitchell McDermott. In turn, this raises the issue of where the additional workforce will live themselves when they are engaged in the building work, a factor which he says would require imaginative solutions.
There is some scope, according to Mr Mitchell, to move staff from the cooling office construction market, though he cautious that the skills are not transferable in all cases. Work by the ESRI has shown how closely the size of the building sector has followed its output during the boom up to 2008 and the subsequent bust. But it agrees that a tooling up of the sector is required to increase output.
A report by Goodbody Stockbrokers this week underlined this issue, pointing to big capacity challenges in the construction sector. “Our analysis highlights the distinct lack of scale of home builders in Ireland,” according to Dermot O’Leary, the broker’s chief economist, “with the top 10 builders of homes in 2023 accounting for 32 per cent of total commencements in Ireland, relative to 42 per cent in the UK.” Ireland is also short of dedicated housebuilders – relying more on general contractors – and particularly of those who have the resources to start bigger housing developments. The long tail of the financial crash, when many builders went bust, still haunts the sector.
On any reasonable view, ramping up supply to the levels which look to be required is going to be challenging and will take some years
This lack of scale and shortage of workers is a key barrier. But there are other, familiar issues facing whoever is in government. A key problem has been planning – Mitchell McDermott’s analysis suggests that at the end of last year there were 20,683 houses stuck in An Bord Pleanála under the old Strategic Housing Development (SHD) planning system and another 8,139 awaiting judicial review decisions in the High Court, equivalent to not too far off one year’s current supply level. On a more optimistic note, applications lodged under the new Large Residential Development (LRD) system – which replaced the SHD – are being generally dealt with in a timely fashion, providing some hope for the future. A lot now hangs on a controversial new Planning Bill due to come into force this year, which has attracted some criticism from planners and the Opposition.
And then there is the financing gap. Put simply, the Irish market, left to its own devices, cannot deliver a lot of homes at affordable prices. Incentives on both the supply side – to help developers and increase State activity – and the demand side – to support buyers – have been required to ensure a flow of new homes on to the market. Paul Mitchell says that a number of new schemes to support developers – some involving the Land Development Agency (LDA) – have been vital over the past year, particularly to support apartment developments.
With private investment funds moving away from the Irish market as interest rate increases created opportunities elsewhere and the costs of completing developments here rose, the reliance on State support is only going to grow in the short term.
A report from the Society of Chartered Surveyors in Ireland (SCSI) underlined this affordability gap, estimating that a household income of €127,000 would be required to buy an average three-bed semidetached home in the Dublin region. This is why a central issue in the next general election will be not only how many new houses can be built, but how they are to be made affordable. Of course the arrival of new supply will, in itself, have an impact on price trends, even if Sinn Féin president Mary Lou McDonald’s comments that the party would like to see average prices in Dublin fall to €300,000 would likely require an economic downturn as well. But whatever about average prices, delivering new homes at affordable prices will be a big part of the challenge facing the next government.
This will require the ongoing deployment of large State resources and a partnership with the housing sector to rebuild its output and scale. A vital issue is getting the incentives and State spending programmes right – billions, literally, are on the line.
On any reasonable view, ramping up supply to the levels which look to be required is going to be challenging and will take some years. That is no reason not to try – on the contrary – but it does make managing political expectations devilishly difficult. And it means that, when politicians promise more houses, they should be asked two questions – how, and when?
Holly Cairns said that the 50,000 target could be met in about two years into the term of the next government. The other parties are also promising rapid progress. That’s politics, but the reality of the housing market is that increasing output will be a long game.
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