This article was first published in the July/August 2016 Ireland edition of Accounting and Business magazine.

Ireland is in the midst of a housing crisis and it is getting steadily worse. As the government prepares to publish its new housing strategy, those involved in the sector are urging it to make its intervention an effective one.

An indicator of the scale of the challenge is the rise in housing costs. In the year ending April 2016, average property prices rose by 7.1%, in a period when inflation was broadly flat. Dublin property prices rose by 5% in the year – and by 1.9% in the single month of April.  While those statistics reflect a problem of affordability, they actually represent a significant fall in average prices from the pre-crash peak: indeed, Dublin house prices remain 33.1% below their high point, while Dublin apartments are 41.5% below their peak.

House prices are likely to continue to increase. The Society of Chartered Surveyors Ireland (SCSI) reports that the average price for a three-bedroom semi-detached home in Dublin – €285,000 – is actually less than the real cost of a new build, which typically costs €330,000 in Greater Dublin. Construction costs account for €150,000 of this sum, with land costs, VAT and professional services making up the rest. The SCSI wants government to either abolish or at least cut the current 13.5% VAT rate on new homes to narrow the gap with Northern Ireland and the rest of the UK, where housing is exempt from VAT.

Micheal Mahon of the SCSI says: ‘The country is experiencing a chronic housing shortage, which is contributing significantly to the current homelessness crisis. The findings of this report highlight a number of pressing issues, particularly on the soft-cost side. We need to kick start housing supply as soon as possible and to accelerate from the current output of 12,000 units per annum to the 25,000 units which is required.’

Money worries

Undersupply is evident in homes for rent as well as for sale. In the year ending March, average rental costs in Ireland rose by 9.3%, according to analysis conducted for the website by Ronan Lyons, an economist at Trinity College Dublin.  

‘This represents a remarkably persistent rate of rental inflation,’ says Lyons. ‘There is the danger that this very high rate of inflation becomes something of a new normal,’ he warns.  But, he adds, ‘There is nothing normal – or indeed sustainable – about inflation in rents of 10%.’  The clear indication, says Lyons, is that housing costs will absorb an ever-increasing proportion of income for households that are renting.

The same is true for those who are buying, with many finding mortgage costs crippling. For a large proportion, the problems will intensify as and when interest rates return to normal. While there are some signs that the number of borrowers in mortgage arrears is falling, the problem persists for both borrowers and lenders. In its results for the first quarter of 2016, Allied Irish Bank reported that mortgage arrears had declined by 4% over the period. Since the end of 2014, the number of its mortgage accounts in arrears has fallen by 29% for owner-occupiers and by 27% for buy-to-let borrowers.

Meanwhile, Ulster Bank – which is under continuing pressure from owners RBS and the UK government to clean up its balance sheet – is in the process of disposing of 900 non-performing mortgages, with a face value of around €875m. PwC is reportedly handling the sale of the portfolio, which has been called Project Oyster. An Ulster Bank spokesman said: ‘The loans involved do not belong to typical customers. They are all in Ulster Bank’s problem debt management unit and have been in arrears or under specialist management for a significant period of time.’

No home from home

Lenders are conflicted: while they want to tackle the level of mortgage arrears, they are under political pressure not to evict. Social justice campaigner Peter McVerry of the Peter McVerry Trust argues that the vast majority of people who are homeless are simply unable to afford any available accommodation. At present, there are around 6,000 people in Ireland who are homeless, a third of them children.  

McVerry told the Oireachtas committee on housing and homelessness: ‘I would like to see legislation preventing anybody – local authorities or banks – from evicting people into homelessness. It should be illegal until alternative accommodation is available.’  

A report from the university NUI Galway, Promoting protection of the right to housing – Homelessness prevention in the context of evictions, echoed the call for stronger legal protection from home evictions, in the case of both tenants and borrowers in arrears. It recommended that courts should be obliged to involve social support agencies in repossession cases. A major cause of evictions, concluded the report, was rising rents.  

Research leader Padraic Kenna said: ‘The findings of this research show the need to integrate accepted eviction-related housing rights standards into national and EU legal and policy norms. Creating a legal obligation on courts and other agencies involved in possession proceedings to promptly engage with housing and social support agencies would be a valuable first step in preventing homelessness.’

David Silke, director of research and corporate affairs at the Housing Agency, says there are ‘multiple reasons’ for the current housing crisis. ‘Lack of supply of accommodation is clearly the main reason,’ he says. ‘We also need to ensure supply is affordable. One of the lessons of the past is that people took out mortgages that they could not afford, so there are 60,000 households in mortgage arrears of over 90 days, which is a huge number of people to have suffering problems with their mortgages, and there are 25,000 households living in buy-to-let properties that are in mortgage arrears of over 90 days.’

Changing demographics is another factor. There has been substantial population growth in Ireland – 30% in the last 20 years. The population is predicted to continue growing, from the current 4.6 million to 5.2 million by 2031, with the number of older people doubling in that period.  

‘The population is increasing and households are reducing in size,’ explains Silke.  ‘So about three-quarters of the housing requirement will be for homes of three or fewer people. That has implications for the type of accommodation we are building. We need houses and apartments that are smaller.’

There are other steps we should be taking, argues the Housing Agency. Silke explains: ‘We should prioritise keeping people in their homes. There are a growing number of people in emergency homeless accommodation. That is very unsatisfactory. We want to avoid more people being in that situation. The second thing is utilising empty homes.’ There are almost a quarter-of-a-million empty homes across Ireland – more than enough to house those who are homeless. The agency also wants greater support for the private rented sector: in Dublin in particular a vast number of people are living in private rented accommodation.

Taxing empty homes

Newly appointed housing minister Simon Coveney says that significant reforms to housing policy will be included in the government’s new housing strategy, due to be published in July.  One option under consideration is the introduction of taxes on empty homes, a policy used in place in several jurisdictions around the world. In England, for example, many local authorities impose a 50% council tax surcharge on homes that have been empty for more than two years. Former mayor of London Boris Johnson wanted to go further and impose penalty taxes on those who bought properties for investment purposes and then left them empty. 

Speaking to the Dail’s Committee on Housing and Homelessness, Coveney said the government would consider cutting the VAT rate on new homes to 9% to assist with affordability. The government will also address the issue of rental affordability, including through interventions to achieve discounts on market rents in the private sector. A programme of new social homes is likely to be initiated, with the focus on mixed developments aimed at avoiding the development of ‘ghettos’ of social-housing estates. Some of the new provision will be through public-private partnerships, Coveney explained.

In an address to Cork city and county councils, Coveney said housing policy would evolve as part of the development of a new national spatial strategy which will decide ‘where people will live and how people will live in 10 and 20 years’ time’. He explained: ‘If we had done that successfully 20 years ago, the extra million people living in Ireland now wouldn’t all be living in the Dublin area. We may have had a much more balanced geographical spread.’

North-south divide

Ministers believe the overheated housing market in Dublin is a symptom of the broader issue that too much of Ireland’s economy is based in the capital. We can expect that policies to make housing more available and more affordable will go significantly beyond the consideration of housing and look at greater economic decentralisation across the country as well.  

Paddy Gray, professor of housing at Ulster University, spoke at the Housing Agency’s recent conference on affordability and says that Northern Ireland has its own serious housing difficulties, but that they are different from those in the south.  

‘We don’t have the same major problems as Dublin and Galway, with very high rents and very high housing prices,’ explains Gray. ‘Our housing prices are among the cheapest in the UK. An average price in the north-west is £90,000. People laughed when I mentioned that at the conference. There is a growing private-rental sector on both sides of the border. In Dublin, rents might be €1,500 a month for a poor-quality city-centre apartment. They are not as unaffordable in the north and rents have not gone up as much.’

One of the north’s problems is the surplus of demand over supply for social housing – nearly 40,000 households are on the waiting list. Meanwhile, there is growing anxiety over the future of the Housing Executive, a government body that is the main provider of social housing. At present it charges rents that are substantially below market levels. But the Fresh Start political agreement promises to reform the Housing Executive and to reduce the public subsidy, implying higher rents. At present rent levels, Gray points out, the Housing Executive does not generate sufficient revenues to reinvest.

In addition to the shortage of investment in social housing, another factor limiting supply in Northern Ireland is the lack of available development land. In Belfast, where demand is highest, most potential development land is brownfield and requires costly remediation.  

Since development prices crashed in the financial crisis, the suspicion is that many landowners do not want to sell until prices recover. ‘People are holding onto land and land banking, hoping that prices will rise,’ says Gray.  

While the crisis in the south is in part about the number of vacant properties, the corollary in the north is the withholding of development land that could be used for house building. Gray says that while in the south, part of the political conversation is about levying a tax on empty homes, in the north, people are starting to discuss a tax on unused development land. 

Paul Gosling, journalist