When housing affordability becomes a problem, low and middle-income families are excluded from the market. The obvious answer is to build more homes and force down prices. Because of political pressure and a short election cycle, however, governments reach for subsidies to bridge that price gap, thereby sustaining a dysfunctional market.
Aside from delays caused by bureaucracy, available funding and local objections, the central impediment to a properly functioning market is the price of land. House prices and rents dropped precipitously following the financial crash, but prime development land retained much of its value as owners hunkered down and waited out the economic storm. Today, site prices in Dublin exceed Celtic Tiger levels and the Government is being forced to provide State-owned land at minimum prices to cater for demand. In an attempt to bring privately hoarded land into use, a vacant site charge of 3 per cent will rise to 7 per cent next year.
The political focus remained on social and affordable housing, even as prices in the inner suburbs rose dramatically. Such homes are now well beyond the range of families on average disposable incomes. Accommodation costs have inhibited competitiveness and represent a significant element in driving wage demands. The cost of renting an executive apartment in a high-rise development within the Dublin docklands has been estimated at €3,850 a month.
Past government interventions in the housing market were prompted by emergency situations. Social housing schemes prompted by slum clearances were well planned and executed. But recent exercises involved poorly designed housing estates, lacking basic facilities. To avoid those mistakes in the future, it has been suggested that social and affordable housing schemes should be unified, and provided with high-quality services and amenities.
That approach is not being adopted in plans drawn up by Minister for Housing Eoghan Murphy. Some progress has been made in meeting the Government’s social housing targets. But it is a Sisyphean task because council tenants are entitled to purchase their homes at a discount of 60 per cent. Two-thirds of social houses built have been sold.
A new affordable house-purchase scheme will be unveiled within weeks, involving anticipated discounts of up to 40 per cent. Local authorities will be given charge of the scheme, but precise details remain vague. Experts warn of the financial dangers involved in giving councils responsibility for acting as both purchasers and sellers of these properties. In that context and because of unsustainable prices, the impact of discounts and subsidies on the property market should be carefully evaluated.