RESIDENTIAL PROPERTY CRISIS WORSENS AND WILL CONTINUE TO PUSH A CERTAIN AGE COHORT TOWARDS SINN FÉIN
CSO House Price Data Highlight the Issue
THE RESIDENTIAL PROPERTY CRISIS WORSENS AND THE POLITICAL PAYBACK LOOKS PRETTY INEVITABLE
Jim Power
Despite the fact that the so-called ‘cost of living’ crisis has taken over from Covid and the housing market as the issue that is most exercising people at the moment, I have believed for some time and continue to believe that housing is the biggest economic, social and political issue facing us as a country and our political system.
In our podcast earlier this week we discussed the rise in support for Sinn Féin and suggested that the age segment of the electorate that is most drawn towards the main opposition party is the age cohort that is most adversely affected by the housing crisis, either from the perspective of aspiring home owners or renters.
It is clear that there is no short-term solution to the crisis, but it is equally clear that unless there is more significant evidence of an improving situation in the short-term, the current parties of government will face a difficult election in 2024 or whenever it happens. Indeed, a few responses to our podcast were from people with well-paid jobs who cannot possibly get on the housing ladder at current prices and who are paying very high rents. They are angry and it is really hard to blame them
The perception and indeed the reality is that under the watch of the current parties of government over a prolonged period of time, the housing market has been priced out of the reach of aspiring first-time buyers and rents are eating up a growing percentage of take-home incomes. Consequently, if the incumbents don’t appear capable of providing a solution, then there is a growing view that the main opposition party, which is making it all sound so simple, should be given an opportunity to try. The current parties of government will struggle to fight against that increasingly popular view.
Some would argue that we actually don’t have a housing crisis and that what is happening house prices and rents is a ‘first-world’ problem that reflects in some way the success of the Irish economy. I think any politician or policy maker who accepts that view of the world is naïve in the extreme. Given the traditional propensity in Ireland to aspire to home ownership at as early an age as possible, the inability to do so is indeed a crisis. In any event it is not as if there is a viable alternative to home ownership. The rental market is equally dysfunctional at the moment. CSO data show that rents increased by 8.4 per cent in the year to December, but other bodies such as Daft.ie suggest an even higher rate of growth in rents.
The latest data on residential property prices from the CSO this week give little cause for respite. In the year to December, natural average residential property prices increased by 14.4 per cent; prices in Dublin increased by 13.1 per cent; and prices outside of Dublin increased by 15.4 per cent. The upward momentum in residential property prices continues unabated which is not good news from any possible perspective.
At the end of 2021, national average house prices were just 4 per cent lower than the unsustainable peak reached in April 2007; Dublin prices are 11.3 per cent lower than the unsustainable peak in February 2007; and outside of Dublin, prices in December were 5.7 per cent lower than their May 2007 peak. This is not a good situation, but at least this time around, the banking system or mortgage borrowers do not have the same vulnerability to some sort of shock, unlike back in 2007.
Given these price levels and the mortgage lending restrictions put in place by the Central Bank, affordability for many aspiring home buyers is simply not possible. On the rental front, the Residential Tenancies Board (RTB) suggests that in the third quarter of 2021, the Standardised Average Rent nationally stood at €1,397, and in Dublin the equivalent was €1,916. These are astronomical rents coming out of after-tax income, and the monthly mortgage repayment associated with such properties would be lower than the equivalent rent. This is not a sustainable situation and is one that needs to be remedied as quickly as possible, not least from the perspective of national economic competitiveness, but also from a societal perspective.
It is not clear what the solution to the problem is, but it is clear that there is no silver-bullet solution. At a basic level, it seems very clear to me that the supply of owner-occupier and rental properties needs to increase as quickly as possible. We need to provides as much residential stock as possible as quickly as possible. It is not just all about social and affordable housing as some politicians and commentators appear to suggest – the supply of all types of housing is necessary. We need appropriate accommodation to suit all market requirements, in the areas where the demand exists or where potential demand is possible.
Addressing height restrictions and density has to be considered; all vacant properties with potential for residential use needs to be pushed, and this of course could inject much needed life and social vibrancy back into our depleted towns and villages; the total State take from new housing needs to be reduced to reduce the cost of delivery; and work permits have to be issued to bring in the labour supply necessary to build houses, restore houses and retrofit. The planning system needs to be made fit for purpose and in a situation of crisis and emergency, NIMBYs need to be treated in an appropriate manner.
On the rental side we have seen the demonisation of institutional landlords and the role they play in the rental market. At the same time private landlords are exiting the market. A recent report from the Real Estate Alliance (REA) suggests that private landlords are fleeing the market. Its data show that 24.2 per cent of second-hand house sales in the final quarter of 2021were due to landlords exiting the market. REA believes that the changing legislation associated with the residential rental market is becoming a deterrent to non-institutional landlords and they are selling out, not least because of the elevated level of house prices. Anecdotal evidence strongly supports the REA research.
It was reported by one Sunday newspaper last weekend that following the withdrawal of an institutional investor from a housing development in Kildare last year, the houses are now being put on the market by the developer at prices 25 per cent higher than in April 2021.
A functioning rental market needs an adequate supply of adequate rental properties in the right areas. Such a supply requires landlords, be it institutional and/or private landlords. We cannot demonise landlords, and yet at the same time complain about the elevated levels of rents and the lack of supply.
There are no easy solutions to the housing issues, but solutions have to be found as a matter of national priority.
RESIDENTIAL PROPERTY CRISIS WORSENS AND WILL CONTINUE TO PUSH A CERTAIN AGE COHORT TOWARDS SINN FÉIN
I am a landlord of a small basic 3 bed property in a large provincial town stuck with low rent in a Govt RPZ, the last tenant moved on in Jan 2022. On 1 facebook post to re-rent it I had a queue of 42, mainly professionals wanting to rent it.
They all had pretty much the same story, there is absolutely nothing on the market (at any price) most did not care what the rent was they were earning good money they were just desperate to get anything, they were either under notice to go as their current landlords were selling up or they were new to town and had been living in hotels.
The advice from my bank, accountants and solicitor is to sell instead of re-rent as rent is capped at 2% so there is no profit incentive.Why would anyone stay in the market. I suspect there is a tsunami of landlords exiting now it will probably be a few months before the figures are released but no doubt the RTB must know this by now.
Inflation is acknowledged by Govt at over 5% in reality building inflation is over 20% ( I know basic build cost per Sq/Ft has risen from €115 to €155 in 2021 alone, so unless interference is removed there will be no market supply left.
Jim, your article almost concedes on the notion that Sinn Féin have a magic solution worth trying. They don't. Their proposed policies of rent price control, increased taxation on employment and on investor wealth and increased regulation will drive many more investors, developers and landlords from the market - thereby reducing housing supply (and reducing Ireland's tax take). Ireland's housing problems are undoubtedly the result of a successful-economy, right at the top of first-world society league tables. When I was a young guy most people were emigrating after school/college, now we have large scale net immigration with people attracted by our economic model and the benefits that flow from it. Young people now have a choice of quality jobs so long as they are educated or have a trade/skill. And, our government is doing more than any other first-world government to ease the housing issues here. Let's not forget that lock-downs had a major impact on construction activity for two years, but since last April when the lock-down was eased the supply line has dramatically increased with 20,433 housing completions for the year, with over 30,000 commencements likely this year. By the time of the next general election we will have seen a dramatic increase is housing supply, notwithstanding the construction time lost over the past two years of the pandemic. Columns like yours should move to explaining the issues and the solutions underway, rather than despairing at one of the effects of our successful economic model and reducing the debate to acceptance that SF should be given a chance. As you well know, if SF get a chance to implement their far-left socialist agenda, there will be a significant loss of investor capital from Ireland, combined with a resulting loss of tax revenue. Not something to look forward to. You are an experienced economist Jim; you know what happens when countries experiment with hard-left socialist agendas. Let's rationally explain the economic consequences of both good choices and daft choices.