Housing supply

Will increasing housing supply solve the affordability problem?

Opinion: Government policies simply aren’t on the radical scale required to cut costs and prices enough to close the affordability gap

In a 1978 episode of RTE’s Frontline, journalist Forbes McFall said, “There is now a general feeling that something is wrong with the housing market. Thousands of people can no longer afford to buy”. 40 years later, this statement causes a strong feeling The housing shortage is only one of the rare problems of society in life that seems to never go away.

Currently, we are experiencing one of the most severe misalignments of housing supply and demand in the state’s history. The data paints a miserable picture of availability and affordability. Residential real estate prices rose 12.4% between September 2020 and 2021, reflecting nearly a decade of house price inflation. House prices have more than doubled in the past eight years, rising 106.5% since the 2013 low.

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From RTÉ Radio 1’s Morning Ireland, economist and Daft.ie housing report author Ronan Lyons explains how house prices show no signs of falling

The number of properties currently available for purchase on property site Daft.ie is the lowest ever recorded by the platform. Whereas before you had 60,000 properties for sale a year after the financial crisis, there are now only around 11,000 properties advertised. This is despite a significant increase in population over the same period. The shortage of available housing has pushed housing prices to “seriously unaffordable” levels and the situation is particularly dire in the capital. The housing crisis then turned into a rental crisis, where the data indicators are even worse. Rental prices are now well above the pre-financial crisis peak (32% higher), with Dublin, Cork and Galway particularly affected by rental pressure.

Supply, supply?

The answer often given by policy makers and experts to the housing problem is supply, supply supply. However, the ability of market-driven provision to address affordability issues has recently been questioned in national media and in heated social media debates among Irish commentators, which include contributions from planners , geographers, architects, economists and housing advocates. Supply skepticism is rampant and build-to-let projects have taken a beating. This is despite a shortage of one- and two-bed housing types in the face of decades of undersupply and shrinking household sizes.

Critics of build-to-let argue that it is unsuitable for long-term community development and offers many disadvantages, including high rents, lack of living space, and insecurity of tenure. But focusing too much on their costs ignores benefits such as the flexibility offered to mobile workers who want short-term rental opportunities.

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From RTÉ Radio 1’s Drivetime, journalist Fergal Keane visits a huge site of flats to rent in Dublin’s Drumcondra

In a global city and faced with the realities of the modern job market, it is crucial that Dublin can offer flexible accommodation options. The commitment to a mortgage and the rigidity it entails is not for everyone. Many people may simply love the lifestyle and amenity options offered by build-to-let developments. I find it hard to understand the stories around construction for rent, as they represent a minor part of recent housing stock and a tiny proportion of the overall building stock in Ireland.

Skepticism over the offer is certainly not unique to Ireland or isolated from media commentary and social media debate. A heated debate over housing supply and zoning change recently took place between a group of internationally renowned regional and urban scholars. On the one hand, urban planners, like Michael Manville and others, argue that the main challenge facing cities are restrictive housing densities. This results in a lack of housing supply, disabling housing supply screening mechanisms for middle and low income households. They argue that economic development suffers and that many urban ills such as affordability, segregation and inequality are due to this problem.

But on the other hand, Andrés Rodriquez-Pose and Michael Storper argue that the demand across geography for jobs, wages and skills are at the root of these regional and urban ills. They argue that relaxing land use regulations will only improve housing outcomes for the wealthy and increase gentrification, hurting low-income groups and will also exacerbate regional inequalities between superstar cities and lagging regions.

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In RTÉ Radio 1’s Drivetime, Housing Minister Darragh O’Brien responds to criticism over the supply of affordable housing

So, who is right ?

The evidence that increasing market-based supply reduces house prices in Ireland and around the world, at both city and neighborhood level, is extremely strong. At the same time, the geography of jobs and the influx of high-income people into certain cities and neighborhoods are certainly driving up housing demand and prices.

But on both sides of the debate, we are still discussing the supply and demand framework. If it is argued that unique demand factors across the geography of jobs (and income) raise prices, then it must be true that supply-side factors (cost and scale) can lower them. And this is backed up by evidence.

A paper by Bernard Fingleton and others looking at housing supply and demand in London boroughs constructs three scenarios with housing stock increases of (1) 5% (2) 15% and (3) 48% . All three scenarios lead to price drops of £4,000 to £12,000, £30,000 and a whopping £70,000, respectively. But at the same time, the authors identify that the increase in the housing stock in scenarios 1 and 2 has little impact on accessibility, because the influx of workers due to positive agglomeration effects (leading to better jobs and higher incomes) obscures the benefits of increased supply. .

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From RTÉ Radio 1’s Drivetime, Orla Hegarty (Assistant Professor of Architecture at UCD) and James Benson, Director of the Irish Home Builders Association) on the Housing for All plan

Is Housing for All the answer to our misfortunes?

The benefits of increased supply are obvious, as more workers and families are housed at more depressed prices than they would have been in the absence of increased supply. But, while free-market housing supply, urban infill and filtering mechanisms are important in reducing prices and providing housing, it is also clear that following an exclusively market-based housing production path will certainly not suffice. not to solve the problem of financial accessibility. Simply put, large segments of the low-income (and even middle-income) population are still priced out.

It is also important to note that there will be increased demand pressures from agglomeration forces in the future due to increased automation and AI disruptions. This will make Irish cities more attractive (especially Dublin) and more polarized in terms of income, which will further exacerbate pressures on housing affordability.

Until we get land costs under control, I don’t see a time when we’ll get affordability under control

This is why politics cannot rely on the market to solve the problem of affordability. To be fair, the government’s Housing for All 2030 plan sends the right signals in terms of social housing provision, rent, land value capture and levies on vacant properties. But while interventions in these areas are the right ones, they are simply not on the radical scale required to deflate production costs and prices enough to eliminate the affordability gap.

There are also few details available on some of these vital mechanisms. With the cost of delivering social housing 40% cheaper than the private sector (including land, profits and VAT savings), the time seems more favorable than ever to intensify public interventions in this area. Until we get land costs under control, I don’t see when we can get affordability under control. In this regard, it would be wise to “return to the future” to find out where it all went wrong when we failed to implement the Kenny Report of 1973. The “housing for all” framework is on the right way, but tweaking the edges won’t cut it.


The views expressed here are those of the author and do not represent or reflect the views of RTÉ