December - January 2017 5 3
T
HE CONSTRUCTION INDUSTRY have said for
years that "increasing supply (housing) will
reduce prices". The government have accepted
this as fact and current policy is driven by it.
The graph below is compiled from Central
Statistics Office (CSO ) data for 1975-2015 and includes
monthly new home completions and monthly average
new house prices in that 40-year period. The information
has been directly imported from the CSO website and
has not been weighted or adjusted. House prices are for
new homes only and 1975 is the reference starting point
for both curves.
It calls into question that the perceived wisdom of cur-
rent government policy.
The relationship of price to supply appears inelastic;
in other words, increasing supply does not reduce cost
and in fact the opposite appears to happen (similar to
luxury goods). 40 years of CSO data suggests that
increasing house prices leads to increasing completions
(lead and lag noted). To an architect or builder this makes
sense as developments are sales-sensitive and will only
proceed if there is enough of a margin to get developers
up in the morning. Similarly, phases are delayed if there
is any drop in prices.
The incorrect assumption, that increasing supply will
reduce prices, underpins Government policy aimed at
the speculative residential sector: inappropriate pro-
cyclical measures (First Time Buyers grant), the reduced
apartment-size standards introduced in 2015, the elimi-
nation of the local authority role in adjudicating planning
applications for over 100 housing units etc.
These initiatives are like a landowner's wish list and
disproportionately enhance site values, minimise public
input and erode our two-tier planning system.
This casts doubt over the competence of Department
of Housing officials who advise the
Minister and explains the disproportionate influence
of vested interests on policy.
The net result of current government measures will be
to inflate asset prices and consequently increase supply
(mid and high end)- not necessarily a bad thing. How-
ever, in the absence of any balancing measures aimed at
lower-income households, affordability will remain
a major problem. Longer commutes to affordable areas
outside the capital may become the norm with infra-
structural pressures and issues of sustainability as a
result. This is happening in the rental sector already.
Notable measures that have not been considered for
affordable housing include government interventions
such as: co-housing, state direct procurement, state
financed home-ownership etc. Cost-benefit analyses of
such measures are sorely absent from the discourse. Cor-
relation does not mean causation. There are other drivers
of demand not shown such as net migration, obsoles-
cence, household formation, interest rates etc. However
the graph illustrates that an increase in house supply has
not been accompanied by a reduction in prices in 40 years.
Unfortunately recent policies conduce to the boom-
bust cycle we are supposed to abhor.
Maoilíosa Reynolds is a Registered Architect and
Certified Passive House Designer.
Increasing housing supply
won’t reduce prices
Government in thrall to vested interests and
risks return to boom and bust
by Mel Reynolds
Ireland: House
Completions vs
New Home Prices
1975 - 2015
Source: Central Statistics
Office; Graph Maoilíosa
Reynolds

Loading

© 2015 Village Magazine

Back to Top