Wave upon wave of negative housing news is hitting us at the moment: house-price inflation is above 12%, rent inflation is in double-digits, there is widespread speculative land-hoarding, available rental properties have hit historic lows and more Rent-Pressure Zones have been announced outside Dublin. The private new-home sector will take years to recover: in the last six months of 2016 there were 1,500 new home sales in Dublin compared to just 1,200 in the first half of 2017. A recent government commitment to “quadruple the 2015 level of local authority builds” this year may result in just 300 new local authority homes nationwide.
The Central Statistics Office recently re-confirmed the census figure of 183,000 existing vacant residential properties nationwide and recent Davy and Goodbody reports warned that the mismatch between supply and demand is even larger than previously thought – there were fewer than 5,000 new homes built in 2016 while demand is more than 30,000 per annum. ‘Rebuilding Ireland’s Social Housing Progress report recently confirmed that only 75 local authority social homes were completed nationwide in the first six months of 2017 – just 10 in the Greater Dublin Area, the area of acute housing need and of highest homelessness.
Contrary figures issued by the Department of Housing suggest modest levels of existing vacant properties and much more new-build activity. Official ‘kite flying’ of further planning standard changes has the unintended effect of stalling developments – why build to current heights now when you might get three extra floors in six months’ time? It’s a ‘perfect storm’.
In the middle of this barrage of statistics there are two ‘tide lines’ or policy triggers that merit consideration.
14% + 1000
In 1998 house-price inflation exceeded 14%. At the time it was felt that investors were inflating prices and pushing first-time buyers and homeowners out of the market, much like the way many feel today. In response, measures were introduced to discourage investor activity in the housing market – the so-called first ‘Bacon 1’ measures (named after Peter Bacon’s housing report). These were revised in 2000 (Bacon 2) and then removed in 2002 after significant rent inflation was observed.
More recently in 2015, Central Bank macroprudential rules were introduced targeted at owner-occupiers to mitigate similar sharp house-price inflation. However, these lending rules do not apply to cash buyers who comprise over 50% of the house transactions in Dublin and house prices are heading back towards previous highs.
There are just 1,100 available rental properties in Dublin according to daft.ie – a historic low. Quarterly reports have documented the slow decline in available rentals over past months. Anti-investor measures, like those introduced in 1998, may hasten this decline.
This delicate balance is all the more pronounced given the ‘negative feedback loop’ currently being observed in the homelessness system. In 2016, 4,000 persons entered the homelessness system. In the same period official figures suggest that 3,000 exited, leaving a net increase of 1,000 people in emergency accommodation. Of those who exited a third re-entered the private rental sector under the HAP scheme (housing assistance payment) – almost 400 families. Currently Local Authorities can increase maximum HAP allowances in exceptional cases such as rehousing homeless families – the Dublin City homeless HAP allowance is €1650 per month for a two-bed apartment. Despite the best intentions, the state may be contributing to rental inflation in Dublin City.
Homelessness advocates call for systemic reform – major social and affordable housing programmes, tackling vacant homes and buildings, and genuine housing innovation. Official reluctance to do this means more temporary measures: increased housing supports, more emergency accommodation – ‘Sticking-plaster’ responses. According to the Nevin Economic Institute, the State has spent €5.5bn on rent supports since 2002 – equivalent to building 30,000 new local authority homes.
Very soon the Government may be faced with a policy ‘cul-de-sac’, a Catch 22. On the one hand, owner-occupier incentives, such as the ‘help-to-buy’ scheme, may encourage further house-price inflation. On the other, investor disincentives may reduce the number of available rental units and lead to rent inflation. ‘Doing nothing’ may not be on the cards given a looming election early next year and strident public opinion. So when house-price inflation hits 14% and the number of available rentals goes below the 1,000 level, what happens next?
Do we reach for the lifejackets?