Can Ireland step back from housing cliff edge?
Housing issues turned the general election on its head. The new housing minister will face a host of hurdles
Last Thursday brought a sliver of good news on rents, when the latest report by property website Daft.ie showed that rents fell, only just, by 0.1pc across the country in the final quarter of 2019. While the report is based on a small sample of properties, it is compiled from rents asked by landlords and as a result, is much more up-to-date than most other measurements of the rental market.
Asking rents also provide a good insight into where residential landlords see the market going in the near future.
The final-quarter rent reduction picked up by the report also confirms anecdotal evidence of a softening in residential rents, particular at the top end of the market.
Meanwhile, the Residential Tenancies Board (RTB, the official body with which all tenancies must be registered) rental index shows that rents increased by 8.2pc nationwide during the 12 months to the end of September, with Dublin rents increasing by 6pc and those outside the capital rising by 9pc.
At the same time as rents are easing, something similar seems to be happening to house prices. The most recent figures from the CSO show that nationally, house prices rose by just 1.4pc in the year to November, with Dublin residential prices actually falling by 0.7pc, while those outside Dublin rose by 3.6pc over the same period.
So what are these signals from the property market telling us and what should the new housing minister do?
"The new housebuilding market is moving at different speeds. Private builders at the higher end of the market are continuing to suffer. There has been an excess of supply over the past 18 months. For those builders selling into [lower] price points, demand is still quite strong," says Goodbody Stockbrokers chief economist Dermot O'Leary.
Dublin house prices bottomed out in the spring of 2012, while those in the rest of the country touched bottom a year later.
With prices down almost 60pc on their 2007 level, output collapsed too, with the number of new houses and apartments falling from a peak of over 90,000 in 2006 to just 4,500 in 2013 - a massive 95pc reduction.
Prices and output have recovered somewhat since then. Average house prices have almost doubled since 2012-13, while the level of new housebuilding also recovered strongly, with over 18,000 new houses and apartments being completed in 2018.
Full-year figures are not yet available for 2019, but O'Leary estimates that 21,500 units were completed last year, and he is forecasting 24,000 completions in 2020 and 25,000 in 2021.
All very good, but even this increased level of completions still falls far short of the 34,000 houses and apartments that the Central Bank believes Ireland needs to build every year until 2030 to meet the needs of a growing population.
With new housebuilding lagging way behind demand, residential rents have soared. Even after the moderation experienced in the final quarter of 2019, average rents have almost doubled since 2012 and now stand 35pc above their pre-crash peak.
Just for good measure, the second-hand housing market has also completely seized up. The Residential Property Price Register shows that just over 58,100 houses and apartments changed hands last year, barely changed from the 2018 total of 57,200.
The Property Price Register includes all second-hand houses sold and most new houses built by housebuilders.
However, it doesn't include most one-off houses where the person for whom the house is being built already owns the site. Approximately 6,000 one-off houses were completed in 2019.
Strip out the one-off houses and approximately 43,000 second-hand houses were traded in 2019. Given that there are just over two million houses and apartments in the country, that's the equivalent of each one changing hands just once every 46 years.
The second-hand housing market is labouring under a number of disadvantages. First-time buyers are heavily incentivised to buy new houses.
This means that, under the Central Bank's mortgage rules, most buyers of second-hand houses have to save a 20pc deposit rather than a 10pc one. It is also difficult for someone with a tracker mortgage to transfer the loan to another property.
Most would-be buyers of second-hand houses already have a home. Under normal circumstances, they would have built up sufficient equity in these homes to more than cover the requirement for a 20pc deposit. But these aren't normal conditions.
"There is still a significant group of homeowners who bought in the 2000s who have very low or no equity," says O'Leary.
Further complicating matters is the fact that the composition of households and of the available housing stock doesn't match.
One glaring gap is the lack of suitable properties for suitable older people, so-called 'empty nesters' who wish to trade down from a larger house.
While there are a number of building firms specifically catering to the needs of empty nesters in the UK, with the exception of Cairn's Marianella development in the Dublin suburb of Rathgar, such properties are thin on the ground in this country. This gap inevitably reduces the number of second-hand houses coming on to the market.
However, even if the gap between housing supply and demand could somehow be bridged, that's no guarantee that the housing crisis would be solved.
"Of the 21,500 houses built last year, a quarter were one-offs and never came on the market. Another quarter were built by local authorities or approved housing bodies. That means that only half the houses being built are coming on to the market and prices are already flattening," says Lorcan Sirr, senior lecturer in urban economics, housing and rental markets at Dublin Technological University and a member of the RTB's research committee.
He believes that there is an affordability gap in the housing market - with large numbers of people unable to afford to pay the low-€300,000s that housebuilders in the Dublin area need to charge for starter homes if they are to make a profit. That gap will remain no matter how many new houses are built.
Having been locked out of home ownership, this group, most of whom are working, have turned to the rental market instead.
This has resulted in soaring rents, with many renters now paying more than they would in mortgage repayments - if only they could persuade a bank to lend them the money. A virtually unprecedented situation.
Sirr's solution is the creation of a State housing body modelled on Transport Infrastructure Ireland that would build 8,000-9,000 public houses a year.
"The difference between the number of houses being sold and the number of houses we need is huge. The market is not going to solve this problem. The State has got to step in."
There are two main barriers to ramping up the supply of new housing: the high price of building land and the lack of housebuilding capacity.
A prominent Dublin housebuilder estimates that it costs about €400,000 per unit for a building contractor to build a house for the Government. A much cheaper option, he believes, are so-called Part V houses.
These are named after Part V of the 2000 Planning & Development Act, which mandates housebuilders to supply 10pc of any site to the local authority for housing development at 'existing use' rather than 'development' value. The Dublin housebuilder estimates that Part V houses can be supplied to the Government for a little over €200,000 per unit. One of the big problems with Part V houses is that they are totally dependent on activity in the private housebuilding market.
If housebuilding collapses, as it did early in the last decade, so too does the supply of Part Vs.
They also do nothing to address the high price of building land, which has perhaps inevitably led to accusations of the 'hoarding' of such land. How justified are these accusations?
A 2014 survey by the Department of Housing estimated that there was enough zoned land on which to build 611,000 houses and apartments, of which 123,000 were in Dublin city and county.
It is a testament to the severity of the housing crisis that measures which might once have been considered impossibly radical are rapidly becoming mainstream.
A group from all sides of the housing market, including Goodbody's O'Leary, last month called for the creation of a commission on housing.
The proposed commission would aim to produce an agreed national housing strategy within 18 months. The template is the Sláintecare plan for the health service, to which all the main parties have signed up.
"All parties accept that Ireland has suffered from not having a long-term strategic policy on housing," says O'Leary.
"The current crisis is not the fault of any one party or government. However, it is possible for all parties now to work to ensure we do have a long-term housing policy that will bring affordable, quality housing in sustainable neighbourhoods to the people of this country."
Over to you, minister.