Is it possible to solve the housing crisis?

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It has been described as a crisis, as an emergency, and as a threat to our economy. Of course, I’m talking about the housing crisis.

Can it be fixed? Is there actually a workable solution? What are the options available?

I’ll be referring to the Irish market in this post, but even if you’re not in Ireland, many of the issues could still apply to you.

It’s very easy to throw ideas around like ‘social housing for all’ or having it enshrined in the constitution as a human right, however these aren’t really realistic solutions, because they’re not fundable. Big ideas may sound great, but if a solution can’t be funded, then it’s just a fantasy: you have to be realistic.

So, what are the achievable solutions? What can be done without bankrupting the state?

A short history lesson

To start with, we have to go back and look at the last 50 – 100 years to see things were done in the past. The reason that I want to go back so far is because the period from 1932 to 1956 is actually referred to as “the golden age of Irish social housing”.

According to Professor Michelle Norris of UCD, during this period 55% of all new houses built were for social housing, all provided for by the state, and at the time the number of households in social housing was 18.6%.

That 55% declined to 31% in the 1960s, and continued to decline, so by the 2000s was down to 10.8%. By 2016 (the beginning of the crisis we’re in now), this figure had dropped as low as 9.7%. So how did we go from 55% to 10% in the space of approximately 70 years?

First, we have to acknowledge that the number of new homes built during that 30-year period (roughly 112,000) represent just three years of the actual output required today to meet the needs of the state. Local authorities owned and managed all housing back then and it should be noted that this model (even though it was relatively common in the UK) was not actually typical of social housing provision in Western Europe at the time.

Social housing was typically provided by independent non-profit organizations:  in Denmark you had cooperatives, the Netherlands and Austria had housing associations, and you had quasi-government Municipal housing companies set up in France and Sweden. In Germany, almost all social housing was provided by the private sector.

Throughout this time, when it came to the public sector, there was a huge amount of financial wastage. I discussed this at length in episode 137 of the podcast, but suffice to say here it was very problematic, with lots of room for corruption.

This was largely ironed out over the 1990s and the 2000s, but really where it came to a stop was after the 2008 financial crash. The state was almost bankrupted and the IMF stepped in – central funding for local authorities was stripped away and hiring caps we introduced, costs were shaved everywhere.

The recession was also a massive problem in the private sector, with one in every two jobs in construction lost after 2008, and if people didn’t lose their jobs, they found that the gravy train had come to an end. In addition to that, the construction sector was really going through hell: as a result the entire industry got hollowed out and went from building 85,000 housing units in 2007 to around 12,000 in 2012.

Today, we need 50,000 housing units just to get back to meeting the current demand… well, actually we don’t need that many, current demand is for about 35,000 units a year but because supply has been so bad and created an acute shortage, we need to build about 50 to 60,000 a year just to catch up.

Finding solutions

So, what methods we could employ? What’s being done elsewhere in the world? How are other Governments providing support?

Some of these are already currently being used in the Irish market, so it’s not so much a matter of whether or not we should use them, it’s whether we should be scaling them (and if we aren’t scaling them, why not?).

Capital grants

These were removed from the Irish market back in 2008 – stripped away during austerity. There’s a lot to be said for doing this when you consider the amount of cost overruns that take place on any kind of big public spend project. To give you an example, the national broadband plan rolled out over the last number of years is currently 440% over budget. The National Children’s Hospital under construction is currently running at 135% over budget.

When you’re talking about spending billions, going so far over budget makes it very difficult to actually finance, because who pays for it? Where does the money come from? This is one of the reasons I can’t really see capital grants being a solution. We need to find ways of bringing budgets under control and really the only way to do that is by involving the private sector. However, this can be problematic because it’s an easy system for abuse.  

Subsidised lending

This does seem like a much more workable solution, and I say that is because it’s already being done here in Ireland, and I’ve seen it used in the Austrian market too.

Back in December 2018, the Government established the Home Building Finance Ireland, which is owned by the minister for Finance, and it was established “to provide funding at Market rates for commercially viable residential developments in the state”.  

Obviously, it’s great that we have solutions that have worked overseas being adopted here, but when I see phrases like ‘market rates’, that doesn’t sound like subsidised lending. Whilst rates might be lower in another market (eg Austria), if the rates are higher elsewhere, like in Ireland, how helpful would it really be?

Discounted land

Land provision at discounted rates is something that really could work. I remember reading that Dublin City Council is sitting on something like 140 hectares of land in the Dublin area and thinking that if they could hand that over to housing developments then it would be great.

The problem is that it always sounds great in principle to do this, but controversy always surrounds these decisions. As soon as a piece of land is handed over to a developer, questions are asked about  why this person was awarded that contract, who made the decision, what were the criteria, what is being built and is it acceptable to the local community? Basically, any local counsellor who puts their head above the parapet to try and work a solution like this ends up getting shot down.

Fiscal benefit

Fiscal benefit support is very familiar to the Irish market. Back in the 2000s this was in use across the country: tax breaks on the amount that you spent on property that you could deduct from your personal income tax.

The problem is that the boom came along and was in in many ways fuelled by these tax allowances. Nowadays when you look at this as a possible solution it’s politically unappealing because in the eyes of the electorate, politicians are seen as rewarding developers. If you make something a tax allowance the developer makes a profit and this is seen as them effectively benefiting from the public purse, which is considered distasteful after the 2008 crash.

I think we have to move on from that way of thinking because it’s holding us back: you’ve got to incentivise the private sector into jumping in, and at the moment perhaps it’s not economically appealing for them to actually find the solutions we need.

Housing allowances

Housing allowances are something that are already quite big Ireland, where we have the Housing Assistance Payment (or HAP).  It basically provides people on the housing list with subsidised rent: if a landlord is charging €1000 a month for a domestic property, the government will pay the majority of that.

People are criticising this, because it doesn’t necessarily represent good value for money: all of the billions that have been spent on this particular scheme go out in the form of payments to private landlords, leaving no assets left over. If you were to spend those billions on building social housing, you would at least have valuable assets collecting rent, rather than money effectively going down the drain.

Summing up

Like all things, there has to be a way to solve the problem and I think there are multiple options to create an arsenal in order to fight this. All of all of these solutions need to be applied in some shape or form, and I think we’ve got to look at the low-hanging fruit, however politically distasteful it may seem, by which I mean incentivising the residential landlord (as opposed to demonising them!). If you partner with people as opposed to fighting with them maybe it will actually help solve the problem!