Huge thanks to Professor P.J Drudy, Emirtus Professor of Economics in Trinity College Dublin, who has kindly taken the time to share his paper on housing here as a guest blog. It’s radical new thinking on housing provision, thought-provoking and vital to debate on our housing crisis.
(Extract of paper to the Statistical and Social Inquiry Society of Ireland)
After a decade of escalating house prices and rents, the bubble finally burst in 2007. This was inevitable. Those who purchased during the misguided “boom” were invariably advised that they must get on the “housing ladder” and that “a house is the best investment anyone could possibly make”. Sadly, these are now saddled with huge mortgage debt. Large numbers are also in mortgage arrears and in negative equity. Some homes will inevitably be re-possessed by those lending institutions which behaved so irresponsibly during that dark period. Many of the property developers and speculators are now bankrupt.
And here we go again. After a welcome dampening in house prices for the last 5 years, prices and rents are escalating again. Prices and rents are increasing at rates far in excess of the Consumer Price Index, a key measure of normal inflation. I would argue that, yet again, we are experiencing a “housing bubble”. It will end in tears for many people. Vested interests in the Building Industry and among Estate Agents will naturally applaud the escalation of house prices. The standard patter during the “boom” was that there was really no problem. All would be well. There would be a “soft landing”. The “market forces” of supply and demand would resolve the problem. We regularly hear the same misguided patter today. If we are to avoid repeating the mistakes of the past, we must take urgent action at national and local levels.
Towards a Better Housing Philosophy
For many years housing policy in Ireland has been under-pinned by a dominant philosophy or paradigm, which has placed enormous emphasis on market provision and downgraded the role of the state. In effect, this has led to the commodification of what should be treated as an important social good, like health or education. The almost exclusive reliance on “the market” as a provider has influenced many to see housing as a means of speculation and wealth creation rather than as a shelter, a home and a fundamental human right. It resulted in escalating house prices and rents, a high level of personal debt and a poor record in dealing with housing need. Lessons must be learned from the experience of the last decade. There is a strong case therefore for a fundamental change of direction to ensure that every person has affordable, secure, good quality accommodation appropriate to their needs. I would suggest a number of key principles if this is to be achieved:
• Housing should be treated as a social good, rather than as a commodity for trading or wealth generation. Housing policies should clearly reflect this principle.
• Housing is a fundamental economic and social need; everyone should have a right to housing which is affordable and appropriate to needs. The right to housing should be established in legislation in line with signed international covenants and agreements.
• Since land is a fundamental requirement in relation to housing provision and co-ordinated planning, the state should have a long-term strategy of land acquisition in order to meet at a reasonable price the needs of both market and non-market providers and to ensure that the necessary social infrastructure and amenities are made available without delay.
Towards Better Housing Policies
Arising from these principles, a range of policy changes would be necessary to deal with the difficulties facing those attempting to purchase or rent homes on the market as well as those who will never be able to participate in the market at all. Arising from an examination of “best practice” in a range of countries, I set out below a number of key recommendations for change.
Housing Supply, Sustainability and Community Development
An increase in supply in both private and public housing is required in certain parts of the country, and in particular in the main urban centres. Over the last few decades housing has been provided almost exclusively by the private sector and is thus profit-driven. Therefore, when there is excess demand, as at present, houses and apartments will be sold to the highest bidder. That is “the market” in action and it obviously excludes a whole range of people who have not the cash or borrowing ability to pay the high prices and participate in the market game. However, if there were a rental system which provided sufficient good quality accommodation with security of tenure and affordable rents, demand for and prices of owner-occupied housing would reduce rapidly. Unfortunately, there is no good alternative to house purchase at the present time. I give below the case for a new form of housing called “community housing” which would cater for a wide range of the population as well as poorer sections of the community.
A good housing system will not be achieved by the provision of physical units of housing alone. The emphasis must shift to “sustainable development” and to improving the quality of life for the occupants of homes. This requires a comprehensive holistic approach. In line with sustainability principles, provision today should not compromise potential for future generations. Housing should be affordable, accessible and should involve minimal commuting to employment. It should be in a safe and appropriate environment with adequate social, recreational and other facilities for adults and children. It should facilitate and contribute to social well-being, inclusion and community development. In order to avoid ad hoc provision of housing, as happened in the past throughout the country without appropriate planning and relevant infrastructure, an Urban and Regional Housing Strategy should be put in place in relation to housing needs and provision in different parts of the country. This Strategy must be in line with the Government’s National Spatial Strategy designed to take pressure off the “eastern core” of the country.
New Community Housing Tenure
The current Local Authority stock provides homes for a narrow group of the population on low incomes, many of them suffering from unemployment, educational disadvantage and other difficulties and thus paying relatively low rents. Apart from the undesirable segregation and concentration of a particular social group in certain areas, this contributes to financial instability of the remaining stock. There is a case, therefore, for establishing a new broadly-based housing tenure called “community housing” which would cater for a much wider range of housing need as well as existing Local Authority tenants. It would thus include relatively well-off tenants who do not currently wish to purchase homes or are not yet in a position to do so, but who are able to pay an economic rent, at least sufficient to cover maintenance and other costs associated with the home – thus enabling this new tenure to become and remain financially viable. This tenure would thus have the potential to be a competitor with the private market, thus dampening down price inflation. In addition, this new tenure could make a considerable contribution to the aim of achieving integration and to reducing social segregation. In the light of the estimated housing need given earlier there is a requirement for at least 20,000 financially viable non-profit housing units per annum over the next few years, including the proposed community housing, and those provided by housing associations and co-operatives.
The sale of public housing over many years has reduced the stock in a significant manner. The scheme represents a substantial subsidy to the better-off tenants and contributes to the marginalisation and residualisation of the remaining reduced stock. A residual stock with a high proportion of low income tenants means a consequent reduction in rental income and the weakening of long-term viability through “maturation”. Further sales would also result in a fall in the number of annual vacancies which heretofore made a significant contribution towards the growing waiting list. The sale of public housing should therefore be discontinued, but tenants wishing to purchase homes should receive particular assistance and encouragement to use the existing shared ownership and affordable housing schemes.
Reform in the Private Rented Sector
The private rental sector offers a housing option for relatively well-off tenants seeking to meet short-term accommodation needs. Nevertheless, there is a strong case for the introduction of more rent certainty for these and other tenants through a system of rent indexation related to inflation trends and to account for improvements. However, this is not a satisfactory option for tenants on low incomes, including those eligible for rent supplement. Much rental accommodation for such tenants has been expensive and continues to be of low standard and the Local Authorities have so far failed to ensure that basic standards required by law are maintained. The current system of providing long-term accommodation in the private rental sector for those on long-term rent supplement via a Rental Accommodation Scheme (RAS) should therefore be re-considered. The significant annual expenditure on rent supplement could be diverted instead into the proposed community housing tenure (see above).