Mark Keenan: A decline in property values must be part of the solution to our housing crisis
Most of us agree that Ireland’s rapidly rising property prices are a scourge.
They rise and rise and rise while successive governments appear powerless or unwilling to do anything about it. This has been happening for almost ten years. In that time we’ve had five housing ministers and recent price data suggests they’ve only made things worse.
Prices have recently increased to Celtic Tiger era levels of over 1 piece per month. And the values in some places are only a few percentage points below the peak values of the tiger era.
The latest CSO data (released two months after the calendar) shows house prices rose 15.3 percent in the year to February. They rose 13.5 per cent in Dublin and 17 per cent outside the capital (where the shortages are now hitting with a vengeance).
That Irish Independent The REA Average House Price Index, released last month, showed that average family home prices are increasing at a rate of more than €100 per day.
So fast rising accommodation costs make us poorer by the day. They reduce the disposable income we have to spend on ourselves and on local businesses like shops, restaurants, dentists, jewelers, etc. Property inflation is therefore also weighing on Irish companies.
Now consider general inflation across the board caused by global supply problems and the war in Ukraine. The hardest hit are people in the early 20s to early 30s, especially if they rent.
The impact is not just financial. Young couples who have to move due to rising rents or landlords have to transfer their children from school to school. If you save for your own home, you put children off until later in life. They spend less on pensions and do without health insurance.
Meanwhile, the new generation of landlords, in the form of the commodifying international fund, is taking this ever-growing rental income (at cheap tax rates) and exporting it abroad in the hundreds of millions each year.
Other countries are suffering from similar housing crises as housing is fast becoming a commodity. Property prices are artificially inflated by funds, which in turn create their own market by dominating purchases and allowing property values to continue to soar. Those that are overpriced have to rent, and they have an ever-increasing share of that market.
And so, the nation’s soaring lodging costs are sucking its life out.
So we could use a few years of falling house prices, right?
You’re not so sure about that, are you? Maybe you wish they could just stand still? But real estate prices rarely do that for very long. It’s just a breather before going up or down.
Property prices last started falling in 2008 due to a global economic downturn (let’s call it Scenario A). In Ireland this has been compounded by government policies which have left our housing market more bloated than that of our neighbours.
With reduced incomes, fewer jobs, and no access to mortgages, most of us have been unable to purchase a home even after prices plummeted.
So we know we don’t want that kind of house price deflation.
But what if a government came into power that would actually solve the housing crisis?
What if the Land Development Agency (LDA), vested with compulsory purchase powers, rushed out to acquire farmland around our cities at farmland prices?
What if they hired developers to build on that land (rather than selling the land to the developers) and built 50,000 homes a year in areas where people wanted them most? What if they kept the big bucks out of these deals? What if they then sold those houses at cost?
And what if they did this for years until everyone who wanted a home could have a home at a “normal” price? Call this idea Scenario B.
We are told that we need 35,000 houses a year to “stand still”. 15,000 additional apartments in addition to covering the annual requirement would certainly have an impact after a few years. Real estate prices would certainly start falling. And by a lot.
And we should understand that if we want our housing crisis to be solved, then we have to expect and accept large losses in value as part of the solution. It comes with the area to solve the housing crisis.
That kind of housing deflation would be very good for us.
House prices and rents in Ireland are not just a little above “normal” at the moment, they are a hell of a lot above.
The semi-annual Demographia International Housing Affordability Index was released this month. It ranks Dublin property prices that have moved into the highest price category for housing in the global context since 2019 – the category Demographia defines as “strictly prohibitive” (for an average earner).
In terms of affordability, Ireland is said to rank only behind major real estate troubled locations such as China (crash expected), Canada (20-40 per cent crash widely predicted) and Australia (now falling in prices).
It gives Dublin prices an index of 5.7 when 3 is considered ‘normal’.
By this measure, a ‘normal’ Irish housing market, with all its supply problems, could theoretically see Dublin prices gradually falling to around half their current levels.
After 12 years of not building enough houses, all types of houses have inflated their value.
They were first pumped up to “normal” and then far beyond. Many experts believe that we reached “normal” around 2014/15.
But when or if the market has ‘normalised’ in Ireland there are types of houses which will fall in relative value much further than others.
More new homes rated BER-A, along with carbon taxes and global fuel costs, will severely curb demand and prices for older homes rated C-BER or below. Theoretically, their value could fall by more than half.
Rents would also fall by up to 50 percent in a market where housing construction has exceeded demand for a number of years. Significantly less money would be exported by the state and instead spent domestically.
Families would have more disposable income and younger people better prospects.
Ireland Inc would become more competitive and people would be much less stressed. There would be child safety and there wouldn’t be articles about the worries of rising house prices every week.
This is in a world where the government is actually solving the housing crisis and prices are falling for all the right reasons in a controlled environment.
Otherwise, the possible alternative is to wait for scenario A.
https://www.independent.ie/opinion/comment/mark-keenan-a-fall-in-property-values-will-have-to-be-part-of-the-solution-to-our-housing-crisis-41575519.html Mark Keenan: A decline in property values must be part of the solution to our housing crisis