Why families can’t afford a house

In normal circumstances, Ireland needs to build about 25,000 units of accommodation per year. In the extraordinary situation that came about on foot of the collapse of the housing market in 2008 that estimate has risen to 35,000 per year to accommodate the backlog that has built up since then [1]. So, there is a huge availability problem, but affordability is also a problem.

In a recent article in the Irish Times[2], Orla Hegarty, assistant professor UCD school of architecture, planning and environmental policy, points to the significant increase in the purchase price of accommodation between 2016 and 2019, moving from a national median price of €250,000 in 2016 to €335,000 in 2019, a rise of 34%.

What justified this increase, since construction costs rose by approximately 10% during this period? Hegarty points to policy initiatives introduced by government to incentivise developer ‘viability’ – reduction in standards, increases in height and various subsidies – as a factor in facilitating an increased demand from institutional investors – nine out of every ten apartments built in 2019 were purchased by institutional investors. These investments are long term (50 years plus) generating an annual return of around 5.5%. Compare this with interest rates on government bonds of 1% or less.

Institutional investors and equity companies are part of the financialisation process that has captured economies in order to extract the maximum profit for investors. They are facilitated by an absence of regulation, produce little of value to society and cause social misery for thousands. So, what is the state doing about this? Well, nothing in terms of dampening the activities of these institutions, but even worse it is a significant player by funding expensive public-private partnerships and leasing deals to provide accommodation. Under these public-private partnership arrangements some €10 billion of state funding will be provided for the delivery of expensive accommodation. The return to the state will be assets worth about 5% of the initial €10 billion investment. An expensive way to provide housing and totally unviable in the longer-term.

And the impact on families seeking homes? Many thousands of families are paying the high rents generated by this financialisation model, making it almost impossible to amass the savings required for the deposit on a house. In addition, the promised provision of affordable housing hasn’t happened because it isn’t really affordable. O’Devaney Gardens is a good example. Despite the site being provided free to the developer plus a €50,000 per unit stake by Dublin City Council, the ‘affordable’ price is €310,000. Well beyond the reach of the intended target group.

So, what about the invisible hand of the market, the mechanism whereby prices are determined by demand and affordability? The problem identified by Hegarty is that demand is being set by what the investor’s asset can generate through high rents over 50-60 years, not by what size mortgage a family can take on over a 25 year period.

Looking forward, how will families who are paying high rents cope as they face into retirement? Retirement means living on a smaller fixed income, something that is eased by reduced costs if you own your house or if you are on a differential local authority rent. This will be an impossibility for those on market-set rents. Without additional state supports many such renters will end up homeless. For a whole range of reasons, the state needs to get a grip of housing policy, underpinned by a right to accommodation. So far it hasn’t. 

Sharon Harty is Deputy Manager in Clondalkin Addiction Support Programme, CASP. CASP is a community based voluntary addiction treatment centre in Clondalkin providing a range of services for substance misusers and their families from one to one support, counselling, prison links, methadone treatment, nursing care, groups and community development. Sharon is also South Dublin PPN (Public Participation Network) representative from the Social Inclusion Pillar on South Dublin County Council’s Housing SPC (Strategic Policy Committee).

[1] Rebuilding Ireland (DHP&LG)

[2] Irish Times June 24^th 2020