Prior to the financial crash of 2008, Ireland had one of the world’s highest rates of home ownership. Since then, however, people’s chances of accessing the housing ladder have plummeted as a housing crisis has continued to worsen.
Not only is there insufficient supply of affordable stock for first-time buyers, but increased demand has also pushed up rents in the private rented sector (PRS). As a result, Dublin is now one of the world’s most expensive places to be a tenant, with costs far outstripping those in cities such as Tokyo, Sydney and Singapore.
So, how do we ensure that there is sufficient supply of affordable housing to meet demand? While Minster for Housing Darragh O’Brien’s new affordable housing scheme has been a source of some contention, there is no doubt that initiatives to advance and accelerate the supply of affordable housing in Ireland are a critical step in the right direction.
With home ownership in Ireland hitting its lowest level in four decades, efforts to address the housing crisis must be seized now and at scale. Removing barriers for first-time buyers as well as renters, innovating to increase housing supply and investing in the rental market are all ways that this can be achieved.
How exactly the Housing Minister’s proposed shared equity scheme will take form is not yet certain, but suggestions that it will come without arbitrary salary caps offers hope that the programme will open up the housing market to some first-time buyers unable to produce a sufficient deposit or access a large enough mortgage under current conditions.
Increasing access is crucial, as people continue to feel the material impacts of the pandemic both for the national economy and on their own personal finances. Further schemes, such as the Help to Buy incentive which provides a refund on income tax backdated by four years, also offer a lifeline of support for first-time buyers.
In fact, just 33.5 per cent of home purchases in 2019 were by first-time buyers. This represents a small degree of growth over the past five years, rising from 26.4 per cent in 2015, but it still begs the question how further growth in home ownership can be truly viable without expanding supply, the lack of which has continued to push up prices and rents.
How can we increase supply?
If access to the property ladder is to be improved, there must be sufficient stock to meet demand. Incentivising development and providing new financial resources to buyers is a valuable step forward. But with estimates of up to 60,000 new homes being required annually over the next decade, these steps must also be combined with new, innovative approaches to design and construction that accelerate delivery, not least to offset the delays caused by the pandemic.
In order to unlock development of this scale while promoting affordability, density and compactness of developments will be paramount. In our cities, increasing housing supply sustainably could be supported by a lower Vat rate to improve the viability of high-rise apartment buildings – an approach that has already worked with some success in the hospitality sector. This could be tied to a number of factors, such as location, defined city limits or to the number of stories in zones where development plans promote building upwards.
Off-site volumetric building offers another solution, with the likes of Ikea now developing their own modular housing products. Built in factories and then assembled on-site, the construction process can be rapidly sped up by volumetric construction, while material waste and time spent on site exposed to delay events such as bad weather are also reduced.
The main barrier to scaling this up are the up-front capital and fixed costs of manufacturing and shipping which currently translates into higher construction costs than if the structural components were built on-site in the traditional way. However, tax breaks could be offered to developers on a per unit basis, which would pass through to manufacturers in the form of more demand and better order book certainty, in turn increasing manufacturing competition and lowering construction costs.
Renting shouldn’t be second best
While the property ladder should be made more accessible, this does not mean that renting should be cast aside. In fact, the pandemic has fuelled a shift in preferences and made clear the benefits of renting as a more flexible lifestyle choice, with demand set to rise out of preference rather than necessity.
Nonetheless, PRS is similarly plagued by a lack of sufficient supply that has encouraged rents to rise continually, with Ireland in some ways lagging behind the rest of Europe in delivering suitable properties for the rental market that are affordable. According to a Eurostat Housing Survey, just 12 per cent of residential stock in Ireland consists of apartments. In Dublin, this rises to 26 per cent of supply, but even then remains a far cry behind other European cities where this figure can be as high as 60 to 90 per cent.
In addition to cost-rental projects proposed to be developed by the state, government policy should expand to include the leasing of completed private developments by the state as affordable homes, especially to support key workers and mid-market renters. These properties could be leased by local authorities and the Land Development Agency at a discounted rate compared to rents in the private market, thus allowing the state to buy time in gaining faster access to larger apartment developments.
There is a clear appetite for rental property among both tenants and investors, and it is time to meet that demand. Indeed, the need for more supply of affordable homes does not exist in isolation on the first rungs of the housing ladder. Greater supply is desperately required in the rental market, too.
To get back from the brink of a housing crisis, there must be sufficient supply of affordable homes to meet demand. Innovative approaches to delivering properties at pace and scale is crucial to achieving this, combined with financial breaks and incentives to support first-time buyers and investment in unlocking construction efficiency and elevating the rental market.
We should embrace schemes that improve the quantity, quality and cost of homes in Ireland – creating a better housing market as part of the economic recovery from the coronavirus pandemic.
Dwayne McAleer is the managing director of Kajima Ireland, a long-term institutional developer and investor in social, affordable and private housing as well as healthcare. He is a former senior executive of both of Ireland’s Land Development Agency and National Development Finance Agency