In an attempt to ease the burden of housing affordability, authorities may choose between two courses of action – bringing down property prices or strengthening the spending capacities of potential buyers. In Ireland, the focus has consistently been on the latter. Numerous initiatives such as Help to Buy, First Home, and Local Authority Home Loans have been rolled out with the motive of amping up buyer’s power, thereby inciting property developers to increase construction, and eventually escalating supply.
However, reinforcing the existing cost dynamics doesn’t aid in bridging the affordability divide, instead, it delays tackling the actual issue. This has produced a persistent upward trend in housing prices, which means a diminishing number of people can afford to buy. The result is an unprecedented boom in the rental market and an increasing demand for social housing or the government’s more favoured solution, rent benefits.
Recent analysis by the Housing Commission highlights the mounting challenge but it fails to address a conspicuous paradox. According to a recent survey by the Economic and Social Research Institute (ESRI), between 2000 and 2020, the percentage of households living on rent in the Republic has seen an increase from 18% to 29%. This statistics reveal an interesting shift: the number of rented households was continuously falling in the latter half of the 20th century, but the trend drastically inverted as the 21st century began. Data from the same survey demonstrates that 54% of tenants require some type of state aid.
A significant portion of the new housing units available in the Irish market in recent times has been seized by financial institutions for the profitable buy-to-lease market. The Irish housing market, along with many around the globe, has become a direct product of three major patterns. To start, property prices have spiked disproportionately compared to income levels, making housing unaffordable for the average earner. The low-interest-rate environment has also made property investment irresistible.
This trend has been boosted by central banks that have been infusing the global financial sector with cash, which has triggered asset price bubbles in various sectors, most notably, housing. Much of the new housing stock entering the Irish market in the past few years has been snatched up by financial institutions for profitable buy-to-let operations.
The affordability of housing has become alarmingly detached from income levels, due to a combination of easily available credit and the increasing financialisation of real estate. This issue was exacerbated when government policies started shifting towards market-driven strategies in the 1980s, including privatisation and decreasing the commitment to social housing. Governments have tended to sell off a large portion of their public housing stock, replacing them with rent supports. The consequence of this policy has been more people entering the private rental market, which has led to inflated rental prices and a shortage of affordable homes. This is particularly evident in major cities like Dublin, where finding employment is often less challenging than securing a place to live.
A third major factor in the housing quandary is the appearance of institutional investors in the property market. Prior to the banking crisis in 2008, their involvement was minimal. However, this trend has amplified globally, with the Irish government indirectly encouraging the flow of investment by selling toxic property assets from bank balance sheets via the National Asset Management Agency’s organised fire sale. Since 2011, it is estimated that funds have poured nearly €10 billion into the Irish property market, with around €8.4 billion invested from 2018 to 2022. The recent surge in interest rates has moderated this inclination, but it cannot alter the reality that many apartment developments in Dublin were built through a presale agreement, financed by the PRS investor or ultimate purchaser.
The interaction of these factors has produced a convoluted housing situation, where solutions are not readily apparent. Numerous real estate sales are bypassing traditional methods and instead, choosing to invest in the rental sector. This amplifies the belief that native buyers are being gradually pushed aside. Despite its distinctive journey through a housing boom and bust in the 2000s, followed by practically no construction activity post-2010 and leading to the current crisis, Ireland’s predicament epitomises the global housing issue contributing to a significant division between generations. This widespread difficulty has fuelled the rise of anti-establishment sentiments and political discontent globally. In tandem with this, a Reuters survey of property analysts suggests major economies wrestling with this crisis will find it challenging to significantly increase the provision of affordable homes in the near future, especially starter homes. Obviously, the housing situation is a complicated tangle with no clear-cut answers in sight.
The Irish economy has seen an unprecedented surge of over 750,000 jobs in the past ten years. Nevertheless, this accomplishment is overshadowed by the government’s poor performance concerning housing. Currently, the country is moving towards pre-election promissory politics, wherein both the governing and opposition parties are expected to pledge increased efforts or reinforcements to existing initiatives. Unfortunately, those measures are anticipated to be unsuccessful in addressing the crucial issue of affordability, which is burdening the population.