Here's a Way to Solve the Housing Shortage

Andy Storey

Andy Storey is a lecturer in political economy at University College Dublin and a board member of human rights group Action from Ireland (Afri).

The National Assets Management Agency (NAMA) sold the Dock Mill building in Dublin 4 for €1.3 million in 2013. In 2014, Google bought it from the new owner for €13 million – a ten-fold price rise in less than a year.

Such odd deals can always happen of course, but this is not an isolated example, as recent revelations in the Sunday Business Post make clear.

According to a report by economist Jim Power, commissioned by developer David Daly, NAMA’s fire-sale strategy (selling assets when the market was at close to bottom) allowed vulture funds in particular to make a killing by “flipping” the properties they had purchased i.e., selling them dear after buying them cheap.

Power estimates that NAMA could have earned at least an extra €18 billion for the state if it had retained and managed its assets for longer periods. This echoes the report of the Comptroller and Auditor General, which found that NAMA’s controversial sale of Project Eagle properties in Northern Ireland to US vulture fund Cerberus resulted in a loss to the state – relative to what it could otherwise have received – of £190 million (sterling).

Meanwhile, the number of homeless children in the Republic rose to 2,546 in February, 2,129 of them in Dublin – impacting over 1,000 families. Meanwhile, Dublin house-price inflation may be running in excess of 20 percent this year, with rental costs ratcheting up in lockstep.

Homelessness for some, unaffordable homes for many others, and super-profits for a few are, in reality, all part of the same model, one the government seems determined to persist with.

Five local authorities – including Dublin City and South Dublin – have recently been asked to initiate new Public-Private Partnerships (PPPs) with private builders to deliver 500 homes.

The private companies will finance, build and maintain the new properties – at a cost to the public authorities that is as yet unknown.

Eoin Ó Broin of Sinn Féin points to past experience as indicating there is no guarantee affordable housing will actually be delivered, that the properties will be of appropriate quality, or that acceptable employment and environmental standards will be maintained.

The record of PPPs is, as Tom Healy and Paul Goldrick-Kelly of the Nevin Economic Research Institute (NERI) say, one of “wasteful use of public resources with very poor results”.

Why then rely on the private, profit-driven sector to deliver the homes we need?

As I have reported here before, Michael Byrne and Michelle Norris have documented how between the 1930s and the 1950s, half to two-thirds of new Irish housing was supplied by local authorities and by not-for-profit housing associations. They borrowed the money to build these homes and then used the rents (a surefire income stream) to repay the loans.

In their hugely important and timely new report, Healy and Goldrick-Kelly have shown how such historical precedents, supplemented by successful examples from other countries, could be built upon to solve today’s homelessness and housing crises.

The core idea they set out is simple: a newly formed Housing Corporation of Ireland (HCI) would get seed capital of €3 billion and then borrow the rest of the money necessary to finance a building programme that, over its first 12 months, could see the construction of 5,000 new homes at a typical cost of €180,000 each.

This is in line with recent estimates cited by architect Mel Reynolds that the average cost of a three-bed semi-detached house should be €180,000, which could be rented out for less than €800 per month and still cover its costs over a reasonable time period.

Over five years, a conservative estimate is that the HCI’s output could rise to 70,000 properties at a total cost of €12 billion. Over the same period, the HCI could also acquire and make available 20,000 currently vacant properties.

This would not be money down the drain, it would be an investment. Rents, even based just on costs rather than current market rates, would ensure a steady income stream of the sort local authorities enjoyed in Ireland in earlier eras. And that rent would cover not only construction costs (to the highest standards of energy efficiency) but also maintenance.

For tenants, the benefits would be enormous, as Michael Byrne highlights: “Many of us are familiar with landlords who treat fixing a washing machine like a major logistical operation. Imagine renting from a company which managed thousands of units and hired dedicated property managers and maintenance professionals. [And] this system can deliver something tenants can currently only dream of: full security of tenure. You pay your rent, you don’t get kicked out.”

So where would that initial €3 billion of seed capital come from? There are plenty of feasible options outlined in the NERI report, but one springs immediately to mind: a mere sixth of the public money squandered by NAMA through premature disposal of its assets could have financed the set-up of a HCI.

As paradigm shifts go, this one is very viable and easily affordable.

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Reader responses

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Sue Miller
at 29 March 2017 at 10:18

I wonder if the full data picture underpinning the increasing and apparently impossible to satisfy demand for affordable accommodation and housing is being adequately captured by policy makers and researchers?
Demand for affordable accommodation is driven by internal and external population inflows, obvious examples of which are student populations and migrant working populations. When data on the free movement of people on this scale is not adequately captured to inform housing policy it is inevitable that local housing markets will not keep pace with demand and those with the least resources will be pushed out.
Capturing the damage in the form of waiting lists for social housing is not a sufficiently rounded data picture with which to propose solutions to the affordable housing crisis. We need to be capturing the data on demand drivers too and assessing if they require regulation by government policy.
Perhaps we have come to the point where the free movement of people now requires regulation and oversight at national level to inform housing policy in the way that we have recognised thanks to the banking crisis that the free movement of finance needs regulation and oversight? Should we be requiring universities and airport authorities for example to be capturing data and feeding it into the policy making process?

Michael Holmes
at 29 March 2017 at 11:57

“Homelessness for some, unaffordable homes for many others, and super-profits for a few are, in reality, all part of the same model, one the government seems determined to persist with” – I think this will be even more relevant if the government succeeds in its strategy of enticing UK-based financial services companies to relocate to Dublin post-Brexit. That will undoubtedly add significantly to pressure for more high-end housing, creating an ever-widening gap and between a privileged ‘ex-pat’ few and the majority of Irish citizens, and pushing the latter further and further out of the ‘desirable’ parts of Dublin.

at 29 March 2017 at 12:02

Fintan O’Toole did a piece on this also. […

at 30 March 2017 at 08:49

In the interest of clarity, it should eb mentioned that the Dock Mill underwent a major renovation between the €1.3m and €13m figures. It still sold for huge money, but it’s not quite as simple as the figures presented here lead us to believe.

Andy Storey
at 30 March 2017 at 15:19

Thanks Sue. Of course internal and external migration helps drive up the demand for housing and, hence, the price. But how significant it is in the grand scheme of things is impossible to say for sure. And whether it is practically or morally appropriate to seek to restrict the (relatively) free movement of people as a means of responding to the crisis is up for debate. It certainly runs the risk of fueling anti-migrant language and actions, even if that is far from the intention (I have made that mistake myself!) . On the practical side of that debate, my UCD colleagues Aidan Regan and Sam Brazys point out that a lot of the recent tech start-ups in in Dublin are only here because of their ability to recruit labour from across the EU – any attempt to restrict that ability and we would likely attract fewer such companies.

Andy Storey
at 30 March 2017 at 15:21

@Michael Holmes: Though many of the ‘companies’ we attract might be brass-plate operations with relatively few employees (Irish or expat).

Andy Storey
at 30 March 2017 at 15:21

@Shane: Thanks Shane, should have referenced that earlier piece.

Andy Storey
at 30 March 2017 at 15:24

@Seán: Point taken Sean, though I understand the company concerned put about €1.4 million into the renovation so still ended up with a profit of €10.3 million (albeit not the €11.7 I implied) – not a bad day’s work all the same. And fair play to them. My main problem is with NAMA’s inability to spot the development potential of the premises and, hence, the opportunity to generate much larger gains for the state.

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