If you are looking to buy a home and are only being offered dilapidated, third-rate places in parts of town you’ve never wanted to live in, you should get out of the market and wait.
Until the huge supply promised by the Government’s “Housing for All” initiative comes on stream, leaving this dysfunctional market is the only rational reaction to a comprehensive national housing plan. The State is in effect advising buyers to wait, as we will be coming down with apartments, rental properties, family homes, duplexes and maisonettes, with more options for buyers and renters in the coming years.
An estimated 33,000 homes per year are on the way. Buyers should step away for now and put it up to sellers. Sellers who want to get full value for their home should put it on the market without delay as soon they will face competition never seen here.
Politically, this coalition is in the last chance saloon – and they know it. The future of the coalition parties at the next election is tied to housing. This is the government’s Stalingrad, a last gasp effort to stop Sinn Féin. They’ll live and die on housing.
If it works, “Housing for All” may constitute the seminal moment when Fine Gael and Fianna Fáil realised that the people come first, landowners a distant second.
The devil will be in the detail, most notably in what rate of tax is levied on vacant properties and on how much of the upswing in the value of zoned land will go back to the State. However, taxing vacant land to eliminate land hoarding and the resuscitation of the Kelly Report from 1973, which caps the windfall gain that accrues to landowners when land is rezoned, are clearly steps in the right direction.
There’s much to like in this initiative. The plan to finance local authorities’ compulsory purchase orders on derelict property is an extremely welcome move as it realises that, while we have a housing problem, we also have a vacancy problem. The emphasis on revitalising existing homes and buildings in urban areas that have been allowed to become derelict constitutes a shift in central government thinking away from sprawl to using existing densities.
Moves to centrally fund the Land Development Agency, using the opportunity that the State now has to borrow at historically low interest rates, make complete sense, allowing the agency to build up urban portfolios for development. Such a move will facilitate plan-led rather than developer-led urban expansion. Streamlining planning objections is also essential and is in there.
There are clearly omissions. A major gripe is that the plan isn’t ambitious enough. Some 33,000 homes may sound like a lot, but my own calculations, based on population growth and diminishing household size, point to a 45,000 plus shortfall in homes per annum. During the Celtic Tiger years, the building industry, at full tilt, built more than 60,000 houses per annum. As there is no financing constraint of any real substance, the State could take greater risks.
Some on the Left will complain that private finance is there as an essential element. But private finance is critical and there will need to be a healthy rental, as well as ownership market. Large, well-funded (usually by pension funds) landlords are here to stay. Ireland needs as many sources of finance, as it needs varieties of home.
Building homes depends on land use, and Ireland is still the least densely populated country in western Europe, with among the highest land/house prices. Such a situation only makes sense if land use is extremely inefficient and careless. Housing for All promises to address this.
The most efficient way to make sure that land, a precious asset, is used efficiently, would be a “site value tax”, which taxes the site upon which the homes are built. This type of levy captures the fact that the value of most sites is not caused by the owners’ input but the communal infrastructure around the site, paid for by the community.
Think about Grafton Street: what gives it its value isn’t the bricks and mortar but the site value which is determined by huge public infrastructure from the Luas, St Stephen’s Green and even the guards on the beat, the people funnelled on to the street, all paid for by someone else.
The political problem with a site value tax is that it means levying a tax on existing property owners today. One thing this plan avoids is precisely that. No party will risk fighting an election on the issue of property tax, no matter how logical it is.
The obvious analytical message from Housing for All is that we are now at the worst ever time to buy property. For tens of thousands of first-time buyers, the Government’s point is clear. The State acknowledges that you are caught in a market that is taking the mickey out of you.
Your money has no value because there is no supply. What is being offered is of such low quality that many will suffer dreadful buyer’s remorse the minute contracts are signed. Many will have parted with more money than they ever imagined, to live in a place they never really desired, and may be stuck with it for the next 30-odd years.
Negative equity comes in many forms. When the quality on offer is as appalling as it is now, buying today is the most reckless thing you can do, although it is almost impossible not to panic. We are jittery creatures, profoundly affected by rumour and innuendo.
Nowhere is this more evident than in an irreparably damaged property market. The quality of what you will get for your money in the next few years will improve. In order for this to happen, the market doesn’t need to crash as it did in 2008 (although this can’t be ruled out at these elevated prices and rents); all that needs to happen is supply needs to expand, offering more choice and that old concept “value for money”.
For parents trying to cobble together the “top-ups” on the deposits for your children, the message from the Government is to desist immediately. Be patient, don’t waste your money. If the State gets its act together and manages to orchestrate affordable homes for those who need them, and maybe new larger homes for those who covet them, then the best thing to do is hold your nerve.
Sometimes we forget that the housing market is a varied organism, an adaptive ecosystem, completely interlinked, so the rental market affects the buying market, and the top of the market affects the bottom and the middle. If we don’t build enough homes, the homes that used to be reserved for the people in the middle are bought by people who used to be on the top, and the houses that used to be earmarked for the lower end of the market are snapped up by the middle. This is why professional couples live in former council houses.
Ireland needs to build homes for all of us, the poor, the well-off, the young, the old and the inbetweeners which means build and keep building. There’s no other way for a population going back towards where it was before the Famine.