Why Can’t You Afford a Home?, by Josh Ryan-Collins, Polity Press, 140 pp, €10.99, ISBN: 978-1509523269
Josh Ryan-Collins has done us all a favour with his eminently readable Why Can’t You Afford a Home? The book focuses on the fact that home ownership is falling and private renting is rising throughout the Western world. Traditionally a nation of homeowners, Ireland is now following in the footsteps of many of its Anglo-Saxon neighbours. Owner-occupation levels have fallen considerably from a peak of 80 per cent in the early 1990s and the private rented sector has doubled in size.
What are the reasons for this trend? Ryan-Collins attributes it to the failure of governments to control two factors: the availability of money and the cost of land. The easy flow of financial credit before the Global Financial Crisis (GFC) did not dampen house prices but rather inflated housing demand. The increased cost of land in places where availability is inherently limited has also contributed to skyrocketing house prices in trophy markets, including London and New York, but also in many other less high-profile but desirable locations throughout the Western world, including Dublin.
Ryan-Collins says radical reforms are needed to arrest further falls in home ownership levels, including state intervention to maintain tight control over mortgage credit and greater state investment in public infrastructure. Public control over land ownership and how it is used is needed to assert public use value and to limit speculative returns for domestic and international investors. Key to this is the idea that housing has been “commodified”, becoming more an investment good than a form of shelter and a human right. Some will agree with Ryan-Collins’s analysis, while others point to land-hoarding and the regulation of finance as bigger culprits.
Taking an Irish perspective on the Ryan-Collins analysis, can we say that credit is the driver of rising housing prices? During the years 2002 to 2008 in Ireland house prices rose significantly at a time when credit was easily available, even while housing supply increased to its highest extent in the history of the state. In the wake of the GFC, stricter mortgage lending rules have been set out by the Central Bank of Ireland and while the government may suggest relaxations of these rules it cannot demand them. Moreover, Irish banks are subject to macro prudential rules imposed on the euro zone by the European Central Bank, restrictions that do not apply to the United States or the United Kingdom. And what about the availability of land? It was the availability of generous tax breaks that fanned the flames of Ireland’s property boom, leading to house-building in locations where there was little or no demand. Nonetheless it is true that the largest element of house prices during the Celtic Tiger period was accounted for by the value of the site, testament to the truth of Ryan-Collins’s analysis.
The impact of an inability to access home ownership is as real in Ireland as in the other locations cited by Ryan-Collins. A lost decade of economic instability following Ireland’s property crash of 2008 has disrupted the aspirations of a whole generation of prospective homeowners and many have missed the boat completely. If you were in your mid-30s at the time of the crash, a decade later you are facing tougher lending rules, a shorter loan repayment period and high competition for properties. Ironically many families excluded from home ownership are paying more in rent than they would have been with mortgage repayments. The younger generation of Millennials also face an uphill struggle. In a world of less secure employment, and where the cost of renting makes it virtually impossible to save the deposit for a home, many will be relying on the “bank of Mum and Dad” to get on the housing ladder.
So what’s wrong with renting for the rest of your life? People in Germany and Austria do it all the time. Almost every city in Western Europe is now facing a shortage of accommodation, so the problem is not confined to Ireland and Britain. A campaign is under way in Berlin calling for private rented housing to be converted to social housing because of rising rents and a lack of housing availability. Other cities are clamping down on Airbnb because of its impact on rental supply. In Amsterdam, as in many other cities, rising homelessness is a serious issue. But what is the relevance for Ireland? The rental market in Ireland, though improving, is still insecure and unstable. Even allowing for better measures to regulate rents and to ensure some measure of security of tenure, rents will historically rise over a person’s lifetime. What implications does that have for those renting in older age, in terms of security of tenure and a need for higher pensions? Already we see issues of affordability driving reasonably well-paid key workers out further from their employment to more marginal regions; inevitably rising rents will lead to calls for higher wages. More importantly however, we must worry about intergenerational inequality and inequality overall.
Ireland has gone through repeated boom-bust cycles. The social housing sector, and in particular the local authority/council housing sector, has historically played a major role in this. Since the 1980s, council housing has been funded directly from current exchequer income, rather than through long-term loans as it was in the past. This means that when government has money, through exchequer liquidity because the economy is doing well, the state is competing in the market for resources and driving prices up. The opposite happens when the state is in difficulty, as has been the case more recently. At a time when the construction sector needed assistance and low-income housing needed to be increased significantly, government capital spending actually fell by 85 per cent. In earlier recessions, government spending on social housing worked as a stabilising factor, but after 2008 this was absent. Ultimately government must control sufficient housing to influence the local market. While we are seeing positive dynamics in the social housing sector we will never see that sector’s true capacity to assist affordability and housing market stability if we do not reform the way the system is both financed and managed in the longer term.
Ryan-Collins makes the point that since the 1980s we have seen an international trend towards a greater concentration of wealth in the hands of a small minority. We saw this in Ireland during the Celtic Tiger era, with middle-income earners struggling to buy houses in Dublin, an exodus of homebuyers to the commuter towns surrounding the capital and the gentrification of many traditionally working class areas. Since the economic downturn, institutional investors have played a much more prominent role in buying and building housing in the Irish market to rent to tenants. Ryan-Collins is correct that if we wish to limit this trend it can only be done with a much stronger role being played by the state. If rents were to be effectively regulated to a moderate level, not only would it make renting more attractive, but the removal of excess profitability from the buy-to-let market would mean that prospective home owners would not be competing to anything like the same extent with institutional investors for limited properties. The rules governing the availability of mortgages to house buyers need to be reviewed; the ability to pay a rent that is higher than the required monthly mortgage payment should be given much stronger weight by lenders, with the requirement for deposits being reduced from 20 per cent.
The government should also look in particular at the future role of NAMA. NAMA could play a powerful role as promoter of housing development, not only in acquiring land, as currently proposed by government, but also in possibly advancing credit to housebuyers as local authorities did in the past. It could also play a key role in moderating boom and bust property cycles if it is mandated to manage a portfolio of properties with that objective specifically in mind. This would mean that during a downturn in the property market NAMA would focus on buying property so as to keep prices above a specified floor, and once the market overheats it would sell properties in order to prevent prices from rising too fast. This can be seen as a role analogous to that of central banks intervening in currency markets to reduce the levels of currency trading fluctuations.
The market for housing has, as Collins-Ryan points out, specific features that mean it cannot be left to operate without a strong level of management and public accountability. Without a stronger management role being played by the state, we face a future where a growing share of our housing stock will ultimately belong to international companies and for most of our people the prospect of owning their own homes will be just a distant dream.
Dr Aideen Hayden is chair of Threshold, National Housing Charity and recently co-authored a report on The Future of Council Housing with Professor Michelle Norris.