Sunday Read: Greed and the housing market
There is a tendency to discuss property developers and landlords in terms of ‘greed’. The implication is that if there was less ‘greed’ in the area of housing, we might be closer to the goal of affordability – whether that means affordable rents or house prices.
However, the private players in the housing market are acting rationally. They follow the market signals. They attempt to maximise their investment.
The problem does not lie with their behaviour. It lies with policy makers who create and maintain markets (yes, governments create, organise and structure markets – they are not some natural phenomenon). And the Irish housing market is structured to favour the highest return, regardless of social need or economic efficiency.
Minister for Housing, Eoghan Murphy’s recent love affair with co-living developments is an example. Co-living involves a number of rental units in a complex which share kitchen facilities and other common areas.
The actual living quarters are tiny (16 square metres; prison cells are 7 square metres) with pull down beds. One proposed development will see 42 people – all paying market rents – sharing one kitchen.
Murphy says people should be ‘excited’ about these developments. But as a leading housing commentator, Mel Reynolds, has pointed out, it’s the developers who will be most excited.
Why? Because they can cram in more people and, so, more rents into a smaller space. Instead of two normal rental units (two beds), a developer can now squeeze in five units into the same space.
The maths are pretty simple. Five rent-paying tenants will yield more return than two rent paying tenants. But it gets worse. Co-living developments drive up land prices due to the expectation of a higher return for an acre of land. This will increase normal apartment rents and new house prices. Land can account for up to one third of the cost of a housing development. No balconies, no parking and no obligation to provide the legally mandated 10% social housing that every other developer has to sell to the State at a discount: there is money to be made in co-living arrangements. Money for developers.
This could lead to a two-tier housing market, especially in Dublin. Tiny, co-living apartment spaces and developments geared towards the high-end of the market where rents can rise to €3,000 per month or more.
This will leave low and average income workers (and even higher paid workers) without any supply. They will have to choose between un-liveable units or un-affordable units. Or, they will have to move out of Dublin (this is already happening) raising questions of sustainable work/life balance and the cost and time of getting to work.
Eventually, this process will push up prices outside of Dublin (again, this is already happening). Why blame developers for pursuing the highest return? They are following the logic of the market. But this logic is a political one and can be changed by government policy – at both national and local level.
SIPTU has emphasised the need to use land that is already publicly owned to provide public housing for all – for those on waiting lists and for workers. Public housing development is not based on land prices, developers’ margins or profits.
However, we also need the private sector to operate in tandem with public need. All private housing developments should be led by democratic regulations that require proper living accommodation accessible to a wide range of income groups. It should not be led by developers’ interests.
It is up to both councillors and TDs to draw up the regulations to ensure, whether public or private, that housing policy serves the interests of people and not the highest yield.