Time to Raise the Roof again
ANOTHER parliamentary report, more criticism of current housing policy. The Oireachtas Housing Committee’s recent report questioned: “whether Rebuilding Ireland can remain as the current blueprint for tackling the issues of housing and homelessness”.
This is a polite way of saying what most people concluded some time ago – government policy is not working.
The Government insists that the primary delivery vehicle for housing is the private sector. To this end, it must employ a range of subsidies to developers and private interests. This is not only costly; it has the perverse effect of driving up prices. And there is less money for policies that could really make a positive impact.
Let’s look at some of these subsidies:
- The Housing Assistance Payment (HAP)
This is the flagship scheme among a number of rent subsidies. These subsidies provide payments to tenants who cannot afford their rents in the private sector.
They will cost the state more than 3 billion over the next few years.
These payments are ultimately a subsidy to the landlord. Secondly, subsidies drive up rent as landlords can keep raising prices at the public’s expense. Third, in the long-term, they are more costly: it is cheaper to build public housing and rent it directly to the tenant.
On this last point, the Government doesn’t have to take our word here in Liberty. The Department of Finance’s own analysis last year concluded: “It is estimated that, based on the Local Authority areas analysed, the . . . cost of delivering units through mechanisms such as HAP, RAS and leasing is higher than construction and/or acquisition.” Enough said.
- The Land Development Agency
The purpose of this agency is to coordinate all publicly-held land with the purpose of developing it for house-building. In theory, this is a good idea. The State owns a lot of land and not just at local authority level. Land is also held by public agencies, including NAMA, Government departments, semi- states, etc.
A co-ordinating agency can create efficiencies and provide more land for house-building.
The problem is we don’t know what the Government intends to do with this land. The fear is that it will engage in a massive transfer to private developers who will build for profit, selling or leasing 10% or 20% of the houses back to the state – at market rates.
Land would be lost, affordability wouldn’t really be affordable and the costs to public authorities of leasing or purchasing would be higher than if they just built the houses themselves.
The Land Development Agency has the capacity to engage in the biggest transfer of public wealth to private interests since the bailout of bank creditors and the massive property disposals of public lands by NAMA.
- The House Building Finance Agency (HBFI)
This little-known agency was established by the Government to support smaller developers who couldn’t get bank loans. Recently, the Government made available 750 million to the agency to loan out. Some might argue this isn’t a subsidy since the agency will be lending at ‘market rates’. This is true. But look at the alternative.
The State can borrow at ridiculously low rates – one per cent – and this is likely to continue for some time as Eurozone governments continue to depress their economies through irrational austerity policies. The market, however, lends at 8%. The developer’s borrowing costs are thousands of euros more a year which is passed on in a higher mortgage.
This simple comparison makes the point – lending at ‘market’ rates only embeds high costs into house prices (while the bank earns more in interest payments).
In the end, it is the purchaser who pays the subsidy and the higher mortgage, with the developer making a tidy profit. If the State built the house itself, it could sell or rent it at a much lower price.
HAP, the Land Development Agency, the House Building Finance Agency – all these are just a few of the subsidies and incentives to private developers and the private housing sector.
The alternative is simpler and much less costly:
- Public land for public housing only – no sell-offs to private interests.
- The State to build houses for affordable rental and affordable purchase – without profit or speculation.
- And whether for rent or purchase – no means-tests.
- In other words, public housing for all.
It is time to Raise the Roof . . . again.