Housing affordability and supply are critical challenges in the housing market
A new analysis of the home building market carried out by EY-DKM Economic Advisory Services on behalf of the Irish Home Builders Association (IHBA) estimates that up to 36,000 new homes per annum will be needed to meet demand over the next two decades.
The report calls for a number of initiatives to be established to lower the cost of construction and improve supply.
Putting Affordability at the Heart of the Housing System
According to the Putting Affordability at the Heart of the Housing System, “Successive governments have had housing and the restoration of a properly functioning housing market as a top priority for many years. Despite numerous initiatives, policies and reports highlighting the persistent problems in the market, it is clear the issues are many and complex. There is no single quick solution.”
The report states that the core of the problem is a decade of underinvestment in private and social house building and related infrastructure. This has resulted in the demand for accommodation consistently exceeding supply and given rise to several adverse consequences that have created challenges for Irish policymakers, notably, an escalating homelessness problem. Close to 70,000 households are on the social housing waiting list, and house prices/rents are at levels in some areas of the country which are challenging for many potential buyers and renters.
Structural issue in the market
The report points out that there is a structural issue in the market when rented accommodation costs more per month than mortgage repayments, but many borrowers cannot access a mortgage. This is also a strong signal that due to the lack of supply, potential first-time buyers (“FTB”) are having to compete with local authorities who have been acquiring second-hand properties. In addition, local authorities have been incentivising property owners and home builders to make vacant properties available for social housing. Meanwhile, the economy and jobs market have experienced remarkable growth (pre-Covid-19) since 2013. Yet the scale of housebuilding is well below normal levels, demand is strong, and home builders find some residential developments are not viable in certain locations.
Quality of life
Housing is fundamental to the quality of life of all citizens in the State. The overall stated objective of housing policy has been to enable every household to have available and affordable dwellings of good quality, suited to its needs, in a good environment and a sustainable community, and in as much as possible at the tenure of its choice. The newly-elected Government in May 2020 has put ‘housing for all’ as its mission in the Programme for Government.
An effective housing market
The report states an effective housing market must ensure all tenures are catered for and that those who can afford to provide for their housing needs should do so either through home ownership or in the private rented sector. Targeted supports should be available to others having regard to the nature of their need. “There needs to be adequate supply to ensure consumers have choice in meeting their housing needs at a cost which is within their financial resources. This issue of affordability is at the core of this report. It requires some form of intervention to ensure the cost of delivery is aligned with the consumer’s ability to purchase.”
Key findings of the Putting Affordability at the Heart of the Housing System Report
- Housing supply since 2008 has significantly lagged the long term average supply, with private housing supply in 2019 at levels last seen in the 1970s;
- Based on current estimates, circa-30% of new homes are available to purchase for owner occupation, 15% for the rented market, 35% for social housing and over 20% are one-off builds;
- The price gap between new and second-hand properties has been over 40% since 2018, reflecting in the main enhanced standards and a better quality product;
- Affordability is predominantly an urban issue while accumulating the deposit is a significant barrier to home ownership;
- The time it takes to save for the average deposit ranges from 1.7 years in Kilkenny to more than 15 years in Galway City, Wicklow, Waterford City, Cork City and Dublin City;
- The average deposit paid by FTBs is 14% of the property price, with many getting support from parents.