Annette Hughes discusses the root causes of Ireland’s housing affordability and supply problems, and the possible solutions.
Successive governments have had housing and the restoration of a properly functioning housing market as a priority for many years. Despite numerous initiatives, policies, and reports highlighting the persistent problems in the market, EY-DKM’s new report, Putting Affordability at the Heart of the Housing System, has found that the issues are many and complex and there is no single, quick fix.
The report, which was prepared for the Irish Home Builders Association (IHBA), highlights the structural defects in the market that have led to rented accommodation costing more per month than a mortgage. Our analysis also shows that there is a significant affordability gap for first-time buyers (FTBs), as their income is insufficient to purchase the median FTB property in 13 mainly urban areas out of 34 areas examined.
The report also finds that the deposit required is a significant barrier to homeownership. The average deposit paid by FTBs is 14% of the property price, with many getting support from parents. The cost of the average deposit varied widely, however, as did the time taken for first-time buyers to save it. Saving periods ranged from nearly two years in Kilkenny to more than 15 years in Galway City, Wicklow, Waterford City, Cork City and Dublin City due to differences in income, expenditure, and house prices.
36,000 new homes are required each year over the next 21 years to meet housing demand in Ireland but this is unattainable if urgent action is not taken to address affordability issues.
A series of measures could reduce the delivery cost of residential development. These include direct financial supports for FTBs, a root and branch reform of the planning system, waiving development levies, accelerating the servicing of zoned lands, actions to address the cost of funding for builders, a full assessment of the impact of new regulations, and the introduction of tax incentives to stimulate development in key locations.
The increased tax relief for the ‘Help to Buy’ scheme announced in the July Stimulus should be extended to 2025 and a State-backed shared equity scheme for affordable units on private lands, supported by a Government-funded equity loan of 25-30% of the price, should be introduced.
The State takes an estimated 20% of the average delivery cost of a new home. The report, therefore, suggests that consideration should be given to reducing this component for FTBs.
A key recommendation is restructuring the planning process to enable, where appropriate, outline planning permission to be obtained early in the process. This would reduce the time frame for delivery, which could, in turn, reduce the cost of financing.
The cost and availability of development finance are also covered, with the suggestion that Home Building Finance Ireland (HBFI) should consider accessing EU loans to provide funds at more competitive rates.
The quality of new homes in Ireland is much higher than in the past, reflecting new regulations and higher building standards – all of which have a cost. Estimates suggest that these policy-imposed costs account for around 20% of the total delivery cost of a new home. The report recommends that any new regulations under consideration should be carefully evaluated against their impact on the viability of residential construction and subject to a cost-benefit analysis.
Under tax considerations, the Government is urged to consider expanding the scope and duration of tax relief available under the Living City Initiative to include newly constructed apartments in designated urban areas to provide a buy-side incentive to encourage their construction.
This report is intended to support the Government in achieving the stated objective of putting housing affordability and homeownership at the heart of the housing system. The solutions, while varied, need not be complicated. The early adoption and implementation of even a small number of the recommendations could make an almost immediate difference to many homebuyers and developers, and set Ireland on the road to meeting its housing requirements for the next two decades and beyond.
Annette Hughes is Director at EY-DKM Economic Advisory.
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