Dr. Ronan Lyons:

I thank the committee for the invitation and the opportunity to speak. I know the committee is very busy. This is a very important task and the committee has limited time, so I very much appreciate and am honoured to have the opportunity to talk to members. I apologise for any typos in the document. It was prepared for the first invitation and I only had about a 24-hour window. If something does not make sense, members can pull me up on it and I will fix it later on.

My aim today is to try to present what I would call a system-wide view. That is not to denigrate the contribution of other stakeholders who have a particular perspective, but given my role and the research I do, I thought it might be useful to try to bring a systems perspective and to think about how we would build a healthy housing system that gives a meaningful right to housing for all Irish people. To do that, it is important that what we do and what I say is based to the greatest extent possible on theory and evidence rather than prior belief . For what it is worth, I am not politically affiliated and I try to the best I can to set prior beliefs aside and see what the evidence tells me, because from past experience, prior beliefs can often take one in the wrong direction.

I will make a brief mention of my background. I am an economist with a specialisation in housing. I have looked at the Irish economy in particular. I did my PhD in Oxford between 2009 and 2013 on the recent Irish housing bubble and crash, and I took a post in Trinity College in 2013 and I have been there since. The vast majority of the research I do in Trinity College is looking at the housing market and the bulk of that is the Irish housing market, although that is shifting a little bit.

Some members might be aware of my role with daft.ieas well. I work with it, and have done since long before I even undertook the PhD. I have worked with daft.iefor about 12 years. The aim of the reports I do for it is just to measure the market, to give the facts and figures. There is a commentary as well but come hell or high water it is about the figures. In the early days it was not popular when the figures got published because prices were falling. That is the work I do with daft.ie. I also work with public and private bodies on particular aspects of housing, broadly defined. In the last couple of years I did some work on social housing, student accommodation and housing for older persons, as well as the bread and butter general housing market.

The context to the housing shortage is well known. It is what I would call system-wide shortage. It does not matter whether we are talking about market housing or social housing, student accommodation, general housing, nursing home beds or hotel rooms, it is just a shortage of accommodation. One might even call it a shortage of space but when one looks at the office sector, there is no problem at the moment providing office space and, in fact, 500,000 sq. m of office space is either being built or is about to be built. That is an important difference between residential and commercial, which I can come back to.

I use one number to focus my comments. If we take the greater Dublin area, roughly speaking between 2010 and 2020, there will be approximately 100,000, perhaps more, new households formed, not all of them families. I use the terms demand and supply as I am trained as an economist and I cannot shake them. Against that extra demand for 100,000 new units, we will probably see perhaps between 25,000 and 30,000 units built in the same ten-year period. As members well know, this is critically important. That is what got me thinking in a more systematic way.

Committee members have had my document for perhaps a couple or weeks so what I thought I would do is give a quick overview of it and then I am sure members will have questions on the document and I can explain myself a little bit better. What I hope we can agree on and what I hope everyone in Ireland would agree on is that what we want the housing system to do is provide a meaningful right to housing for all. One could write it into the Constitution but that would not necessarily change anything on the ground.

What we want to do is put in place the policy that brings about the housing, and the access to housing.

A healthy housing system is one where, when there is new demand, there is new supply. The system responds by building new accommodation of the type needed so if foreign direct investment, FDI, is creating 1,000 new jobs, all of those new people have somewhere to live. I have new colleagues coming from abroad in September to start in Trinity College Dublin and they are currently flying back and forth from New York to try to find somewhere to live. One of them told me yesterday that this is the worst market they have ever seen, and they have lived in New York and Oxford. Those are two notoriously unhealthy housing markets, and this one is worse. Also, if we want to take in Syrian refugees, do we have somewhere to accommodate them, or do we just decide that the population is growing in terms of natural increase?

Whether they are high income or low income, Irish or others who choose to live here because they see employment opportunities, we should have a housing system that responds. That is the barometer I would like policy to move to and that is where the four key policy areas come from. I will outline those briefly and we can then open the floor for discussion.

The first is making sure we have a safe system because that means we have a safe level of house prices. We all know that from 1995 to 2007-08, house prices rose far too much. That is demonstrated in one of the graphs below paragraph 0.8. Also, in the graph above paragraph 1.1 members can see that the Irish housing bubble was off the scale. It is fundamentally important, therefore, that we do not go down that road again.

In that context, the Central Bank rules are very important but an important tweak to those is required, that is, focusing on loan to value and moving away from loan to income. The reason for that becomes clear when we think about land, the final area I will discuss, and consider the price of housing in Dublin versus the price of housing elsewhere. In that environment, we cannot have a loan to income system that works countrywide. It will only work in either Dublin or the rest of the country. The mortgage rules are very important but tweaking them to focus more on loan to value than loan to income would make them even better. Even if they are not changed, we are unlikely to go down the route of creating the same bubble. If it is a case of taking them as they are or having none, I would definitely take them as they are but I would tweak them slightly. I regard that as work under way. The Central Bank Governor has said he will review the rules, and I will be talking to him about those.

In terms of the urgent areas for policy, the first relates to the cost of construction in Ireland, or what I have called in the document an efficient construction industry, because if the Central Bank is capping house prices relative to people's incomes and nobody is capping costs relative to people's incomes, we will end up in a position where house prices and rents are high but nobody is building. There is a common misunderstanding in that regard. Even the ESRI has said it seems to defy economic logic that there are big increases in prices of rents but no increase in supply. It makes perfect sense if costs are too high.

If I could do one thing here it would be to impress upon the Minister, or whoever is responsible for implementing a report, that until we have an open, Government-sponsored audit of construction costs in terms of the different elements of building an apartment block, a semi-detached home or a rural one-off and compare that to other countries, we will not know the most important actions we need to take to boost supply. There are many figures available but there is a good deal of disagreement also. As a result the Government is able to ask how it is supposed to know which are correct if some figures are provided by a State agency and others are provided by developers. Whenever I mention something on radio to do with a safety certification or something else, some people ring me to tell me I am right while others ring to say, "No, it only costs this amount". There is such disagreement in terms of the evidence we need the Government to have its own evidence, and it cannot then disavow its own evidence. It will say, "Here is where the costs are and here is where the priorities are". It could be to do with regulations or wages but I suspect there are other issues that are driving up costs, including lack of efficiency in a more general sense.

The first area is mortgage rules. The second area is cost of construction. The third area which, along with cost of construction, is the key priority for this committee and for the new Minister, relates to subsidising housing for those who do not have sufficient income. We can bring construction costs down in line with our incomes, in the same way the Central Bank has capped prices relative to our incomes, but there will always be a fraction of the population who cannot afford that level of construction costs.

I have worked it out in some detail in the document. If one takes a particular family earning, say, €45,000 per year, it cannot affordably spend more than €1,000 per month on its rent. However, if it costs €1,600 per month at a break-even rate to provide them with accommodation, we are stating there should be a subsidy of €600 per month for that household. We do not have a subsidy system which is anything like that. We have a subsidy system that pushes it on to those who buy new properties, namely, the Part V provisions, and that does not even take account of one's income, once one qualifies, whereby somebody with no income gets the same subsidy as does somebody whose income is just below the threshold. Once we sort out construction costs, to make a meaningful right to housing for all we need to have a subsidy that covers the gap between people's income and the cost of providing them with accommodation. One should not be spending more than one third of one's disposable income on a monthly basis on one's housing.

I acknowledge I am pushing matters generously in respect of my five minutes but this point also renders somewhat irrelevant the debate about how much the Government, as opposed to housing bodies or the private sector, should be building directly. I see local authorities predominantly as providers of land for approved housing bodies to build social housing. Were we to have a subsidy that matches construction costs and one's household income and which states a person's household circumstances are such that he or she needs a subsidy of X per month, this would be the fundamental collateral a housing body needs to tell international capital markets that it can provide 1,000 homes for those on lower incomes and will be able to pay back the markets. I am aware, having worked with Clúid in the past, that there was lots of interest from international capital. It was thought that as this is a country with lots of unemployment, there must be lots of social housing but Clúid was obliged to say that unfortunately, our system does not work like that. However, it should work like that and Austria and New York city have versions of this kind of system, whereby the less one earns, the more help one gets to make sure there is effective demand and not simply notional demand for housing.

I have referred to mortgage rules, construction costs and housing subsidies. The final area is the cost of construction. The cost of a home is not simply the hard building costs, it also is the cost of land. This ties back in with the mortgage rules. If one looks back at the figures for the average price of a house in Dublin versus the average price for a house outside Dublin, even just 30 years ago they were approximately the same. I have included the figures in the submission and it was something like €48,000 for an average house in Dublin and €45,000 outside Dublin. I acknowledge the Dublin house would have had a smaller garden or perhaps one bedroom fewer but I refer to the sticker price, that is, the price one pays. One trades location for size, one chooses to live more centrally and one has a smaller property. At present, the premium for living in Dublin is 70% or 75%, rather than 5% or 10%. Ultimately, I believe that comes down to how we use land. This is not a politically easy thing to fix because it entails changing the way we do property tax. However, I believe the politically most acceptable way to do this is to ignore the homes and to at commercially used land and to treat development land for residential purposes as being equivalent to commercial land and to tax them the same way, that is, with a land value tax.

I got into a row with Dublin City Council about this because I pointed out that Dublin Industrial Estate, Dublin 11, comprises 170 acres within Dublin City Council limits and my contention is it is very poorly used land. There is so much empty industrial space of the M50 and the national road corridors that were the estate destroyed in an earthquake tomorrow, all the occupants easily would find new industrial space on the M50. It is where the cross-city Luas line will terminate and I find it astounding that the terminus of the cross-city Luas line is in an industrial estate that is half used. It is close to the new DIT campus and to O'Connell Street and is phenomenal potential residential land but the way the city council currently thinks is it would be obliged to acquire that land via compulsory purchase order, CPO, there are huge title issues and it does not want to get into that. However, with a land value tax, one puts all the logistical pressure onto the private sector. It means that if one wishes to stay in such valuable land as a half-used industrial estate, one must pay the price to society. Alternatively, if one wishes to develop it, one must buy them out and it is a combination of the two; that is what a land value tax does. Moreover, by doing that, we could get land significantly cheaper but we also would be obliged to review land use restrictions.

I was quite concerned to read yesterday that again, some of the members of Dublin City Council are trying to bring in more restrictive height restrictions.

International evidence shows the best way to keep housing affordable is to allow it to build up where it will pay for itself and not willy-nilly. Unfortunately, we seem to be moving away from that. In the next two years, if we target construction costs and how we subsidise social housing, and, in the next five to ten years, if we reform how we use land, we could have a healthy housing sector which will provide a meaningful right to housing for all.