Oireachtas Joint and Select Committees
Tuesday, 10 May 2016
Committee on Housing and Homelessness
Professor P. J. Drudy, Trinity College Dublin
I welcome Professor P. J. Drudy to this session. Before we commence, will people turn off their mobile telephones or turn them to flight mode as they interfere with the recording and broadcasting of the proceedings?
I draw Professor Drudy’s attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the Chairman to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable.
The opening statements submitted to the committee will be published on the committee website after the meeting. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.
Professor Drudy has already submitted a paper which has been circulated to members. I invite Professor Drudy to make his opening statement and I will then invite colleagues to ask him questions.
Professor P.J. Drudy:
I am delighted to have the opportunity to talk to the committee because I believe it can play a key role in changing matters. It is heartening to have a committee of this kind with members who have a broad spectrum of views and who are interested in housing. It gives me confidence for the future.
I was asked to make a submission on the private rented sector but I felt I needed to range a little broader because I see an important link between the three tenures, namely, owner-occupation, the private rented sector and social housing. For example, if we had a good private rented sector with regulated rents, good standards and security of tenure, then people would not be so desperate to get on this so-called “housing ladder”. Instead, they would be happy as Larry in the private rented sector with security of tenure, good standards and reasonable prices. Similarly, if we had more social housing, then there would not be such a desperate demand for private housing. I am not dismissing private housing but there is a clear link.
In table one, I show fairly clearly that we have almost exclusively commodified housing over the past 30 or 40 years where if one has money or can get access to it, one can buy a house; if one has sufficient money, one can rent a house; and if one does not have sufficient money, one does not get it. That is a real problem.
Under "non-market", I have put down 465 homes that have been built. I am not suggesting that it is the only housing provided because the local authorities are acquiring housing. If one talks about provision in a wider sense, the total would be something close to 8,000. However, I would suggest that acquiring houses is not necessarily a good idea because the State is in competition with lots of young people who want to buy. The State is participating in the escalation of prices. I would argue that it is really important that the State builds mores houses and a figure of 465 is quite shameful. There is no excuse for it that I can see. That is the first point I make. There is something radically wrong with the situation when the vulnerable, regardless of whether they have disabilities or are Travellers or ordinary people, have to live in cars or hotel rooms for weeks or months on end. I believe that for the first time in a very long time, this committee is a glimmer of hope for the likes of me.
In respect of buying a house, nothing has changed despite the crash. We have learned virtually nothing. I saw an interesting quote from Jeremy Grantham, an iconic investor, in today's edition of The Irish Times. He was asked what lessons had been learned from the global turndown in 2008. His answer was that we will learn an enormous amount in a very short time, a certain amount in the medium term and nothing in the long term. That is our position in this country. It seems that we have learned nothing from the 2008 crash because we have exactly the same problems now - escalating houses prices, escalating rents, bad standards and very few social housing units. These are the same problems I wrote about in 2005. The same three problems that were there ten years ago are with us today. I have a diagram showing that houses are overvalued. We can talk about the reasons later.
The private rented sector does not work and is not fit for purpose. Committee members will have read this morning that, on average, rents rose by 10%. This is completely out of line with inflationary tendencies. There is something wrong with that. I could discuss the case for regulation of the private rented sector in a few moments. Basically, the sector is unsatisfactory at the moment and it should not be because it could play a key role in helping us, as could all three sectors.
I have a set of recommendations. I hope I can persuade members that the key issue is that we need to change our philosophy and, as a result, our policies. If we do not do so, I promise members that we will be here in ten or 20 years time with the same problems. We must begin to look at housing as a home and a human right rather as a commodity and something for speculation and wealth creation. People say, "I am sitting on a gold mine". It is wrong. I own my own house, but it should not be the price it is now. I bought it for €40,000 in 1980 and it is now possibly worth between €500,000 and €700,000. Why should it be worth this amount? What did I do to deserve it? The answer is "Nothing". I did a bit of painting here and there but really there is no excuse for that sort of escalation in prices. Members can see from my diagram that it came down for a while but it has gone up again. I see that as wrong.
I refer to cost rental. I will stop in a moment but the Chairman can stop me any time he likes. A cost rental model is very important.
Social housing is critical but it is important to cater for a range of people who are finding it difficult, as well as those at the bottom of the tree who are on social welfare or whatever. Gardaí, teachers and nurses are struggling to buy and, therefore, I propose a cost-rental model where the State would build homes and rent them for the cost of the mortgage. The State would effectively regulate rents and the gardaí, teachers, nurses and so on who rent the homes would have security of tenure and standards would be good. It would be worthwhile to consider a cost-rental model. The NESC has agreed with me on this. I was on about this ten years ago - it is one way to travel. We must also cater for those in need of social housing, which is essential.
Providing 75,000 homes via the private rented sector is foolish and quite mad. Private landlords who want to make as much as possible in profit cannot be expected to provide for social needs. That is, therefore, the responsibility of the State. I will not go further as members will want to quiz me on my comments, put me down and so on.
I thank Professor Drudy for his presentation. My questions will attempt to tease out different aspects. One of the points that is often lost in the debate is when those of us who advocate a return to large-scale social housing build relates to the fact that we are only advocating on behalf of those who will live in those houses as opposed to, as the professor said, reducing the pressure on the private rented and owner-occupier sectors. What are the overall benefits to the housing system of increasing the supply of social housing, including the benefit to the young professional private renter or the first-time buyer elsewhere in the system?
With regard to the 75,000 HAP units, under the strategy of the former Minister, Deputy Alan Kelly, more than 80% of the 100,000 units he proposed are private sector units. There are 75,000 HAP units but there are also long-term lease units, etc. People talk about the need to return to large-scale social housing construction but there seems to be a reluctance to return to the traditional single tenure council estates. Is there a way of combining cost-rental units with differential rent to create council estates that are mixed income but single tenure to improve large scale projects? Has Professor Drudy any thoughts on that?
What are his thoughts on rent regulation? We have discussed, including this morning, the merits, for example, of rent certainty in terms of linking rents to the CPI or rent controls? Does he have a preference on that?
Will he elaborate on how the cost-rental model would operate for those of us who do not know the detail of it?
There is a great deal of talk about house prices for owner-occupiers and how to increase access to purchasing and to credit. A more important policy objective is to find ways of reducing the cost of purchasing houses. What are the professor's thoughts on this dilemma of increasing the supply of credit or reducing the cost of the unit for the purchaser and how to do that?
Professor P.J. Drudy:
There was a quite a lot there. Deputy mentioned social housing and I think he was getting at the reasons for social housing and the benefits from it. I see enormous benefits from the provision of social housing because almost 100,000 people are on waiting lists. Housing is closely related to good health and to productivity. People cannot be productive or healthy in any society unless they are properly housed. Ethics and morality come into this. How can we tolerate a situation where people are living on the streets?
There are so many arguments for social housing that it is unbelievable that we have built so few houses. The way we have gone backwards is to do with philosophy. If we believe that housing is a fundamental requirement of any society, surely to goodness we have to believe in social housing on the traditional model. That means that local authorities should provide them and manage them properly. They have not been good at that and they have not been good at collecting rents. There are issues about social housing such as flogging them for example. I disapprove totally of flogging off social housing because all that does is reduce the stock. We are acquiring houses at market prices and flogging them off at a discount price. That makes no sense to me. We have to build up the stock of social housing to something like 30% of the total. It is now at a few per cent.
Professor P.J. Drudy:
At the moment there are over 100,000, so it would probably be 400,000 but they would have to be managed properly. I do not know how that would be linked to cost rental because social housing normally has differential rents which would probably be very low, while in the cost rental situation, I am thinking of a viable repayment of the mortgage. For a garda or teacher it would not be a rent of perhaps €1,500 but it might be a rent of €1,000. It would be secure, in line with inflationary tendencies and of a good standard. There are slightly different categories but I still argue that the State could provide cost rental. No doubt people in the private sector will say that they will do it and they are coming out of the woodwork now to propose social housing. I will not name the people but there is one particular organisation now proposing to get in on social housing. There is also a multinational firm - a vulture fund of some sort - interested in social housing. They have all become interested overnight because they see profit in it, but it is not appropriate.
The Deputy mentioned 75,000 private rented sector houses being used for social housing. My answer to that is that it is not fit for purpose. We know that the private rented sector does not work when the rents are being put up in a dramatic way and the standards are poor. Something like 100% of private rented homes in County Louth do not conform to normal standards. I hope I am right in that - I think it is County Louth. The average is something like 48%. I mention 50% in my paper but it is actually 48%. That is scandalous. How could the private rented sector be appropriate for providing housing for either poor people or not so poor people? It does not add up.
I approve of housing for mixed income groups. I approve of integration of housing; the segregation has been wrong. We built large estates in all sorts of places around Dublin, Galway, Limerick and Cork. It is a pity and we need to integrate more and the State has to play a role in ensuring that it happens, if at all possible. It is not easy. Unfortunately, we are a segregated society. Sadly, people in private estates do not like the idea of social housing and that is wrong. We need to move towards a model like that in Germany, France or the other European countries where there is much more integration, where a Dáil Deputy would live next door to an unemployed person, probably paying a different rent. They are next door to each other, they know each other and they get on very well together.
Does the committee want me to deal with rent regulation? I have set out the arguments in the summary, which is better than the other paper because it was a bit too long. It is very important to see the distinction between rent regulation and rent control.
It is essential to do so. Even this morning I heard the term "rent control" used again on RTE. I heard Peter McVerry, who should know better, using the term last night on the Claire Byrne show. Rent control was something introduced during the First World War, I think all over the world, but certainly in Ireland. It lasted up to 1980. Rents were controlled; they were frozen at a certain level, often at a totally unreasonable level. Rent for a house that was frozen at £2 in 1914 was still £2 in 1970 or 1980. That was control and it was totally unreasonable. It was found to be unconstitutional in 1981.
Rent control is now non-existent. I plead with the members of the committee not to use the term "rent control" because it does not exist in Ireland, Europe or anywhere else. Rather what does exist is rent regulation where rents are changed in line with inflation or by some percentage, perhaps 2%, 3% or 5%, and in line with improvements to the premises. I believe that is entirely reasonable and that is the situation in a range of European countries. Germany is an obvious one; France, Belgium and Sweden are others. A whole range of European countries do this.
Ms McCormack and Mr. Faughnan from the Irish Property Owners Association probably regularly send members of the committee e-mails - they send them to me - advising that the world is about to fall in, there will be mass unemployment and a mass exit of landlords if we introduce rent regulation. They believe the world would end and yet it has not ended in Europe. Throughout Europe rent regulation is the norm. At the same time those countries insist on having good standards and tenants have security of tenure for long periods of time - indefinite in many cases. People are delighted with this situation.
The basic argument for rent regulation is because the so-called market is imperfect. It is a monopolistic-type market with a relatively small number of landlords and a large number of tenants. If that is the situation in producing any good or providing any service, the producer will charge what he or she wants. That is life, it is the logic of the situation and that is what landlords do. There is no way around it and we must accept it is monopolistic. It is not a perfect market as is sometimes argued and as was argued, incorrectly in my view, in a DKM report in 2014. Members may have seen that report which the landlords regularly use.
I do not want to be seen as anti-landlord. I respect that there are many good landlords, decent people who look after their properties and do not charge extortionate rents. However, many landlords do the opposite, including the vulture funds which are now in here in force and are charging outrageous rents. They are taking over a lot of developments and that is something that needs the committee's attention.
Apart from the monopolistic situation, high rents are bad for the economy because a considerable amount of money is spent on rent which could be spent on other things, such as job creation activities. If people have no money to spend on food or whatever, the shops are suffering, so it is bad news.
Is it justifiable that rents are out of line with inflation? I do not think it is. I do not think it is justifiable for either house prices or rents to go in the way I showed in the diagram. It makes no sense to me. Of all things, why should housing, which is such a fundamental need, out of the blue be different from any other product or service? It makes no sense and it is wrong and unethical. The rents being charged act as a deterrent to skilled workers coming to live in Dublin and yet people have no option.
Have I answered the Deputy's questions?
The Deputy talked about how to deal with house purchase in a better way, which is an important point. It is important that we do not give tax incentives, give grants to first-time buyers or give help to buy because all those three things do is increase house prices as they increase demand. Some committee members will remember that the first-time buyer's grant was written into the price of housing, particularly those members who are middle aged - I think I am the oldest in the room but I am still here. It is written into the price - that is the problem. We should not go in that direction but, rather, we should try to reduce house prices.
By the way, I should say I believe the Central Bank measure is correct because it is dampening down the demand for housing. I bought a house in Galway many years ago when I could not afford to buy it, and I had to get a 25% deposit. Of course, I got it illegitimately by borrowing it from a bank and I got the rest of the money from a building society. I eventually went to England and spent many years there, and I actually could not pay the mortgage. I was one of these sub-prime mortgage people and my unfortunate sister bailed me out and paid the mortgage for me. It was a misguided purchase. Nonetheless, I am making the point that, at the time, the deposit was 25% whereas people are now giving out hell about 20%. The Central Bank measure is designed to put manners on the banks and to put manners on people who make seriously wrong decisions. That is very important.
On house prices, the Government takes a big take. I am sure Mr. Parlon will have already told the committee this in detail, and he will have been giving out about the Government. I know that those in Leinster House need the money to keep the show on the road but, certainly, a big take is taken by the Government in VAT, levies and so on, which is an issue to be looked at.
The other issue to be looked at is land. Land prices feed into high house prices, which is an issue we have failed to deal with over a very long time. Some committee members will remember the famous Kenny report in 1973 where Kenny proposed that land should not escalate but that the State should purchase it at its existing use value plus 25% for compensation. The State should be purchasing land but not at ridiculously high prices. That, of course, was forgotten about and we have done nothing about land, which is an issue.
I am not sure if I have fully answered Deputy Ó Broin.
I thank Professor Drudy for attending. I agree with many of the things he has just stated because, as we all know, we have discussed this issue for the past couple of weeks. However, I do not agree in respect of changing over our system to a reliance on rental, whether private or public. The reason I do not is because when that idea was first mooted ten or 15 years ago, and there was a switch from the local authorities to the private rental system, although everybody said at the time, almost without contradiction, that this was the answer and we were going to be like the Europeans, it did not work, for a variety of reasons. The people in this country take personal pride in owning their own home; it is an investment for them. However, the most important thing is security, in that nobody can tell them to get out or to move on. Nobody can say what was said at the time, namely, we want more movement in the housing population. We do not want that; we want security.
As the Chairman knows, many of us spent years on the local authorities and we have learned from unfortunate experiences. I remember that during the 1980s, the local authority of which I was a member produced almost 1,000 houses each year, 50% by way of direct build and 50% by way of the thing which has not been mentioned by anybody, the local authority loan. At the time, the local authority loan even covered loans for young gardaí, young nurses and other young professionals - everybody - and it applied within certain income limits. At some stage, we had to apply certificates of reasonable value to prevent speculation and racketeering in the whole house purchase and building business.
I remember intoning all of this to a well-known member of the charitable sector who will be before the committee later on.
Twenty years ago I predicted that we would have this crisis - and wrote about it at the time - simply because we were relying on rental property. We shifted away completely from the local authority loans and we called it "social housing". Remember? It was never social housing before that. It was local authority housing: we spoke of county council houses and county council loans. I suggest that we go back - and I ask Professor Drudy to what extent he thinks it is possible to do so - to the system of reliance on direct build for a section of the market and, at the same time, the local authority loan system. We should also remember that, at the time to which I refer, people were borrowing from banks or building societies. The latter were mutual societies, they were not in competition with the banks. It was only when the banks entered the arena of lending for housing purposes - particularly one bank that came into this country and left again in a hurry - that the outrageous level of loan offers started. The Bank of Scotland, as everybody knows, was involved in this regard and then withdrew from the scene: gone, finished.
I will conclude with an example. A couple of years ago I was involved in a voluntary housing group. We formed a company, bought the sites from the local authority - the same sites which, as I have said, were available to the approved housing bodies for free; we paid €20,000 for them - and handed the finished houses over to the owners. They were owners, not tenants. At that time, the cost to them was exactly half what the houses were on the private market. Remember, we had to buy them. They were bought. The voluntary housing bodies that were all supposed to be the solution to all our problems got them for free, for €1 per site. They were serviced sites. That is all gone. They had to qualify on income grounds and so on. I strongly urge - and I ask Professor Drudy to consider as a solution - the reversion to the division between the direct build and local authority loans. I have no doubt that we would not be where we are now if we had retained the latter.
I actually do not have a question. I just want to make a brief comment. I agree with what Professor Drudy says about seeing housing as a right and not a way to make profit. I am a tenant myself and have moved a lot in the past few years as a result of houses being sold and so on, but obviously I am in different circumstances from many people. We forget the impact this is having on children, not just the emergency or overcrowded accommodation but also that constant moving. It is not good for them. It is not good for their sense of identity and their school friends and other similar things. Professor Drudy's point about having to start with how we see housing and whether it is a right or whether we see it as something that serves to make a profit is an important one. That is where we must go from in the whole issue. It is really good to see somebody who has come before the committee saying that because it is so true. I think in a number of years we will possibly have difficulty with some children having mental health issues after going through all of this, especially children who spend long periods either moving from house to house or staying in bed and breakfast emergency accommodation. We probably will not see the exact fallout of that right now but I think we will in a few years' time.
I welcome much of what Professor Drudy says about the massive increase in the private rented sector and the problems that it has caused. We should not get stuck on terminology. We have always used the term "rent controls". I have been calling for rent controls for a few years. Professor Drudy was objecting to it, but the term is used that way in Europe as well.
I agree generally with his concept of what rent controls or regulations should be. They have to be in some way linked with inflation.
If we froze rents it would not end the problem; we have to reduce them. In parts of Dublin, rents are between €1,400 and €2,000. I agree with those who said rents are having a massively negative impact on the economy and I cannot understand how this is not grasped by the Government. It is not just about people in social housing or on the social housing list. No matter how many times one says this, one is often accused of not caring about people who do not qualify for the social housing list. The latter probably constitute the biggest group. Even if people meet their payments, just think of a young family paying €1,400 in rent every month. This has an impact on the children because the family cannot spend money on them. I refer, for example, to paying for things such as dance lessons, sports and things other people take for granted. Many children suffer in the way outlined and there is a strain on families that are obliged to pay this amount every month.
I know many migrants who came to this country but who have since left. They have gone to Britain and other places because they simply cannot understand how nothing is being done about this situation. We have a very big migrant population in west Dublin. They are stuck in the private rental sector and are more prey to becoming homeless.
I have questions on a number of the issues raised by Professor Drudy. He mentioned the debate engaged in by the Government on rent controls or rent regulation, to use another term. He made the point that he believes this was down to pressure exerted by vested interests. He gave several examples, including that of a US company which now controls a huge part of the rental market. Will he expand on that? Is he stating that this was the main reason the previous Government did not introduce the type of rent controls that everybody who is suffering knows are needed, rather than the legal or constitutional obstacles cited? He gave credit to Deputy Kelly, and I am not arguing about this, but the latter came here and argued there were legal reasons and stated we need a grown-up conversation about Article 43 of the Constitution.
Professor Drudy made many points on house prices and rents. Some of the figures relating to the increase in house prices throughout the country are both shocking and very useful. I refer to the fact, for example, that in Dublin the ratio of house prices to average earnings is now 9.3:1, which is shocking. How can anyone afford to buy a house, even people with relatively good jobs and certainly those on the average industrial wage? So much for our great attachment to homeownership. Will Professor Drudy expand on why house prices and rents have increased so much? How much of this is due to profiteering? The reason I raise this is that on foot of the committee's findings, I am sure some house-building will be commended. However, I am concerned. As others have alluded to, we need councils to directly build housing because much of the profiteering in the cost of a house is due to private developers. There would be no guarantee that such developers would provide affordable housing.
Professor Drudy stated that he welcomes the fact the Government will build 35,000 houses over five years, according to its Social Housing 2020 programme, but, unfortunately, it will not actually build 35,000 houses. It is important that people know this. Even if these new houses were being built, it would not be enough. During the boom, 80,000 houses were built each year. The idea we must do it at a piecemeal pace would mean people would wait ten years for a house.
I am not saying that we should build the wrong estates, but we must have a sense of urgency. I will not go into the matter. However, most of the 35,000 houses are social housing units that have been acquired in recent years through, for example, HAP, RAS and so on.
A number of general comments were made, but there were also a couple of specific questions. I will add to Deputy Coppinger's point on rent regulation and the vested interest about which Professor Drudy has written. Will he comment on it? He set out some recommendations, which are always useful to the committee. His last recommendation was that the right to housing should be enshrined in legislation and the Constitution. There are two parts to that. First, would that have had a different effect in terms of rent regulation and what the Minister was able to do? Second, the then Minister clearly told the committee a number of weeks ago that he felt restricted in what he could do about the vacant property site tax. Would he have had more scope had the right to housing been enshrined in the Constitution?
Professor Drudy made the point that a "substantial land tax or capital gains tax should be imposed on "unearned" price increases of land zoned and serviced for housing." I favour a land tax approach over a capital gains tax one, particularly as we are trying to encourage activity rather than waiting for something to occur and then charging a tax. Would these issues be more easily addressed under Professor Drudy's suggestion regarding the Constitution?
Professor P.J. Drudy:
Yes. Having the right built in would not guarantee anything. However, it would compel or influence the Government to take the matter seriously. It would change the philosophy, which is the fundamental issue. As Deputy Coppinger mentioned, the Constitution has two items at Article 42 or 43 - I keep forgetting which and the wording is escaping me - under which the State would be entitled in the interests of the common good to take particular actions. The Constitution is not bad as it stands. The other key point is that the State can intervene in the interests of social justice. I believe that the phrase used is "for the exigencies of the common good". I disagree with the former Minister, Deputy Kelly, that we need a new Constitution to be written. As members know, constitutional change is difficult to achieve. Once there is a referendum, my God, all sorts of cans of worms are taken out and thrown around. Legislative change is much easier because you people are in charge. One could introduce legislation tomorrow morning that enshrined the right to housing in legislation. Therefore, if someone is on the streets for a long time, the State would be compelled to take action of one kind or another either by providing local authority housing as Deputy Durkan mentioned or by ensuring that the person had a private rented situation at the right price, standard and security of tenure. The State would be compelled, cajoled, encouraged or whatever the word is to do the right thing.
The constitutional red herring has been thrown about since the early 1980s. I became embroiled in planning issues and so on in 1981 or 1982 and the constitutional protection of private property was thrown about constantly to the effect that "We must not interfere with private property." However, there are already two articles in the Constitution. In a 1982 Supreme Court case, a judge specifically referred to the need to take those two articles into account. Therefore, the courts would be sympathetic to the right to housing in legislation. I do not believe that there would even need to be a constitutional change. I hope I have answered the Chairman's question.
Professor P.J. Drudy:
I happen to agree with practically everything said by Deputy Durkan. He is unhappy with the private rented sector and we are certainly in agreement with that, as it has not worked. The process was foolishly handed over to the private rented sector. I agree absolutely that the local authority loan was a great idea, with loans given at a reasonable mortgage level. The loans were repaid and people owned their homes. I have no difficulty with people owning their homes as it is an ideal in many ways. Unfortunately, some people cannot possibly afford it because of the way prices have gone. I would love it if everybody owned their houses and if every house cost less than €100,000. I do not care how elaborate they are and whether they are in Foxrock.
I completely agree with the Deputy's comments on local authority builds. It is interesting that the certificate of reasonable value was raised as I agreed with that but it was eliminated. It was difficult to administer but nevertheless it was a good idea. The builder charging an outrageous price for a house would be under surveillance, told if it was unreasonable and be told if a profit of 50% or so was being asked for when it should be 10% or 15%. Deputy Wallace will tell me the right figure but 50% or anything like it would be ridiculous. Local authority housing is a good idea and the Deputy is correct to refer to it as such, as it was local authority housing. I agree with the comments on direct built and the loans from local authorities. Why should it not be reinstated? The banks might then have some manners, as they have no manners now.
It was mentioned that building societies were mutual, as they were, but suddenly Irish Permanent became whatever it became, with a gentleman in charge who got into some bother way back. Some of you will not remember that. He flogged it off, as the rest of them did. People were inveigled to agree with him by getting a few hundred quid or some sort of share offering. The mutual idea is gone and it should come back. I agree that voluntary housing should be providing much more. The Deputy suggested that sites should be made available, which is a good idea. Why not have co-operative housing?
Deputy Durkan's contribution had a range of useful elements. I agree with Deputy Funchion's comments about children being so badly treated, which is appalling. I agree with Deputy Coppinger's comments regarding decreased rents, although it would be difficult to achieve. They are far too high, which is wrong. They have a negative impact on the economy, as the Deputy mentioned. She also spoke about children and families suffering, with migrants being in a particularly vulnerable position and suffering very badly. There is no excuse for it. The Deputy also mentioned the debate in the Government and pressure from the private rented interests, particularly Kennedy Wilson. A letter went to the Department of Finance - Deputies may be familiar with it - putting pressure on the Minister, Deputy Noonan, and his advisers. It indicated that the world would cave in and the market should not be interfered with. My point that the market is imperfect and monopolistic, was not accepted. It was a strong argument, and I understand the letter went to two or three pages, arguing that under no circumstances should the Government introduce rent regulation. The Minister, Deputy Noonan, and the Taoiseach, Deputy Kenny, were persuaded by it. I suppose it might be unfair to say that the philosophy of Fine Gael and to some extent the Labour Party would preclude them from doing anything radical. Maybe I am wrong and Deputies may correct me if so. The past and what I say does not matter but it is important to get it right in future.
A compromise was reached and rents can be changed every two years. That is a joke.
Professor P.J. Drudy:
Landlords can escalate the rent after two years, so that does not make any sense.
There were a number of other aspects to the changes introduced that were useful, but the issue of rent regulation was the fundamental problem. It should be rent regulation that will continue. One might get rid of it five years hence, but certainly, at present, rent regulation of the type I am discussing is essential, with rents being tied to inflation, a small percentage or in accordance with improvements to the properties.
The Deputy raised the constitutional problem. I tried to deal with that and I hope I answered it. I do not believe or accept that there is a constitutional problem. The Constitution is good as it stands. Éamon de Valera, whatever his faults, got that fairly right. It is not as strong as I would like, but it is not bad.
On the question of why house prices have risen so much, there is a range of issues. One thing that would drive the Deputy's constituents probably completely mad would be to decide to impose a capital gains tax on the principal residence, so I will not suggest it. It would go down very badly with people, but it is a possibility. It would really dampen down prices. The property tax should have dampened down prices but does not appear to have done so. It is scary to look at the national newspapers each day. There appears to be little available under €1 million. I find it very depressing. I have a son who is paying a very high rent in the private rental sector in Dublin. He has avoided buying because he says he cannot afford to buy. I have a daughter who is renting in the private rental sector in London - imagine what is happening in London - so I am very familiar with the issue.
Why have house prices risen so much? I refer to the boom and the diagram I provided to the committee. I call part of the diagram super normal profits. I would call the difference between the consumer price index and the top line in that diagram very considerable profits. The cost of land is also a critical issue in why house prices have risen so much. Government policy also has something to do with it. As I said earlier, government policy undoubtedly imposes levies, VAT and so forth, so there is quite a big take by the Government. It is difficult for a Government to pull back from that because it needs the money to run the country. I do not dispute that. Certainly, one needs to look at land and super normal profits. Are developers asking too much? That is the question. I have heard figures such as €39,000 or €40,000 bandied about as the profit needed on a home costing €300,000. Is that reasonable? It might be. However, the figure of €300,000 is far too expensive for a home for most normal people.
The trick must be to bring down house prices. Obviously supply is one of the key issues. I accept what many people say, that it is "supply, supply, supply", but there is more to it than supply. There is also the Central Bank aspect to dampen down demand and stop people making crazy decisions to buy houses they cannot possibly afford. However, supply is important, so we must absolutely escalate the supply of both private and social housing. We only produced 12,000 private houses last year. That is a very small number. As the Deputy said, 80,000 or 90,000 were produced in 2006. We were capable of doing it in 2006, so why not now? If the private sector does not do it, the State should do it. That is my view.
On the social housing strategy, unfortunately the houses are not being built. I do not know what is going on but it is pathetic. The social housing strategy was produced in 2014. Apparently, the former Minister, Deputy Alan Kelly, had all sorts of problems getting the local authorities to build. I do not know what happened. They said they had the money. Only the Deputies can answer that.
I thank Professor Drudy for his presentation and thoughts. I have two brief questions.
We have had quite a lot of different groups and organisations coming into us and many of them are making different proposals and suggestions and we are trying to take them all on board and to see what would work and what would not. Three of the groups from the construction side that came before the committee have suggested a reduction in VAT from 13.5% to perhaps 9% and they are likening this to the boost the tourism industry got when something similar happened, although I know it is a completely different situation. What are Professor Drudy's thoughts on that - does he think it would be good or bad? I think I know his answer already.
I would also like to hear his opinion on bedsits. I visited a hostel in Waterford, my constituency, last Friday week. It is the St. Vincent de Paul hostel, where 43 men live. It is a fabulous hostel and has won an award for architecture. It was completed not long ago and is a fantastic building. I spoke in depth with a member of staff about how they could move people on from the hostel when they are stable enough to leave. His opinion is that bedsits need to be brought back into the mix and that they have a vital role to play because many of the people who live in the hostel would not have the facilities or the wherewithal to rent a two-bed or a three-bed home. He is of the view that if bedsits were provided in certain areas again, maybe some of these men might be able to move back out and live independently once more.
I thank Professor Drudy for his contribution. He is a breath of fresh air. He should be made housing Minister. It would be interesting to see how that would work. We are all in agreement that the manner in which we supply housing is dysfunctional and has failed. There are a few huge elephants in the room, one of which is land-banking and which successive Governments have refused to tax. Land-banking has played a major role in the cost of housing here. There are, however, many other factors. It costs a person less than half as much to buy a house in a city in Europe as it would in a city in Ireland.
The favoured approach of the Government for many years has been not to regulate and to allow things to ramble on. In other words, the philosophy has been dominated by a tendency to leave things to the markets. Professor Drudy raised the issue of the argument made about not interfering with the markets. I saw the letter Kennedy Wilson wrote to the Minister for Finance, Deputy Noonan, and Professor Drudy will be interested to hear that when it was getting permission to build 160 apartments at Clancy Barracks, it also wrote to the planning authority and said the site was not suitable for social housing and - surprise, surprise - none will be built there. When the vulture funds are telling us where we should put social housing and where we should not put it, we have obviously got a serious problem. The planning department probably needs to look at itself too. There is a serious lack of regulation and a lack of political will to do things differently and to challenge the power and influence of vested interests, as this is directly linked to the lack of regulation. We do not regulate because we are under the thumb of serious power and influence in this area. How does the professor think we, as a committee, should challenge that?
On the professor's point about the selling of social housing being a brain dead idea, we do not carry out research of the same nature as they do in Britain. The authorities in Britain have examined what happened to the social housing stock that was sold over the past 30 years and they discovered that over 40% of it has ended up in the hands of big landlords. The latter are then renting it to people who are in receipt of rent supplement from the British state in order that they might live in such accommodation. It has been a completely failed policy, yet we have just introduced it again here. It is as if we did not know we had housing problems for the past five years.
What does Professor Drudy think the committee needs to do to successfully challenge the neoliberal thinking that has been such a cancer in how we provide housing?
On a slightly different tack, what is the Professor's view on the lopsided economic recovery and the lopsided development of our major cities vis-à-visrural areas in the context of the housing problem? People are moving to cities because jobs and investment are concentrated there. The problem is most acute in Dublin and it is contributing to the current housing difficulties. Mr. John Moran, a former Secretary General at the Department of Finance, argued last week that if we wanted to use our resources to benefit the greatest number of people, we had to concentrate the population in cities where broadband, roads and public transport infrastructure, housing, schools and so forth could be provided more easily. He argued that investing in rural Ireland was not the way to go, that it was not economically viable to maintain rural Ireland. What is Professor Drudy's view?
Professor P.J. Drudy:
Deputy Mary Butler made reference to the suggestion the Government should reduce the rate of VAT on construction to 9%. While I would not have a problem with that, I would worry that the same house prices would be sought. Any such reduction would have to be reflected in house prices. Anything done would have to lead to a reduction in house prices or at least maintain them; otherwise, it would be no of use.
Bedsits have been mentioned on many occasions. Reductions in standards have been proposed, but standards are very important. I would worry about the idea because I do not want to go backwards. I would prefer to have good standards for everybody. It was argued this morning that having bedsits with a bathroom out on the corridor would be fine and acceptable as single-occupancy units. However, I would prefer to maintain standards, get units at the right price, of course, and see regulated rents.
Deputy Mick Wallace spoke in detail about the lack of regulation and I agree with him. If one thinks back to the crash, it was due to a lack of regulation. The banks were not regulated. The builders were also not regulated in the prices they could charge. There was light-touch regulation. The Central Bank closed its eyes and the other gentleman who left with a large sum of money also closed his. I will not mention his name, but members know who I am referring to. It was tragic. The State closed its eyes to the lack of regulation. It would be fair to say the lack of regulation started with none other than Mr. Bill Clinton, former President of the United States, who changed the law in that country. The Banking Act, also known as the Glass-Steagall Act, had been introduced in the 1930s, but Mr. Clinton, under the influence of a wide range of people, changed it and introduced deregulation and light-touch regulation and, of course, we followed suit. Maggie Thatcher and Ronald Reagan went for deregulation in a big way and we followed suit. Sadly, we tend to ape what others do. The lack of regulation is a fundamental problem; we must have regulation. We have regulation on the streets in the form of traffic lights. We cannot go through a red light. Surely to God, that makes sense. We cannot poison people with food. There are regulations in that area, too. Child labour is regulated in this country, but 100 years ago it was not. We must have regulation in the provision of housing.
Deputy Mick Wallace suggested there was a lack of political will and he is right, unfortunately.
I think most Deputies mean well. Most of them really mean well. I understand why they say it is hard to achieve change. It is difficult for one to go against the grain when one has vested interests constantly on one's doorstep. I imagine Deputies work very hard and have people constantly coming to them trying to twist their arms. I am trying to twist their arms today.
Professor P.J. Drudy:
At least I have been invited. I can imagine that vested interests are on the Deputies' case all the time. It must be very difficult for them. It would take great courage for political philosophy to change in this regard.
I fully agree with what Deputy Wallace said about selling local authority housing. In England, local authority houses that were sold have fallen into the hands of private landlords. It is really appalling. It is unthinkable. The British example is certainly not one to follow. When they were flogging off the social houses, at least they gave a good deal of housing to housing associations, but it is a very unsatisfactory situation. The private rental sector there is probably worse than it is here.
I also fully agree with what Deputy Harty said about lopsided development. Over many years, this country has failed miserably to have a serious urban and regional policy that spreads activity throughout the country in a reasonable way. I am sure the members of the committee are too young to remember the famous Buchanan report of 1969, which suggested nine growth centres. At the time, many Dáil Deputies said, "Oh my God, we cannot have just nine". They wanted growth centres in places like Westport, Ballygobackwards and the tiny village of Frenchpark, where I come from. That initiative died because everyone wanted a growth centre in his or her own place. Then we had the national spatial strategy, which suggested much the same thing.
We have not really implemented these plans. We need to have a policy that spreads economic activity throughout the country and persuades firms to locate in certain areas. Urban centres have to be built up outside Dublin. Rural development is critical. Agriculture is a fundamental operation in this country and cannot be ignored. Rural villages need attention because they are dying on their feet. I have written a paper on the matter, for what it is worth, and I can furnish it to the committee if it wishes. I agree with Deputy Harty about the unfair argument that is often made. I do not accept that rural areas are not viable. I think rural areas could be very viable.
I thank Professor Drudy for his attendance this afternoon. His written submissions to the committee will be made available on our website. I thank him for his frank, direct and forthright answers to a range of questions. We will suspend the meeting for a couple of moments as we bring in the next witness.
Professor P.J. Drudy:
I thank the committee for having me. I thank members for their interesting and important questions and comments. I wish them well. The committee deserves to get on well with its important work. I will leave a copy of my paper here for anyone who has not seen it. I think Deputy O'Dowd knows of it. I met him years ago to discuss this matter.