Mick Wallace (Wexford, Independent) | Oireachtas source

If the Minister of State wants to debate this in public with me I will have a debate at any time. Whether he likes it or not, I understand the industry. It annoys me that the people in this Government who make the decisions around the supply of housing do not seem to understand it. They do not even seem prepared to talk to the people who do understand it.

I want to give credit to a few people who have been putting some very sensible ideas into the public domain in recent times, namely, Mel Reynolds, an architect who runs a builders' blog, and Cian O'Callaghan, Linda Fox-Rogers, Enda Murphy and Gavin Daly from the University of Maynooth geography department. Mel Reynolds did a graph for me, starting from 1975, showing the number of completions and the cost of housing which shows that, in actual fact, they go together. The notion that if we increase supply the price will go down cannot be backed up by history because history says otherwise.

There is a reason for it. There is a major barrier, in that it is not profitable to build housing for people on low and moderate incomes. It becomes profitable only if they are allowed to borrow huge sums of money or if the Government helps in some way.

At one time, the Government helped out in housing by investing in the social housing stock and supplying social housing. Sadly, for too long the Government has given up that tack and gone a different way. Now, we incentivise developers to build. This year and last year, despite all the best evidence, we decided to reduce the size of units to make it more financially attractive for developers to build. This year, we brought in a first-time buyer's grant, which was also designed to incentivise developers, given that it was going to drive up the unit price . Then, the Government got the Central Bank to reduce the deposit required to qualify for a mortgage from 20% to 10% of the price. This was also going to incentivise developers and drive up prices. Now, we are going to reduce good planning outcomes in order to do the same. You could not make it up. It is nonsense.

Yesterday, I read a brilliant piece written by Daniel Bentley, editorial director of the London think tank Civitas. It is about the housing market in England and it is identical to the problems we have here. It looks at the history of how England has run into trouble in housing for the very same reasons we have run into problems here. It is worth putting on the record:

There is a paradox in modern housing policy ... The aim of rolling back the state from housebuilding has turned its role from one of subsidising supply into that of facilitating ever greater amounts of spending power, making housing unaffordable for so many.

Margaret Thatcher recorded in her memoirs that, by the mid-1980s, "everything in housing pointed to the need to roll back the existing activities of government". She also felt that, in terms of building, owning, and managing housing stock, "the state should be withdrawn from these areas just as far and as fast as possible".

In truth, the decline of council house building was already under way by the time Mrs Thatcher came to office. But she accelerated a process which saw annual local authority output fall from 154,000 homes in 1967 to the low hundreds during the New Labour years. The consequences of this have been far-reaching, and are at the core of today’s housing crisis.

Not only did housing supply go into terminal decline, as is often noted, but the subsequent dependency on private sector housebuilders for new homes encouraged governments to permit – and increasingly to actively promote – the accumulation of purchasing power in the for-sale market. This weakness among policymakers for stimulating effective demand has been disastrous for affordability, and is engendered by the simple fact that private-sector developers are only able to build as many homes as people are ready to buy.

This much is obvious and has always placed a natural limit on private-sector output, which is why for most of the 20th century it was topped up by publicly funded building. It is a straightforward question of market absorption: more buyers means more new homes, fewer buyers means fewer new homes, and in the absence of a major public housebuilding programme, the effects of the cycle are reflected in the ups and downs of total output.

In this context, the answer to an under-supply of new homes appears always to be to increase people's ability to purchase them. But there is a further complication, which is that those new-build homes must also be purchased at or above current market prices. This is a function of the residual land value model, in which the price a developer pays for a site is worked out from how much they think new homes can fetch on the open market (minus building costs and the developer's margin). The result is that developers can never afford to sell their homes below current market prices.

This means that housing supply rarely places any downward pressure on prices, while builders are constantly yearning for more demand in order to keep output going. Governments, desperate to increase supply without funding it directly, have usually been happy to oblige – even as prices have raced away from earnings. The housing market has thus become subject to an enormous increase in effective demand over the past half a century, with little if any effort ever made to contain it.

The process began with the liberalisation of credit, which started in the early 1970s but really took off in the 1990s with the relaxation of loan-to-value multiples and the introduction of buy-to-let mortgages. This last point played a central role in the expansion of the private rented sector as landlords bought three million homes between 1990 and 2015, an entirely new source of demand in a for-sale housing market which was until the late 1980s the preserve almost entirely of owner-occupiers [or social housing].

Developers do not want to build, given that there are better things to do with their money. Due to the margin they would like to have, there are better ways of making money. Do you know who would like to build? I am tired of saying it here. People forever think the developer and the builder are the same person. The builders would love to build. However, the pillar banks are practically closed to builders. The builders are not seeking to make astronomical money turning over a profit on one unit. A builder would be happy to make €5,000, €7,000 or €8,000 clear profit per unit. The developer is a different animal. The developer is an investor. Developers are investing in commercial property in this town, given that it is lucrative to do so at the moment.

We have an amazing city for rental in the commercial and housing markets. In fact, it is out of control. Only three cities in Europe are deemed less attractive for investment in property. That is an amazing fact. What are we doing about the fact that the developer still does not have a huge appetite to build all the houses we want? We are just throwing carrots at the developers. We are reducing regulation, introducing financial measures to drive up prices and encouraging young people to buy. Allowing a young couple to get a mortgage with a deposit of just 10% rather than 20% of the price is almost like a trap into debt for the best part of their lives.

The Government has a few options. It can encourage builders into the game by organising finance for them. Where will the money come from? Over and over we are told that the State cannot borrow all this money on the books at less than 1%, given that to do so would break EU rules. I recently read a report by Mr. Seamus Coffey of the Fiscal Advisory Council. He said the ongoing debate around capital for housing had featured regular reference to the idea that our fiscal rules in some way prohibit additional capital spending. He said it was not true. He said €2 billion of additional spending had been announced in the past nine months and said, if we so wished, it could have gone to housing. He said we could have increased overall spending by even more if we had raised sustainable tax revenues to fund it. He said we chose to use neither of these for additional funding for housing, although it was possible within the rules.

I saw answers from the Minister last week in which he admitted that a three-bedroom house in the Dublin area could be supplied by a local authority for less than €210,000, with all services included, ready to go, from start to finish.

In the countryside, that figure is below the €160,000 mark, which is a fact. I have seen the figures lately for Wexford in respect of a few projects that are coming on stream. The average price of supplying a house through the local authority in Wexford is going to be under €160,000, including services. When I hear the Government tell us about the wonderful idea of NAMA supplying 20,000 units which will sell for approximately €330,000 each, I do not know what planet it is living on. Why would the Government allow NAMA to supply 20,000 houses at €330,000 each when even the local authorities in Dublin can supply a house for €210,000? I do not know the answer to that or understand the Government's thinking. Is there a rationale behind it? We will not even go into how NAMA will do it, the deals that will be done behind the scenes, how questionable that whole organisation is at this stage and what builders will be working for it. Will it be the same fellows it looked after through the NAMA process? It will hardly be the fellows that it shafted.

This is nonsense. Why will the Government not make the local authorities fit for purpose to deliver the housing? If they are not fit for purpose at the moment, why do we not make them fit for purpose? If they do not have the personnel to make it happen, address it. No one has asked them to build the units. That was never going to happen. For a long time now, they have employed builders. If they come up with a project to build ten or 20 houses, they ask X number of builders to price it and usually give it to the lowest tender. It will be keenly done. They probably need extra architects, engineers and surveyors within their own ranks but even if they cannot get them, people could be employed to do that work. I do not see why the local authorities would not be able to recruit their own staff, however. After that, the State should borrow this money at less than 1% and invest in infrastructure. The notion that one should invest in crucial infrastructure is hardly rocket science. Of course, it makes sense. We are not even close to investing at the average European rate in terms of crucial infrastructure. We are way behind. In fact, the experts would say we were running to stand still because we are looking at an investment per annum in infrastructure which, to the best of my knowledge, is around the €4 billion mark. The fall off is actually around the same in terms of depletion. In fact, we are running into trouble. The State must take a different approach to investment in infrastructure. There are huge problems around the construction industry and the way we supply housing, but we are not addressing them. It is as if we do not want to know how it should be done. If the Government relies on the private sector and developers to solve the housing crisis, it will be waiting for a long time.

The Bill looks at problems around planning. Planning is not the problem. An Bord Pleanála issued a report in the summer which stated that the number of appeals for housing developments received over the past two years had remained low with 35 cases of the 30-plus units in 2014 versus the peak of 568 in 2007. This is not the big problem. Planning is not the problem. Why would it be? There are permissions to beat the band already given in Dublin. There was nothing to prevent building except for a lack of interest. They are controlled by developers who have better things to do with their money at the moment and while they are waiting, the value of the land and permissions on which they are sitting is growing by the day. They would have to be off their heads to start building. It makes sense to them to wait. The Government is giving them an incentive to do so. It has never dealt with the elephant in the room which is the taxation of landbanking. When the crisis came in 2007 and 2008, anyone involved in the building game could have told one that the biggest problem of all was landbanking and the manner in which the whole industry got out of control because of the price of land. One had a small number of people in control of a huge amount of potential development land and they sat on it for as long as they liked. They were able to demand what they liked for it when it suited them.

We are not in a very different place today. They are again sitting on land. As the Government brings in more of these measures, little bits of it will trickle out. They will probably sell the land here and there rather than develop it themselves because that will be more attractive. I reckon it is currently more attractive to developers to sell land now that these nice incentives have been brought in for them. These incentives are for the developer and nobody should be fooled into thinking that they are for the people of Ireland who are in need of houses. No one should be fooled into thinking that the people who are crying out for houses will be able to buy one of the Government's NAMA houses. They will be too expensive. The only explanation I can find for the approach the Government is taking is that it has sold its soul to neo-liberalism and does not want to move away from it. Its approach is 100% neo-liberal. People with experience on the ground and academics who have done the research are saying we must do things differently. The private sector will not supply the Government with houses when and at the price it wants. The State must start to build its own houses on its own land.

See this speech in context