Housing crisis? Yes. Build more homes? No.
Ireland has a housing and healthcare crisis. In all of today’s politics, this statement is unique for the simple reason that all three main parties agree with it.
So, that’s a start at least.
Let’s make the most of this rare momentum by solving the most solvable of the two crises first. Let’s solve housing.
The Department of Housing, Planning & Local Government reported 10,397 people in “emergency accommodation” in September 2019: 6,524 adults, 3,873 children. It was a record number, which rose to 10,448 in November 2019, falling to 9,731 in December, the “biggest drop ever recorded in homelessness statistics.” Department officials said the decrease was due to 28,000 housing units built in 2019, many completed in the last quarter of that year.
Even with the drop, homelessness remains at record levels, and because government stats are based on numbers in “emergency accommodation”—those who report to shelters—they do not include people sleeping out-of-doors and in doorways. Thus, the three parties agree that we need 20,000 new affordable homes each year for five years—100,000 houses in all. They also share the assumption that we’d better pick up the pace of building.
Without building one single new house, we still have three highly efficient ways to solve the housing crisis.
Option 1: Rethink the crisis. The homeless crisis is not a housing crisis. It is a crisis with houses. Far too many of these are empty. The most recent Central Statistics Office (CSO) survey, which is from the 2016 census, counted 183,312 vacant houses and apartments in Ireland, with over 30,000 empty in the Greater Dublin area alone. The number has certainly gone up. In the prior census, 2011, there were 230,056 vacant homes.
The reason for the vacancies and their explosive increase is that the hefty 55% tax on rental profits leaves the owners of these dwellings with no incentive to restore their properties and rent them out. They would rather sit on their hands and hope for capital appreciation. To be sure, some structures have now been empty for so long as to be derelict. They just need to be knocked down. But there are an awful lot that are fit to be brought back into the market quickly and at relatively low cost.
Option 1 solution: Change the tax code!
Give property owners a tax break for five years on any property that has been vacant for more than twelve months. If they bring it back into rental, levy only a 5% tax on the profits, which would deliver 5% more revenue than the government is getting at the moment. The last time I looked, 5% of something is better than 55% of nothing.
Besides going a long way toward solving the homelessness crisis, changing the tax code would:
- Create employment in the local areas—both by the labor required for rehab and by attracting new residents and businesses to blighted neighborhoods
- Lift neighborhoods by transforming eyesores into lived-in homes
- Generate greater local government revenues
Option 2: Change government subsidy policy. Instead of directing all government-subsidized financing to the building of new homes, co-finance first-time home buyers who purchase existing houses. This would help more young people get into the property market.
Offering subsidies to build new houses is currently the go-to response to the housing crisis. But as higher animals capable of more than a kneejerk response, we should start thinking more broadly, think outside of the box.
Instead of building new houses, the government should offer 50% co-ownership to first- time buyers who purchase existing unoccupied homes. The government would buy half the house, and the first-time owner the other half. This would of course mean that a young family would have to come up with just half of the required deposit. When the owners sell the house, the government would gain from the capital appreciation on their 50%.
To the objection that focusing all government financial subsidy schemes exclusively on new construction creates jobs, I would point out the obvious fact that bringing a lot of vacant homes onto the market creates even more employment—in renovation work—in a shorter period of time.
Option 2 solution: Revise government subsidy policy for first-time buyers.
In addition to transforming idle buildings into homes, both options 1 and 2 would significantly reduce the demand for rentals in Dublin, thereby driving down what are now prohibitive rental prices and making more rental spaces affordable to more people. Both options require simple changes to tax laws and subsidy policies. No new infrastructure is required. Thus, both options would have immediate impact.
And this still leaves a third option.
Option 3: Amend the Nursing Home Support Scheme known as the “Fair Deal” scheme. This scheme was designed to help those older people who had no assets, other than the home they owned, afford a place in one of the 500 nursing homes in Ireland.
Living in such nursing facilities is not cheap. The average weekly cost in 2019 was €1,615, up from €1,592 in 2018. (The HSE-run St. Finnbarr’s Hospital in Cork clocked in at a lordly €2,182 per week.) Under the Fair Deal scheme, qualified elderly homeowners give up 80% of their wealth, 80% of their pensions, and 7.5% of their home’s value each year for three years (that is, 22.5%).
That three-year span was chosen because it is the average time a person spends in a nursing home before dying. During this period, homeowners are not allowed to rent out their vacant home. If they sell their house before enrolling in the scheme, they must give up 80% of the proceeds. Nor is the Fair Deal a means-tested scheme. One enrollee might have €200,000 in assets and another €2,000, No matter. Both must surrender the same 80% of their wealth.
Once inducted into the Fair Deal program, a house cannot be rented out. Currently, some 15,000 Fair Deal homes are sitting empty. This is monumental stupidity. We must change the Fair Deal rules and the relevant tax code provisions to give an incentive to the people in retirement homes (and their families) to bring these vacant properties back into the housing pool.
As with every other commodity, the price of rent is a function of supply and demand. As with Options 1 and 2, Option 3 will increase the supply and thereby drive down rental prices, thereby solving the housing crisis.
Option 3 solution: Change the rules of the Fair Deal scheme.
Instead of spending time and money on new building, let’s build upon a rare Irish political consensus to solve homelessness. We have the inventory, idle on the shelves. Let’s move it into the marketplace. Now.