Irish property needs a Covid-style suppression strategy not mere mitigation
At the beginning of the pandemic, the Imperial College paper (16 March 2020) was our first introduction to the mitigation/suppression distinction. While the former meant slowing the epidemic spread, the latter meant crushing case numbers to a very low level, before maintaining that position indefinitely.
We need to have that same conversation about property in Ireland.
We are all agreed in wanting lower prices to relieve the misery and anxiety faced by so many. But what exactly is our end game? In 10 years, do we want enhanced affordability and access while still maintaining relatively high prices through a mixture of State supports, or do we want to ‘crush’ the price of houses in Ireland, for instance to 2012 prices?
In other words, what will success look like?
Below I argue for the latter. We should aim for a world where housing costs do not occupy anywhere near as much of our household budgets and consequently the issue does not rob so much of the intellectual energy of our society. This outcome will, however, have serious implications for many people’s on paper wealth and yet it is still worth aiming for.
Imagine if instead of worrying about housing, our public discourse spent even half as much time discussing how to solve structural inequalities in education or solving our healthcare problems? And that is to say nothing about providing us space to consider challenges on the horizon, such as climate change, the automation of work and our need to find a new industrial strategy for when corporation tax cannot do the heavy lifting that it has been doing.
In other words, let’s set about finally putting to bed the issue of property and devote our energies to enriching our lives, both individually and collectively.
Let’s discuss why we should go for much lower prices and try to tease out how low we should be aiming for.
Why our long-term goal should be to ‘crush’ housing costs
As I approach my thirties (reluctantly), I cannot remember a time when Ireland did not have a dysfunctional property market. From skyrocketing prices in the 2000s to plummeting prices in the 2010s and back again to increasing prices and impoverishing rental costs in the 2020s.
The direct costs of today’s problems are clear — our society is blighted by chronic homelessness, with many more families precariously perched on the edge of losing of their homes, and a whole generation, my generation, locked out of homeownership.
We do not discuss many of the indirect costs of high housing costs often enough. Even if we could make housing more affordable, these indirect costs would continue to exist, with a significant benefit to society accruing if those indirect costs were minimised.
Here are four categories of indirect cost:
Entrepreneurship: the existence of high housing costs has a direct impact on people’s ability to follow that great idea that they have always had. People are unable to leave their current role or reduce their hours, because high housing costs make it impossible. How many fewer Mannas, LetsGetCheckeds and Fenergos has Ireland produced because housing has increased the risk for people who either currently must or may soon want to provide their families with a stable home? Even if young people could get on the property ladder more easily, high mortgage costs due to high property prices (and high interest rates) will limit the capacity of people with exciting ideas to turn them into a reality. These ideas made real could provide others with employment and make a meaningful contribution to the Irish economy. The kind of contribution that improves people’s lives and not the kind of on paper wealth that artificially inflated property prices promise.
Public service: public service jobs will always be paid less than private sector roles. Solid pension entitlements and job security ensure that is the case. However, increasing housing costs will make the trade-off too great for many, as that trade-off will become one of owning a decent home or working for the public at large. Sir John Kingman (former Second Permanent Secretary to HM Treasury) made this point in relation to junior civil servants living in London (Institute for Government discussion on Civil Service reform). High housing costs play a role in making the decision between public service and a decent home an impossible one. We are all the poorer when our public services cannot attract the talent they need, as we have seen in recent days with the director of the National Cyber Security Centre role currently vacant amidst a national crisis following the hacking of HSE systems.
Cultural wealth: Ireland prides itself on an outsized influence on the arts. Theatre, art, and music are what many of us are most passionate about. A direct cost of property speculation has been the erosion of cultural spaces in our communities, as one by one they are bought up for development. The arts need support because the nature of the work breeds precarity, given inconsistent and uncertain remuneration. An indirect cost is that we lose many potential artists because housing costs force them to devote themselves to jobs to the detriment of their talents. Surely, we should aspire to a situation where significantly cheaper housing costs mean that an artist can afford to live on part-time wages, while pursuing their art, which would be to all of our benefit due to a culturally richer society.
Self-improvement: how many professionals are trapped in roles that either they don’t like or in which they know they need extra qualifications to advance in? For instance, Ireland’s leading MBA, from UCD’s Smurfit School, costs €34,500. There should be no doubt that the maintenance of high property prices will trap individuals and enable a privileged few to advance themselves through increased credentials. Significantly lowering housing costs would enable people to arm themselves with further qualifications, earlier in their working lives. With most people my age struggling to put together a deposit for a home, an investment such as an MBA would be out of the question.
How low should prices go?
The starting point for this must be what people earn, to borrow from David McWilliams (Irish Times, 6 February, 2021). He posits a model where our target house prices would be linked to median after-tax income of a family, using the rule of thumb of 30% of wages, before arriving at €270,000 as a fair price.
I agree our envisaged end game must take wages as a starting point. Whether 30% is the right number is uncertain. It is a heuristic derived from received wisdom of what a reasonable fraction of one’s budget should allow for housing.
Could we dare to think about going even lower? Why not 25% of median after-tax wages?
The precise number is a technical question which needs to be worked out. We shouldn’t diminish how complicated that process will be. By pushing prices down, we will put some people into negative equity.
Some commentators have recently taken a blasé approach to the problem of negative equity when discussing the Government’s housing policy post-crash, on the basis that it only matters if you want to sell. Firstly, this is untrue. Ask anyone in negative equity, even if they don’t currently want to sell, about the anxiety of that position and its effect on their homelife. Secondly, many people do expect to sell up and move eventually, so negative equity is a very real problem for them. There’s nothing wrong with aspiring to move home, as your family or lifestyle changes.
Achieving much lower housing costs over a long time alongside a conscious effort to increase wages, especially those of low-earning workers, will mean that in real terms we can achieve much lower housing costs while limiting the negative effects on individuals.
But let us be clear — we should be willing to significantly lower the value of certain people’s homes and this will affect many people’s on paper wealth.
All political parties struggle to explicitly say this and tiptoe around the issue because it will negatively affect their voters. Voters will be willing to accept pain, however, if parties show leadership and demonstrate why chronically high prices, even if a bit more affordable than they are today, carry significant societal costs.
This harsh reality will not be palatable to many, but if we are to achieve long-term change and address a dysfunctionality that sits at the heart of Irish society, then we should be brave enough to say it out loud.
What I have attempted to make clear is that while a suppression strategy might ostensibly make some people poorer, the current situation of mere mitigation or tinkering around the edges, carries enormous societal costs, for which we are all much poorer.