Never mind critics: shared-equity scheme can help affordable housing

The faux outrage generated in relation to a shared-equity approach to housing falls into an all-too-familiar pattern that has come to characterise what should instead be a sober, data-driven and reasoned debate on how we solve one of the biggest social and economic issues of our time. One by one, every considered proposal to deliver more homes for people to live in is shot down in a barrage of criticism.

The most recent example was the falsely manufactured debate about the State being able to build much more cheaply than the private sector. When this canard was thoroughly discredited the hit-and-run critics turned their sights on shared equity. Unfortunately the latter proposal has been met with what can only be described as a feeding frenzy of negative and misplaced commentary.

None of this is helpful in terms of addressing Ireland's housing crisis. We can never be sure what the perfect intervention is but the evidence from our neighbours in the UK demonstrates the valuable role shared equity can play. In my view, the initiative needs to be implemented as quickly as possible.

Housing legislation

The two key housing-related Bills currently being considered by the Dáil are very positive and represent important steps forward as they should provide for a greater level of affordable housing supply by establishing the Land Development Agency on a formal legislative footing and introducing the shared-equity scheme.

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The social housing list has reduced by 25 per cent since 2016 and, prior to the recent lockdown, the State was on track to spend the largest amount ever building social housing, 28 per cent above its previous peak in 2007. However, despite a lot of good work in recent years to tackle the housing challenge in its many manifestations, affordability for those who want to purchase a home of their own remains a massive challenge.

The debate on how much it costs to build has thankfully moved on, with nearly all reasoned voices accepting the Society of Chartered Surveyors in Ireland’s (SCSI) detailed analysis as a baseline reference and all available evidence indicating that the private sector is offering the State and affordable housing bodies good value in the delivery of “turnkey” units.

Late last year the Economic and Social Research Institute (ESRI) again highlighted the urgent need to focus on the delivery of smaller units for one- and two-person households, as these represent about 74 per cent of all requirements. Along with the National Planning Framework, which calls for compact growth and 50 per cent of all new units to be built within existing urban settlements, it becomes very clear that we need to deliver significantly more apartments than we do currently.

However, as highlighted by the SCSI and Dublin City Council, apartments are significantly more expensive to develop than lower-rise housing. All the evidence shows that in the absence of some form of shared-equity scheme, apartments will be unaffordable for buyers on modest incomes, regardless of who builds them.

Selective evidence

Like the cost issue, most of the debate has been the focus of selective highlighting of risks without presenting the potential for significant positive benefits, if done in the right way. Most of the commentary from the ESRI and the Central Bank was based on two seminal reports, one from the Bank of England and the other from the London School of Economics, on a similar UK scheme.

The reports note that, without the equity loan or a larger down payment, an overwhelming proportion of borrowers would not have been able to borrow the mortgage amount needed to purchase their property.

In a setting with responsive supply, shared equity can be expected to mainly stimulate construction numbers as intended by the policy, they said.

Concerns, where they were expressed by the Central Bank and the ESRI, for the most part focused on concern that supply would not increase if this demand-side intervention was made. However, Irish cities are highly responsive in terms of supply and the evidence of this to hand includes the fact that there are more than 40,000 outstanding permissions in most cases ready to be acted on, if viability was improved by allowing buyers locked out of the market to start putting down deposits.

In relation to concerns regarding the potential role of incentives in fuelling house-price inflation, notwithstanding the introduction of the help-to-buy initiative, house-price inflation has not exceeded 2 per cent on average over the last couple of years.

Perhaps the final word on this should go to Dr Larry O'Connell of the National Economic and Social Council, who, while accepting that risks are involved and need to be monitored, agreed action is required, noting at the same Oireachtas housing committee that housing is a complex system and "it is difficult to judge what the impact of a single intervention in one part will be on the wider system".

“My view on housing is we need to act,” he added. “There is a supply crisis. As I said earlier we will never know what the perfect intervention is, but this one seems useful and some of the equity is returned. The key is to monitor the scheme carefully over the first 12 months.”

Pat Farrell is chief executive of Irish Institutional Property