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Fintan O’Toole: Ireland’s giant open-air experiment on property has failed

Letting the market decide has been a colossal failure – the Irish economy, left to itself, cannot and will not match capital investment to human needs for shelter and security

Why does the European country with the worst housing crisis have one of the lowest levels of investment in housing? That’s the very basic question that hangs over almost every aspect of Ireland’s political and social malaise.

Last week, the National Competitiveness and Productivity Council produced a useful comparison of the percentage of GDP spent on housing in European countries. (In Ireland’s case, because of our weirdly-shaped economy, it uses the more appropriate GNI* metric.)

It shows that Ireland is investing 3.9 per cent of its national income in housing. This places us 20th out of 30 countries measured. The European Union average is 5.6 per cent. Countries such as France and Germany are currently spending in or around 7 per cent of GDP on housing.

But these raw figures are actually rather flattering to Ireland. We have a much younger population than most other European countries. The median age of the Irish population is 39, which is six years lower than the euro-zone average of 45.


So we ought to be spending more on new houses and apartments for people who are reaching the age where they want to form households. How come Germany, where the median age is 46, is spending almost twice the proportion of its income on housing as we are?

Spending on places for people to live accounts for a mere 21 per cent of investment in Ireland compared with 32 per cent in the UK and 34 per cent in the euro area

It’s not just that a smaller share of national income is going into housing here – so is a smaller share of fixed capital investment. If you strip out intellectual property (which, again because of the unusual shape of our economy, has an outsized presence in Ireland) spending on places for people to live accounts for a mere 21 per cent of investment in Ireland compared with 32 per cent in the UK and 34 per cent in the euro area.

What does this tell us? That, at the most fundamental level, we do not have an economy that prioritises the fulfilment of people’s needs. Even by the standards of European capitalist economies, ours is particularly skewed away from the basic task of creating homes for the population.

This is important because the Government’s spin is that, as the Taoiseach put it last November, “the grass isn’t always greener” elsewhere. Ireland’s housing crisis is bad – but so is everyone else’s.

It’s true, of course, that housing supply is an urgent problem in other European countries. Read, for example, Derek Scally’s report on the crisis in Berlin in Saturday’s Irish Times, and much of it will seem all too familiar.

But there is a fundamental difference: whatever its current problems, Germany’s economy is much more well-geared towards investment in housing than Ireland’s is. So are those of France and Belgium and the Netherlands and Finland and Denmark and Spain – and every European economy except Greece and a few countries from the former Eastern bloc.

An obvious part of the problem is surely that construction and development in Ireland is far too heavily weighted towards offices. It’s not so much that Ireland is not investing enough in buildings, but that it’s investing in the wrong buildings.

Over the last decade, an average of €4.3 billion has been spent each year on commercial real estate in Ireland. Last year, the figure was €6 billion.

So, we’re getting on for €50 billion pumped into the commercial property market since Ireland began to recover from the great crash of 2008. That’s a vast amount of money for a population as small as ours.

But – and here’s the twist – last year only a third of the €6 billion went into housing. A quarter of it went into offices.

Even from a purely commercial point of view, this makes no sense. The take-up of office space in Dublin in the first quarter of this year declined by 42 per cent on the same period last year. Vacancies rose from 8 per cent to 13 per cent.

On Friday, Ireland’s biggest private landlord, Ires Reit, held its AGM in Dublin. It heard tirades from investors unhappy that its share price has dropped from €1.62 in October 2021 to €1.03 last week. Things do not seem to be going well even within the commercial property marketplace.

There’s still, though, a governing ideology that holds (a) that the market will provide housing and (b) that the market is rational.

Ireland, over the last decade, has been conducting a giant open-air experiment to test these propositions. How much longer do we go on denying that the results are in and that they show them both to be at best grossly inadequate?

For whatever range of reasons, it is excruciatingly obvious that the Irish economy, left to its own devices, cannot and will not match the investment of capital to human needs for shelter and security.

The European comparisons suggest that Ireland, because of its backlog in housing supply and its rapidly expanding demographics, probably needs to double the proportion of its national income that it spends on housing.

That’s not going to happen through the invisible hand of the market. It’s not going to happen through stimulus and incentives and creating the conditions for the private sector to work its magic. It’s going to happen only if the State takes full responsibility for doing it.