Sir, – The article by Eoin Burke-Kennedy and the study by Mel Reynolds offer important lessons for government housing policy (March 3rd). For far too long the mantra has been supply, supply, supply. It is not as simple as that. The Reynolds study shows clearly that during the period from 1995 to 2007 supply increased significantly to about 92,000 homes. Yet house prices continued to escalate. This was the result of hype, cheap credit and irresponsible lending which facilitated a frenzy of borrowing. This was a classic example of "market failure" and a good example of government failure to contain demand. And we are at it again with the "Help to Buy" scheme.
The Reynolds study shows that the current supply by private developers consists mainly of expensive “executive homes” costing in excess of €350,000. This is also the sort of minimum price suggested for a three-bed semi by developers and professional bodies. Yet these are simply unaffordable for a large section of those aspiring to purchase.
Reynolds supports the argument made by many of us for years that the government must “step in and build affordable housing on a large scale”. With interest rates as low as 1 per cent, this is a no-brainer.
The Minister for Housing recently confirmed that a three-bed non-profit semi could be built for €180,000. Therefore, why would we continue to rely on the expensive and profit-driven private market? It is obvious that action is essential to ensure that the long waiting list for public housing is eliminated as a matter of urgency. However, public housing should be rechristened “community housing” and available to a broader range of income groups in a position to pay an economic but regulated rent. If operated along the lines of a “cost-rental model”, this new tenure could become and remain financially viable and compete with the private market. – Yours, etc,
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Prof PJ DRUDY,
Department of Economics,
Trinity College Dublin,
Dublin 2.
Sir, – Adjusting for inflation, house prices were broadly unchanged between 1975 and 1995. The real house price increases took off from about 1995.
A further factor is interest rates. From the introduction of the euro, interest rates were low. This allowed people to borrow more for the same monthly repayments.
For the builder or developer the main issue is maximising profits. For builders there are the cost of land, local authority fees, development charges, etc, and the cost of construction. Planning constraints push up the cost of land, and this is particularly accentuated in Dublin, a low-density city. Development charges have increased significantly. Building regulations have pushed up the cost of building . So the basic cost of a house, adjusted for inflation is now considerably higher than in 1975 or 1995.
For the buyer, the long-term cost of a mortgage has increased and become more risky.
In the 1970s you could be sure that the real cost of your mortgage would drop as inflation progressed and your income increased, while your mortgage remained unchanged. Now there is very little inflation so your mortgage burden will not lessen.
In addition, with low interest rates, the risk is that rates will rise, increasing the burden on the borrower. – Yours, etc,
VINCENT MURPHY,
Cork.