‘What we are experiencing in Ireland is actually a problem of affluence'

Irish Times

23-05-2025

Year after year, policy after policy and invariably the result is the same: soaring prices and sky-high rents.
It's hard to keep applying the term crisis to
Ireland's housing problem
when it's been going on for two and a half decades.
The home ownership rate among those aged 25-39, once considered a prime homeowning age, has dwindled to just 7 per cent.
This is less than a third of the rate recorded in 2011 (22 per cent).
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The declining rate of home ownership has created an oversubscribed rental market, which this week delivered another grim milestone.
Property website Daft reported that
average monthly rents
in the first quarter eclipsed €2,000 for the first time.
That figure is also nearly three times what it was in 2011 (€765).
And the Government's answer?
A dedicated housing tsar
to head the
Department of Housing
's new 'housing activation office'.
The Government says the establishment of the office is needed to 'ensure a radical step change in housing supply' and to quickly address 'barriers to the delivery of vital public infrastructure projects needed to enable greater housing development'.
The Department of Public Expenditure
has – at the same time – created its own dedicated infrastructural unit, which it says will work with the housing department's one.
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But why are we only tumbling to this now and why do we need new units – more layers of bureaucracy – in already well-resourced departments?
Critics say the Government (and
Fine Gael
in particular, which is in its fourth consecutive term in office) has run out of ideas and is merely setting up another quango to disperse the political heat.
The
debacle over the possible appointment
of Nama boss Brendan McDonagh to head the housing activation unit (and with a salary of €430,000)
capped a pretty awful honeymoon for the new Government.
Nama tends to polarise opinion.
If the agency's remit was to 'cleanse and repair' the balance sheets of the Irish banks while getting a return for the State from managing distressed property assets, it and McDonagh can claim to have succeeded (the agency is expected to make a profit of approximately €4.9 billion).
But the agency, at one stage, had most of the State's prime development land on its books, which many believe presented the State with a strategic opportunity to do something big on housing, an opportunity that wasn't taken.
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According to its latest annual report, the agency facilitated the delivery of 37,700 new homes in the 10 years to last March.
Another reason why the Government finds itself in such hot water on housing relates to last year's election promises.
Part of the Government's pitch to voters was that the State had turned a corner on housing and that the supply of new homes would hit 40,000 in 2024.
Instead it went the other way with new home completions falling by 7 per cent to 30,000. The Government's social and affordable housing targets were also missed.
Worryingly, housing commencements (the strongest indicator of future supply) have also fallen off a cliff.
Partly because Government waivers on levies artificially pumped up the number last year but also because there's been a fall-off in construction activity, housing starts in the first quarter of 2025 were eight times down on last year and at their at their lowest level since 2016.
The Housing for All output target of building 41,000 new homes in 2025 is now seemingly a lost cause.
Newly installed Minister for Housing
James Browne
can rightfully feel he's been given something of a hospital pass.
Next up for him and the Government is a tricky decision on rent controls.
Industry is pushing hard for the State's rent pressure zone (RPZ) system, which limits annual rent increases to 2 per cent or the level of inflation (whichever is lower) and which expires this year, to be overhauled to entice more investment.
But Opposition parties claim any loosening of the rules will accelerate already high rents.
The author of the Daft report, economist and Trinity College professor Ronan Lyons, claims Government interventions aimed at easing the housing crisis have, in fact, exacerbated the problem.
He zeros in on changes made to rent controls in 2021 that reduced the permitted annual increase from 4 to 2 per cent.
This 'dramatically reduced the ability of Ireland's rental sector to attract the capital needed for new supply, the ultimate remedy for the shortage', he says.
'The irony is that the last Government scrapped pro-supply policies just as they were beginning to show their effects – with market rents in Dublin largely static in 2023, due to lots of new completions, even as rents surged in other cities,' Lyons says.
He praises the 2016-2020 Government for adopting pro-supply policies like the Build-to-Rent and Strategic Housing Development initiatives.
'Combined with a favourable macroeconomic environment, these generated a pipeline of tens of thousands of new rental homes, albeit concentrated in the Greater Dublin Area due to viability challenges,' Lyons says.
At one stage in the late 2010s, there were up to 100,000 rental homes (mainly apartments) in the pipeline (25,000 have been delivered so far).
Lyons claims the 2020-2024 Government, however, reversed the pro-supply policies of its predecessor.
'Together with the change in external conditions and a sharp tightening of RPZs, in effect making them one of the strictest rent control regimes in the world, this had a catastrophic effect on the supply pipeline,' he says.
Before 2020, he says the Republic was getting about 14 per cent of the capital investment in housing coming into the UK and Ireland (punching above its weight) but is now only getting 3-4 per cent.
'Some people will say, oh sure everywhere has seen a fall-off in residential investment [because of higher interest rates]' but Lyons says Ireland has become comparatively less attractive because of strict rent controls.
Under consideration is a move to a system of reference rents, as the Housing Commission has advocated, where rent limits are related to factors such as location and property size. Others favour letting landlords reset rents to the going market rate between tenancies.
Cairn Homes boss Michael Stanley insists Ireland has enough bedrooms to solve the housing crisis 'three times over'.
Assuming there are 2.1 million housing units in the State (mainly three- and four-bed homes) that means there are roughly 6.7 million bedrooms for a population of 5.3 million, he says.
His person-to-room argument isn't intended as a solution but as a preamble to his main contention namely that Ireland needs smaller housing units, in other words more apartments.
Stanley says there is a notion that Irish people don't want to live in apartments, which is not true. 'It's the greatest piece of misinformation that's put out there,' he says, highlighting the strong demand for new apartment schemes. Apartments comprised 60 per cent of Cairn's sales last year.
Density or the lack of has long been cited as a big factor in Ireland's housing problem.
About 10 per cent of people here live in apartments versus an EU average of 47 per cent, Eurostat has reported.
The State has made things difficult for itself by building out instead of up. Wraparound infrastructure – transport in particular – is harder to deploy with such a scattergun approach to housing.
Even Dublin City Council's plan to develop 6,000 homes on a 77 hectare tract of land at the Dublin Industrial Estate site opposite Glasnevin Cemetery is deemed by many to be too low density.
Stanley also claims the industry won't be able to build 50,000 homes a year (the State objective) without building 25,000 apartments a year, but the lack of high-density zoned land in cities is frustrating this aim.
He says approximately 70 per cent of the zoned land across the eight local authorities responsible for most of the homebuilding in the State has density requirements that do not allow apartment building.
Another central problem is the high cost of apartments.
Property group Hines, the company behind the large Cherrywood housing development in south Dublin, says space standards and build quality requirements combined with the absence of VAT on new housing in Northern Ireland means that a housing unit that costs €300,000 in Belfast costs €496,000 in Dublin.
If housing is absorbing more and more of the political bandwidth, it is also absorbing more and more of the State's finances.
Total State, or State-backed investment in housing, last year was approximately €5 billion with the number of schemes and measures – to activate construction, to build more affordable homes and to help buyers get on the ladder – continuing to grow.
Once seen as a game-changer, the Land Development Agency (LDA), which has a remit to build affordable housing on State land, has seemingly been bogged down in planning and/or the slow pace of obtaining land from commercial and other state bodies.
Insiders say the agency is finding it easier to build on private land than on the land we as citizens already own. It aims to deliver 14,000 new homes over the next three years.
Of course these are supply-side issues. The main problem for buyers and renters is price. The average price of a home in Dublin is now over €600,000, the CSO has found, 12 times the average full-time salary in the State (which is about €50,000).
The average price paid nationally is over €430,000.
'Demand clearly exceeds supply and this is reflected in the pricing signals – rents and house prices are both rising in real terms,' lecturer in property economics and real estate at TU Dublin John McCartney says.
However, he questions the widely held assumption that this reflects the failure of construction to keep pace with population growth.
'In fact, and contrary to the public perception, a combination of new builds and absorption of vacant properties provided enough accommodation to keep pace with growth in household numbers​ between 2011 and the most recent census,' he says.
'Housing demand is actually about the willingness and ability of society to pay for housing rather than being about population growth per se,' McCartney says.
'What we are experiencing in Ireland is actually a problem of affluence – there is just a huge amount of money chasing homes,' he says.
'Partly this is because of Ireland's economic good news story – full employment, rising real wages, tax cuts etc, and we certainly wouldn't want to change those things,' McCartney says.
He also notes that some of the demand is being driven by Government incentive schemes like the Help to Buy, the First Home Scheme and the local authority home loan scheme 'which are unnecessarily fanning the flames of inflation'.
Either way, Ireland's housing problem has become increasingly tangled with the Government still searching for the right policy mix and investors citing policy uncertainty as a key turn-off.