2 days ago
Housing scramble for younger buyers becoming ever more fraught
There is one key question at the heart of
housing policy
that remains lost in a fog. It is a surprisingly simple one.
Where and how do we want people to live?
There is a theory here; then what is happening in practice. And caught in the middle are younger people trying to work out where they can find a place to buy or rent.
Let's, for the sake of illustrating this, consider a young, middle-income couple both working in the Dublin region. A key goal of
housing policy
, as outlined in successive official housing and climate documents, is to encourage new buyers to live closer to city centres in what are called compact or 'denser' developments. The implicit, though rarely stated, trade-off is that they live in somewhat smaller accommodation, with the advantage being a shorter commute, on public transport, and schools, shops and other services close by. The end of the car-based commuter lifestyle, in other words.
The compact living schemes with affordable, cosy apartments and duplexes beside a train line exist more in the illustrations in official documents than in reality
But our younger couple won't find many options that look like this. The compact living schemes with affordable, cosy apartments and duplexes beside a train line exist more in the illustrations in official documents than in reality. Read the planning history for many infill sites for apartments or housing close to Dublin city centre, which could provide this option and weep. The Metro, if it is ever built, is unlikely to run until the late 2030s.
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There is, in other words, an enormous hole in our compact-living goal. And that is before even considering what exact shape this should take, to provide attractive options for younger people. What is the rental versus ownership mix? Are apartments really attractive to many, or are other options needed?
National policy implies a move away from the three-bed semi for our young couple towards a world of owning or renting near city centres. But is this actual Government policy? Or is it just a kind of retrofit – working backwards from our climate targets to the living practices that can help achieve them? Like our wind energy targets, is it more a nice theory to make the numbers add up on paper, rather than something that – perish the thought – might actually happen?
The key issue in finding a second-hand property right now is the chronic lack of supplythe key issue in finding a second-hand property right now is the chronic lack of supply
The reality pushes our young couple in one of two directions. One is to buy a new home on the outskirts of Dublin or in the commuter counties – Meath, Kildare, Wicklow or Louth. Or in some cases, even further afield. Here, unlike closer to the city centre, the house will often qualify for
the Help-to-Buy
scheme – where the limit is €500,000 – and possibly also the
First Home scheme
in which the State takes an equity stake.
The second possible option is to buy a 'fixer-upper' closer to the city centre. While this may be more in line with Government policy – not that the young buyers will care much about that – there are some barriers, too. The house will not qualify for the generally cheaper green mortgage offers from the big banks. AIB charges 3.4 per cent for a five-year fixed rate green mortgage for houses on an A and B rating, but 4.5 per cent for the same mortgage on a house
with a lower energy rating.
Upgrading to a higher rating, even with the help of State grants, requires a whack of cash that is unlikely to be available to the young couple.
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And in any case, the key issue in finding a second-hand property right now is the chronic lack of supply. A bidding war gets under way for any mid-range second-hand home that comes on the market. Broker John Fahy of Pangea says many buyers are
mortgage approved
for a couple of years – sometimes at ever higher levels – but keep getting outbid. And this also feeds through into higher demand and prices in the new homes market. The housing scramble is getting scramblier.
This is the troubling backdrop to the Government's attempts
to restart housing policy
, due to lead to a new strategy document over the summer. Its intention in this week's move to change the
rent control rules
is to attract more supply into one part of the rental market – on the basis that international financing is needed as well as Government and domestic cash if we are ever to build enough homes.
The rent pressure zone rules, as structured, were a mistake. Whether the changes announced are enough to encourage new supply remains to be seen – certainly for this to happen, the wider range of issues with which we are all too familiar – planning, the supply of water and power, and the high costs of building – also need to be addressed.
All extra supply is welcome, and in time, can help to bring down prices generally. But, as the
Housing Agency report
that was a backdrop to the policy changes pointed out, there is likely to be a lead time of three to four years for new supply to come on stream due to rental pressure zone changes.
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And, for our young couple, much of the build-to-rent supply is going to be too expensive, even as a stopgap. It is, rather, aimed at higher earners from Ireland's multinational economy. Otherwise, the sums for the investors don't add up. This group operates in a different economic world to the average earner – a couple with middle-ranking jobs could easily earn €250,000 a year, rather than, say, €100,000 for two average earners in the domestic economy. The Government can, of course, step in and get investors to build cost rental apartments too, but the level of State subsidy here in various forms will be high.
Faced with this kind of rental market, the ultimate goal of our young couple and many like them is to buy. And no wonder.
CSO figures this week
show again that housing is the key source of wealth accumulation in the State. The average wealth of a household that owns a home is €391,600, compared to €10,200 for a renting household. Much of this is the financial lifecycle, of course – older people are more likely to own their home and have lower debts.
But the issue for many younger people is the difficulty of getting on the ladder at all. Government policy and the incentives they face are sending them a host of mixed messages, and the market is providing very limited options.
