The Irish housing crisis explained.

This is a simple guide to the housing crisis in Ireland.

In this article, we will explain why rents are so high in Ireland. We will also illustrate why the housing crisis in Ireland will take time to solve.

The housing crisis in Ireland

The housing crisis in Ireland is causing rents to rise.

Supply and demand.

When there is a demand for something that is in limited supply, the price of that “thing” tends to go up.

A basic example of supply and demand.

How rent prices rise.

For example, let’s say that there is one house available for rent in an estate. The asking price to rent the house is currently €750 per month.

Now let’s say that there are five different people who want to rent this particular house. They all like the location and there aren’t any other “good” options in the area.

The landlord notices that multiple parties have shown an interest in his rental property. In other words, he knows that there is a strong demand for the house. As a result, he decides to increase the asking price from €750 to €900 per month.

As a result, three out of the five people decide that they no longer want to rent the property. The extra €150 is too much for them and they would rather try their luck elsewhere.

However, there are still two other people who are willing to pay the extra €150.

Consequently, the cost of renting this house has now risen.

How rent prices fall.

If we were to flip the above situation around, the result would be different.

For example, let’s say that there are five vacant properties in the estate and that only one person is looking for a new place to rent.

In other words, that one person has five different places to choose from.

In an effort to attract this renter, one of the five landlords decides to lower her asking price.

A second landlord who notices this price drop also follows suit and does the same thing. He is having issues paying the mortgage on this property and is desperate to bring in some rental income.

As a result, 2/5 houses in the estate are now displaying lower prices.

At this stage, the other three landlords will begin to feel the pressure to drop their prices as well. They have started to notice a lack of interest in their properties. Nobody is calling about them and they haven’t had a viewing in weeks.

People are renting elsewhere because they are finding better prices.

At this stage, these landlords can either lower their prices or run the risk of their houses lying vacant for months on end.

Consequently, another two landlords decide to reduce their asking prices. One of them even drops it lower than the rest.

The cost of renting in this area has now fallen.

In Ireland, the demand for rental properties is currently higher than the supply.

The crux of the problem is this: Currently, in Ireland, there are not enough houses to rent.

In other words, the demand is higher than the supply.

In simple terms, this means that there are more people looking to rent properties than there are rental properties available on the market.

As a result, landlords can increase their prices and still find tenants.

Why can’t we just build more houses and increase the supply then?

Well, the country is building more houses. However, a lack of building in the past has left us in a situation where we need to ramp things up in a big way and “catch up”.

Think of it as a race between supply and demand. In this case, the demand has had a considerable head start.

To make things worse, building housing estates takes time because there are a number of obstacles that can slow the process down. And some of these obstacles are outside of the control of the government.

So not only does the supply need to speed up and catch up to the demand, it has to do so while jumping over these “hurdles”.

What started the housing crisis in Ireland?

To make a long story short, 2008 happened.

The housing bubble in Ireland burst and many construction companies went bankrupt. The country’s finances were in a dire condition and over 600 “ghost estates” were lying vacant.

As a result, the construction industry came to a halt. Furthermore, local authorities began to build far less social housing.

During this period, there was no appetite to build more houses.

If you look back at the election promises for 2011, you will see that the focus was on economic recovery and reversing austerity policies.

When it came to housing promises, parties were focused on helping distressed homeowners and dealing with ghost estates.

At the time, young Irish people were emigrating to Australia in their droves.

In 2012, a report by Deutsche Bank made the claim that it would take Ireland 43 years to fill all of its empty houses. The report stated that there were 289,451 empty homes in Ireland. 60,000 of which were holiday homes.

It wasn’t until the general election in 2016 that parties began to make promises about building more social housing. For example, Fine Gael promised to build 110,000 social houses, whereas Sinn Fein promised to build 100,000 homes.

However, by that time, the economy was bouncing back in a big way and the demand for housing was growing. Furthermore, our ghost estates were beginning to quickly disappear.

At this stage, it was too late. The housing crisis was already knocking on our front door.

The speed of Ireland’s economic recovery caught the government off-guard.

From about 2013 onward, Ireland’s economy began to bounce back from the crash in 2008.

In 2015 alone, our GNP grew by a massive 26.3 per cent. As the unemployment rate began to drop, the demand for housing began to increase.

For example, young people who had been forced to live at home with their parents because of the recession were now beginning to find themselves in a financial position where they could finally move out and rent.

Irish people who had emigrated to Australia, Britain and Canada after the crash of 2008 were also beginning to return to the country. In 2016, the number of Irish emigrants returning home jumped by 74%.

By 2015, the country had returned to “net immigration”. In simple terms, this means that more people were entering Ireland than leaving it.

As a result, more people and more people were looking for properties to rent.

Landlords started to leave the market.

To make matters worse for renters, house prices also started to rebound in 2013. This provided landlords with an opportunity to exit the rental market. In other words, the price was finally good enough for them to sell.

“Accidental” landlords, who had been forced to rent out their vacant homes because they could not find a suitable buyer after the crash, were also given an escape route.

According to the Residential Tenancies Board (RTB), 17,000 landlords left the market between 2017 and the end of 2019.

This led to a fall in the number of rental properties at a time when the demand for rental properties was rising.

In other words, the demand began to increase at a time when the supply was decreasing.

What obstacles are slowing down housing developments in Ireland?

There are a number of reasons why it will take time for the supply to catch up to the demand.

NIMBYism.

The acronym NIMBY stands for “not in my back yard”.

In Ireland, most people agree that homelessness is a big issue and that we need to build more houses in order to solve it.

However, a lot of these people do not want these new homes to be built beside their homes.

They’re OK with the thought of a new estate being built on the other side of town. They just don’t want that estate to be “in their back yard”.

“It will ruin the look of the area”, “My children play in that field”, “The value of my home will fall”, “That place across the bridge would suit it better”, etc.

The problem with this situation is that there are people on “the other side of town” who will have the exact same issues with such a development.

Basically, everyone is OK with new houses as long as those new houses do not affect them personally.

Consequently, you end up with planning objections.

Local councillors.

The Irish government has no control over planning objections. Planning objections are handled by local authorities and An Bord Pleanála.

In some cases, the councillors who sit on these local authorities will speak out of both sides of their mouths.

For example, one week, Cllr. Joe Bloggs will voice his criticisms about the housing situation in Ireland. “The homelessness crisis in Ireland is an absolute disgrace”, he will post on his Facebook page. And then all of his followers will like the post and agree with him and share it.

However, a week or two later, he will try and appease voters in his area by throwing his support behind opposition to a local housing development. “That piece of land should be used for local amenities.” And all of his followers will like his post and agree with him and share it.

Whenever this sort of behaviour is highlighted in the news or on social media, the defense is always the same. “I believe that it would be better to build the estate over there instead.” “I think that we could have gotten a better deal.” “It isn’t the right place for it.” “The area has historical value.”

Whether those statements are right or wrong, the end result is the same. Houses that would have increased the supply are either delayed or not built at all.

Councillors from ALL parties engage in this behaviour.

It is worth pointing out that this kind of opposition to new housing estates is not limited to a particular political party.

For example:

  • A Fine Gael councillor might object to a local housing estate, even though the rental crisis is extremely damaging to her party.
  • On the other hand, a Sinn Fein councillor might object to a local housing estate, even though he and the rest of his party are extremely critical of the current housing situation.

This is because councillors care about local issues. It is not within their remit to think about national issues.

TDs also object to housing.

TDs have also been known to object to housing developments.

Of course, they all have their “reasons” for these objections.

An Bord Pleanála is an independent body.

An Bord Pleanála decides on planning appeals. In other words, they have the last word on whether a project should go ahead or not.

They are also an independent body.

This means that the government and local councils have no authority over An Bord Pleanála.

Furthermore, the only way to overturn a decision by An Bord Pleanála is to request a judicial review via the High Court.

Take the following situation as an example.

  1. A developer wants to build 20 houses in an area in Wexford town.
  2. This developer submits a planning application for the project.
  3. Local residents object to the planning application. Meanwhile, Cllr. Joe Bloggs and Cllr. Mary Smith throw their support behind the residents and air their “grievances” about the project.
  4. The planning authority in the local council sides with the residents on the issue and rejects the planning application.
  5. As a result, the developer submits an appeal to An Bord Pleanála.
  6. Now, it is up to An Bord Pleanála to rule on the matter.

As you can see, at no stage does the government have any say over this process.

Why is An Bord Pleanála independent?

An Bord Pleanála is independent because there was a real need to remove politics from the planning process.

In other words, Irish people did not trust how much power politicians had over planning applications. There was always a suspicion that they could be corrupted or that the process could be influenced by “political connections”.

As a result, An Bord Pleanála was created and its independence was strengthened over the years so that politicians could not interfere.

Strategic housing developments are being held up by judicial reviews.

In 2017, Minister for Housing Eoghan Murphy attempted to speed up the planning process by bringing in new regulations for large housing developments.

To make a long story short, these new regulations mean that a planning application for a development with 100 units or more can be made directly to An Bord Pleanála instead of the relevant local authority.

The goal here is to cut out the “middle man” and go straight to the organisation that usually has the final say.

Unfortunately, these new regulations have not been a silver bullet.

What is judicial review?

Above, we mentioned that the only way to overturn a decision by An Bord Pleanála is to request a judicial review via the High Court. Essentially, this process allows people to challenge administrative bodies such as An Bord Pleanála.

In 2020, 5,802 housing units in Dublin were affected by judicial reviews.

In other words, objectors were throwing spanners into the works by bringing legal action against developments.

As a result, housing developments that would have increased the supply were either quashed or held up.

A judicial review can quash a planning application due to one minor technical issue. If that happens, the developer must restart the entire planning application all over again.

For example, in January 2021, a judicial review quashed planning permission for 611 apartments in Dublin 4 because of a procedural issue.

To avoid situations like this, developers are forced to hire lawyers who will vet their planning applications for judicial review ahead of time. This, in turn, increases the developer’s legal costs.

The increase in judicial reviews has also resulted in increased legal costs for An Bord Pleanála. In 2020, these costs doubled to €4.1 million.

We do not have an endless supply of money, expertise and construction workers.

Another issue is that building houses requires finite resources. In other words, we do not have a limitless supply of money and construction workers.

Money.

The government does not have a bottomless pit of money, especially since COVID hit.

Furthermore, building costs are relatively high at the moment. This is due to new regulations that have come in over the past decade or so.

Simply put, building energy-efficient homes is not cheap, as it requires more work and materials.

To make matters even more difficult, COVID-19 and Brexit have disrupted supply lines. As a result, the price of certain building materials are predicted to rise by 5 to 16%.

In 2021, the government’s budget for housing was €3.3 billion. Let’s say for example that the government decided to increase this figure.

Where does the money come from?

Do we raise income taxes to fund construction? Should the government cut social welfare payments? Do we spend less money on health or education? Or should the government borrow more money from the markets and increase our national debt?

  • Tax voters too much and a sizable portion of them might lose the “appetite” to solve the housing issue. Especially those voters who already own their own homes. To make matters worse, renters will see a dent in their pay packets at a time when they are feeling squeezed.
  • Cut social welfare and you are hurting those who are already being pushed into homelessness because of the current crisis.
  • Reducing spending in other areas will also be extremely unpopular. It could also hinder our future development as a country and create another crisis-in-waiting.
  • Add to the national debt and the country could end up in dangerous waters further down the line.

As you can see, these are not easy decisions. And each “solution” has a potential knock-on effect.

Shortage of construction workers.

At the moment, Ireland has a shortage in construction workers.

In 2017, the Construction Industry Federation reported that 86% of building companies were experiencing a shortage in qualified tradespeople. In 2019, the Irish Times reported that 89% of companies were struggling to hire staff.

There are various reasons for this.

  1. The collapse of the property bubble in 2008 turned a lot of younger people away from the construction sector. Apprenticeships became scarce and far less appealing.
  2. Ireland has a low level of unemployment at the moment. This means that a lot of people are working in other industries. Many of these people are content and will not leave their jobs to go and work on a construction site.
  3. After the crash in 2008, a lot of tradespeople were forced to emigrate to Australia and Canada. Many of them still live there today.
  4. A lot of the construction workers who remained in Ireland were forced to retrain and take up work in other areas. There is little hope of convincing these people to leave the careers that they have built since then and return to the construction industry.

To sum it up, 2008 left a bad taste in a lot of people’s mouths. There is a major fear amongst people that the exact same thing could happen all over again.

Why don’t we pay construction workers more then?

Although that might draw in extra workers, it will also drive up the cost of building houses.

More workers = more wages = more money.

As of September 2020, the cost of building a 3-bed semi-detached house in Dublin is €371,000. Adding extra costs on top of that might not be such a great idea.

You also do want to overheat the construction industry and create a situation where too many people are reliant on the sector for work.

In other words, if construction slows down, we do not want hundreds of thousands of people to be suddenly out of work.

What if we temporarily brought in a lot foreign construction workers?

There are two issues with this approach.

  1. Convincing foreign workers to come to Ireland at a time when rent prices are high can be difficult. Think about it. Why would someone move to Ireland to earn extra money if they know that most of that extra money will be going towards rent? They could share with other workers, but that living arrangement might not be an attractive proposition.
  2. If you bring in 5,000 foreign workers, that’s 5,000 extra people who need places to stay. i.e. You have increased the demand for rental properties at a time when there is a limited supply.

Why can’t the Irish government just freeze rents?

Rent controls sound absolutely great to voters. However, they can have severe and long-lasting consequences.

“Rent control appears to be the most efficient technique presently known to destroy a city – except for bombing.”

– Swedish economist and housing expert, Assar Lindbeck.

The problem with rent controls is that they can drastically reduce both the supply and the quality of rental properties. This is because you are making it less attractive for property owners to rent out their houses and apartments.

As a result:

  1. Existing landlords will be more likely to sell their properties and leave the market.
  2. Potential landlords will be less likely to invest in rental properties.

Above, we mentioned how the country is in a race to catch up with the demand. Well, introducing rent controls is kind of like taking out a gun in the middle of that race and then shooting yourself in the foot.

Rent controls can cause landlords to leave the market.

Take the following example.

You need to build 600 houses in order to satisfy the demand for rental accommodations. Currently, there are 3,000 properties on the market. However, you need to get that figure up to 3,600.

In a year, you can build around 250 houses. This means that if everything goes to plan, you will be able to satisfy the demand in just over two years.

However, you decide to bring in rent controls. As a result, 20% of existing landlords decide that they would rather just sell their properties and leave the market. In their eyes, renting is no longer worth “the hassle” or “the risk” of having to deal with a bad tenant. They are happy enough to just sell their property off to a private buyer.

20% of 3,000 is 600. This means that there are now only 2,400 rental properties on the market.

Consequently, you now need to build 1,200 homes instead of 600 in order to reach that 3,600 target. To make matters worse, landlords can leave the market much faster than you can build new houses.

As a result, it will now take about five years to fix the supply issue instead of two.

A rent freeze will help some people in the short-term while hurting everyone else over the long-term.

Rent freezes help current renters in their current properties.

However, because they reduce the supply, it means that there are far less rental properties on the market.

Take the following example.

Bob is renting a house for 1,500 a month. The current rent freeze means that his landlord cannot increase this price for another three years. This is good for Bob.

Bob’s sister cannot move out with her boyfriend.

Bob’s younger sister Emily is 22 and she wants to move out of her parents’ home and find a place to live with her boyfriend. However, because rental properties are so few and far between, she is unable to find a place.

Bob’s cousin cannot move back home to Ireland.

Then, you have Bob’s cousin Mark, who is currently living in London. He wants to move back to Dublin so that he can live closer to his family. Unfortunately for Mark, he is unable to find an apartment.

Bob’s company is unable to find skilled workers.

A year passes by and the multinational company that Bob works for announces that it will be “scaling down” its Irish operation. The company has been struggling to find skilled workers for its Dublin office because of the rental situation.

They had agreed to hire Joe from Cork and Manuel from Brazil but those job offers fell through after they were both unable to find suitable accommodation in time.

Bob cannot move closer to his new job.

Bob, knowing that he is about to lose his job, quickly applies to another company on the other side of Dublin. Luckily enough, his application is well-received, the interview goes great and he is offered the position.

After two or three weeks of trying to find a house closer to his new job, Bob gives up and decides that he will just suck it up and do the commute. It will take longer, but at least he will still have a job.

Bob’s landlord decides to sell the house that he is currently renting.

Three months later, Bob receives a phone call from his landlord Mary. Unfortunately, she plans on selling the house that he is currently renting. As a result, he will have to leave in two months time.

Unfortunately, this puts Bob in a stressful situation. He must now try and find a new place in a rental market where properties seem to go just as fast as they are listed online.

That, or he will have to ask his parents if he can move back home.

Although this is a worst case scenario from Bob’s perspective, it does highlight how people’s movement can be severely restricted when rent controls are in place.

Who is to blame for the housing crisis in Ireland?

Ultimately, Fine Gael are to blame. I mean, they have been in power since 2011 and they failed to see it coming. It was their job to predict something like this. The buck has to stop with someone.

Labour should also shoulder some of the blame, as they were the junior partner in government between 2011 and 2016.

Fianna Fail cannot be let off the hook because they oversaw the housing bubble that burst in 2008 and decimated the construction industry. They also supported the Fine Gael minority government that was in power between 2016 and 2020.

The opposition parties and the experts should also get some sort of mention. Although they had no direct influence over the crisis, they weren’t exactly quick to predict it either. By the time they started to scream about the situation from the sidelines, the crisis was already standing in front of our house, ready to kick the door down.

This is like shouting “Iceberg!” when the cruise liner is just seconds away from a collision.

Then, you have the NIMBY objectors and the politicians who support them in the hope of getting a few extra votes in the next election.

These are the kind of people who will complain about the homelessness crisis in Ireland and then object to one of the housing estates that would help solve it.

As you can see, there is plenty of blame to go around.