The recent general election in Ireland has left a rather divided political scenario wherein no party has reached the required majority to form government. While the pertinent talks and negotiations to make a coalition take place, voters gaze on helplessly and ponder what kinds of policies their votes will eventually enable. Amid the whole spectacle, special attention is given to proposed policies for housing, given the current crisis the sector is experiencing. Not without reason, since this is one of the main concerns in Ireland at present.
Soaring prices have made accommodation unfeasible for most young (and not-so-young) people, be it rented, purchased or built. And the cries for so-called “fair prices,” both from voters and politicians, evidence a lack of understanding of what a price is. Perhaps still crippled by the labor theory of value and its derivations, some tend to think of a price as an a priori characteristic of an asset that depends on the work necessitated for its manufacture. (Surely, a house now is the same as a house five years ago, and they should cost the same.)
In reality, a price is a signal that informs us of the scarcity or abundance of an asset. Simply put, if prices go down, that informs us that there is a greater abundance of that asset and/or less demand for that asset (all things being equal). Likewise, when prices go up, there is a scarcity and/or increased demand and resources should be attracted to produce that asset, which would likewise tend to push prices down. Imposing a price on a good by legislation which is artificially below its actual market value always involves someone else paying for the difference, as well as misallocation of resources and consequent scarcity.
Essentially it all comes down to the basic supply and demand curve, and there are multiple reasons why demand is skyrocketing whilst supply is somewhat stagnant. Cultural shift plays an undeniable role; as the Irish institution of the traditional family is gradually eroded, more people need to be housed individually. Still, on the cultural note, there seems to be an underlying popular animosity towards owners who have the vision to adapt their rented properties to meet increased demand (“slum landlord” is a moniker I heard frequently in Dublin). This is hardly a clever strategy at a time when we need more creative entrepreneurs to bring new ideas into the market.
The government’s peculiar policy of state-subsidizing hotels to host refugees is also creating a shortage of tourist accommodation that drives many private properties to fill in that niche, shifting houses from the long-term rental market to the more profitable short-term tourist one. Rent caps always cripple the rate of entry of new properties into the rental market.
The most defining factor, however, is the dramatic demographic surge that Ireland is experiencing recently, with a net migration (immigrants minus emigrants) of some 80,000 people over the last year alone and between 40,000 and 50,000 annually over the previous years (with a population of over five million). These are trends that the government expects to maintain or even increase. Immigration as a method of population increase normally entails more commotion than the natural method of natality, where people join the market in a more gradual and organized manner, and they can rely on support from their families.
This ever-tense market rendered recent interest rate hikes ineffectual (whereas their effect was felt in other countries) and it does not offer much hope of stabilization any time soon. To maintain somewhat stable prices we need to either try to reduce soaring demand for houses or match it with an increased supply. The Irish government seems hellbent on continuing inflating artificially that demand by importing legions of new entrants in the market (the reasons I leave for others to elucidate), so the solution has to come from the other side.
Ireland will, therefore, have to up her game and propitiate construction of new homes, both from individuals and property developers. As anyone who has tried to build a house in Ireland will know, however, the sheer number of regulations one must comply with and strict planning permission rules, coupled with rising building costs due to price inflation, taxation, and other nefarious measures (like green policies or minimum wage), makes this endeavor nigh unattainable for the majority. Not to mention the irrational phobia of regulators against affordable alternatives like timber houses.
As a Spaniard living in Ireland, one of the things that first strikes me when I go back home is the imposing urban architecture of Spanish towns and cities. After gently strolling through the streets of Dublin or Cork—with their Georgian houses of no more than three or four stories, terraced houses and housing estates—I feel overwhelmed by the towering blocks of flats that constitute the backbone of Spanish urban architecture. Spain underwent a rapid industrial and economic development in the 1960s that necessitated a quick turnaround of new and affordable accommodation for the multitudes of rural dwellers seeking better opportunities in towns. And so, aesthetics were sacrificed for the sake of functionality, and unsightly apartments gradually replaced traditional dwellings throughout most of the national geography.
Much as I abhor these brutalist monstrosities, they are one of the main reasons why—compared to Ireland—housing accommodations in Spain has managed to remain more or less affordable throughout the ups and downs of crises, recessions, property bubbles, and other vicissitudes (bar high-pressure zones in some big cities). Rapidly-growing cities invariably have to start growing vertically rather than laterally at some point. If Irish people want the population of their country to continue increasing inordinately—much to my chagrin—traditional quaint architecture will have to yield to more functional and economic flats.
In any event, Irish people need to be given freedom to resolve their housing issues without coercion. The market should be deregulated and money being given back to them by tax cutting. A freer environment and less government intervention would propitiate new houses built where and when needed by developers, new properties entering the rental market, and many more people being able to afford building their own house on their own terms.
The calls from Sinn Féin and other luminaries for public housing and government plans to deliver houses are nothing short of a bad joke. Pretending that the government—the main culprit of our current predicament—should intervene to solve the very problem they initially created bespeaks an unfathomable level of naivety in the best case, or malevolence in the worst. Obliterating the hotel industry, while penalizing Airbnb lettings, or pushing up the cost of self-building with relentless regulations and taxes while prohibiting inexpensive alternatives provided by the market, are but a mere sample of the kind of ignominy we can expect from the political class. No, Ireland does not need more state intervention to tackle this crisis; they have had enough of it. What they need is more liberty and respect for private property rights and less public intervention in societal affairs.
