My IT article: The state should be building new houses not buying existing ones

Brendan Burgess

Brendan Burgess

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www.irishtimes.com

State should be building houses and not buying existing ones

The only way we can reverse the decline in home ownership and avoid turning the country into a nation of renters is to engage in a massive social housing building programme
www.irishtimes.com www.irishtimes.com

In 2021, the State bought or leased 4,845 existing houses. While some were second-hand houses, most were newly built by developers for sale to private purchasers – usually first-time buyers. But the State moved in and bought them instead. In the same year, the State built only 4,283 units.

When the State builds a new house, the overall supply of housing increases – one extra family gets a home and the housing crisis is eased a little.

But when the State buys or leases a house which already exists, the overall number of houses in existence does not change. The same number of homes exist the day after the State buys a house, as existed the day before. The same number of families have homes the day after, as had homes the day before. The purchase of an existing house does not ease the housing crisis one iota. Instead of spending billions each year buying up houses, the State should spend that money building new homes.
 
Your point is totally right. However, with all the attention on evictions, security of tenure etc the government has to be seen to deal with it now rather than the years and years it would take for the state to build the social housing. The quickest way is for the state to fund LA's to purchase social housing now to deal with the avalanche of criticism and put themselves in a better position come the next election (that's how democracies work). However, those who will benefit will more than likely credit the Opposition rather than the government. The government's own base will see it as caving in to populism.
Also, if the state was to build the large number of houses required, it would be competing with developers for the required construction workers. When the state gets heavily involved in a market it pushes up costs. The state would have to increase the supply of construction workers quickly and this would mean attracting in large numbers of skilled workers from abroad. The state would have to find accommodation for these workers.
You're absolutely right to say that those people looking to buy and being priced out by state induced house price inflation, have no strong voice advocating for them. Perhaps you should take on that role. As it stands, the negative publicity of people being evicted or facing no fault eviction has a much greater impact on government policy than newspaper articles highlighting the high percentage of young and youngish people still living with their parents. The right flank of the government is vulnerable should this cohort find a good advocate. You interested?
 
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Excellent article, Brendan. Nail on head, and makes more sense than all opposition and government spokesmen/women combined.

I would suggest that government build houses via PPP structures or competitive mass tender rather than setting up a state construction company. Can you imagine - a HSE style organisation for the building industry? :D
 
No one who really understands the construction industry thinks a state construction company is viable. Apart from the shortage of builders and the fact that you would be just moving this limited resource from the private to the public sector, construction is much more specialised nowadays particularly high density construction. This is one reason for all the subcontracting - you have different companies doing the foundations, doing the steelworks, doing the scaffolding etc etc.

The problem the government face is building from scratch is slow. A friend who works in the public sector told me that between land purchase, environmental surveys, planning, tendering for architects, tendering for builders and finally building the minimum timeframe to build an apartment block in an urban area is 4-5 years. That is assuming no one take a judicial review against the planning, but not including getting approval for the spending from the civil service which could take anything between six months and 2-3 years. This funding approval can be done concurrent with the planning but for building from scratch is far slower, because if tender prices come in higher than expected you have to go revise the approval to reflect this.
 
Mocame said:
No one who really understands the construction industry thinks a state construction company is viable. Apart from the shortage of builders and the fact that you would be just moving this limited resource from the private to the public sector, construction is much more specialised nowadays particularly high density construction. This is one reason for all the subcontracting - you have different companies doing the foundations, doing the steelworks, doing the scaffolding etc etc.

The problem the government face is building from scratch is slow. A friend who works in the public sector told me that between land purchase, environmental surveys, planning, tendering for architects, tendering for builders and finally building the minimum timeframe to build an apartment block in an urban area is 4-5 years. That is assuming no one take a judicial review against the planning, but not including getting approval for the spending from the civil service which could take anything between six months and 2-3 years. This funding approval can be done concurrent with the planning but for building from scratch is far slower, because if tender prices come in higher than expected you have to go revise the approval to reflect this.
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I don't know. The vast majority of the housing estates w the usual 3-4 bed semi's that have sprung up over the last few years seem to be build the same way as their 70ies brethren, give or take MHRV and external insulation.

I am genuinely wondering how in cities like Vienna or Berlin non/low profit building societies can still build apartments (also for social housing apparently) significantly cheaper than we seem to be able here in Ireland.
 
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Part of the difference can be explained by NI not charging VAT on new builds. We could do likewise at the stroke of a pen. Not an EU/Brexit thing either, it's always like that for decades.
 
NoRegretsCoyote said:
VAT is still charged on the materials though so the price difference won't be as big as you think.

It's not a magic wand.
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Perhaps not but every little helps. Also, and I'm not sure of the details about how this works, but if you self build.in NI you can get a refund of VAT on the construction materials. I personally know people who've done this. Not a VAT expert but I presume builders can do likewise.

Goods and services you can claim for under the VAT DIY Scheme

Find out which items you can or cannot claim a VAT refund for under the DIY Housebuilders' Scheme.
www.gov.uk www.gov.uk
 
Right Winger said:
I personally know people who've done this. Not a VAT expert but I presume builders can do likewise.
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Again not an expert but under EU law I don't think this is possible.

But we are talking 2% and 3% here. The North/South differential in building costs is ten times this easily and there are clearly other, larger structural factors at play.
 
I've said many times on this site that it should be against the law for the State to buy a home that is in private ownership. It is appalling that first time buyers are being priced out of the market with their own taxes.

newirishman said:
I don't know. The vast majority of the housing estates w the usual 3-4 bed semi's that have sprung up over the last few years seem to be build the same way as their 70ies brethren, give or take MHRV and external insulation.

I am genuinely wondering how in cities like Vienna or Berlin non/low profit building societies can still build apartments (also for social housing apparently) significantly cheaper than we seem to be able here in Ireland.
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We are on an island so that makes everything a bit more expensive.
We are a small country so that also makes things a bit more expensive.
The construction sector internationally is inefficient and needlessly labour intensive. The Irish construction sector is particularly so. That's the main reason that build costs are high. Then there's the costs added due to high land prices, high legal and professional costs, and expensive financing all compounded (literally) by planning delays.
 
@Julius @Right Winger @Mocame @newirishman @Protocol @NoRegretsCoyote @Purple
@Brendan Burgess article raises some important issues that need to be discussed.
  1. He says: "We are quickly turning ourselves from a nation of homeowners to a nation of renters". Can we reverse this trend, and if we can't then can we develop a rental sector that significantly reduces "the uncertainty of high rents and lack of security of tenure"? It seems like the government has the solution. It is making the taxpayers fund the purchase of expensive houses and apartments in high demand areas and offering them at low rents with security of tenure to people on the social housing ladder.
  2. The state is buying up more houses, mainly new builds, than they are building and offering these to people on the social housing list. Basically, Brendan's point is that the state is discriminating against first time buyers in favour of those on the social housing list. So first time buyers have to look at buying houses in places where they will have long commutes to work, whereas those on the social housing lists are being offered homes within these areas. Apart from the unfairness of buying social housing in high demand areas and effectively forcing first time buyers to buy far away, it raises for me the question of reviewing how LA's determine who is allocated a place on the social housing ladder. Why is it that social housing tenants can get homes close to their family and friends whereas people buying or renting in the private market have to move far away from their families? What criteria are used by the state when deciding who is entitled to social housing?
  3. "Why would local authorities buy the most expensive development land in the country and not where land is cheaper and where they could house far more families for the same money?" I'd love to hear the government give an answer to this but I doubt we'd get an honest answer.
  4. So we're now in a situation where a small landlord stuck with a low rent in a RPZ with a not so good tenant will grab the opportunity to sell to the LA. The tenant will have queue jumped the social housing ladder and have tenancy for life on a low rent. As Brendan asks: "Why do we tolerate this lunacy?"
 
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Prosper said:
The state is buying up more houses, mainly new builds, than they are building and offering these to people on the social housing list. Basically, Brendan's point is that the state is discriminating against first time buyers in favour of those on the social housing list.
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No, the point is that the State is spending the money buying an existing house that could and should be spend building a new house. It is a shocking waste of public money and does absolutely nothing to address the housing shortage and affordability issues we have.

It would be a better use of Public money to just spend that money in on HAP. The same money would rent a property for 20-30 years, taking the State's cost to manage and maintain the property into account.


The State bought 4845 homes in 2021 and the average cost of a house is €360,000 but I assume that the State is buying at the lower end of the market so assuming an average purchase price of €320,000 that's a total spend of €1.550 billion.

The average rent for new tenancies in 2022 was €1460 per month or €17,520 a year. That means, excluding the cost of maintaining the properties they bought, and we know that will be substantial, the State could pay the full rental on around 100,000 extra properties instead of buying 4845 of them.
 
Purple said:
No, the point is that the State is spending the money buying an existing house that could and should be spend building a new house. It is a shocking waste of public money and does absolutely nothing to address the housing shortage and affordability issues we have.

It would be a better use of Public money to just spend that money in on HAP. The same money would rent a property for 20-30 years, taking the State's cost to manage and maintain the property into account.


The State bought 4845 homes in 2021 and the average cost of a house is €360,000 but I assume that the State is buying at the lower end of the market so assuming an average purchase price of €320,000 that's a total spend of €1.550 billion.

The average rent for new tenancies in 2022 was €1460 per month or €17,520 a year. That means, excluding the cost of maintaining the properties they bought, and we know that will be substantial, the State could pay the full rental on around 100,000 extra properties instead of buying 4845 of them.
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The issue goes deeper, the State decided to encourage REITS and vilify small landlords. When this backfired on them (and is continuing to do so) they then decided to purchase properties.
They don't want to build council estates for fear of the anti social issues and their inability/reluctance to deal with it. Rather they want to disperse social housing among private housing with the corresponding premium for doing so.
While the average rate maybe what you quote with the vast majority of private landlords are paying the higher rate of income tax so your fig of 100,000 extra properties is closer to 200,000 if you consider have of the rent paid goes back to the State in the form of income tax.
 
Am I wrong is saying these guys have 4000 resi units and the Value of the company is 540million. That's 135k per unit, could a government housing body not step in, in the event they are going private???
 
Designjet said:
Am I wrong is saying these guys have 4000 resi units and the Value of the company is 540million. That's 135k per unit, could a government housing body not step in, in the event they are going private???
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I can't get my head around that. Are they leveraged so that 135k represents their average net equity?
 
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