We should not make high rents and high house prices the new ‘normal’.
Speaking at the urban land institute conference in Dublin on the 19th of October Conor Skehan, the chairman of the Housing Agency is reported (by Irish Times) to have stated that:
“Our housing crisis is completely normal. Every country in Europe has equivalent issues in terms of affordability, in terms of homelessness, in terms of the appropriateness of the mix”
He further is reported to have said;
“We are at the end of a classic five-year period, which occurs at the end of a housing crash. The first two years are stopping to work out has the actual building finished collapsing around us”
“We are exactly at year 41/2 of that five-year period. Year 21/2 is always characterised by the sense there will never be any more housing. This is the period when governments panic, when policymakers panic; this is the period where plans are put in place that produce the next downwards cycle…. The thing that causes oversupply begins right now- the financial incentives, the loosening of credit terms, the expansion of planning capacity, begins right now at year 41/2”.
Yes, true, property has cycles. But, there is a long run pattern that is presently not for turning and that is the movement and relocation of people from rural areas to cities. Ireland's rent index is higher than it was in the pre-bust 2008 period and house prices are quickly returning to the heights of the pre-bust 2008 period. The average house price is over 6 times household income. In contrast, from the period 1988 to 1995 the average house price was 3.6 times household income.
Yes, similarly, housing affordability is bad in cities across Europe. But, there is nothing normal about this phenomenon, rising house prices are primarily being caused by huge population adjustments from rural to urban areas alongside unadjusted land policies. Population in urban areas is on the up and income in urban areas is on the up. The variable not changing is the fixed state of land. And yes, nearly all countries are experiencing this. But that cannot be a justification for continuing with the status quo with respect to land policies. Otherwise, we will be accepting rising housing affordability problems indefinitely as incomes increase, or at least until a tipping point of no return emerges.
We should not make high rents and high house prices the new ‘normal’ and an indefinite problem. Otherwise, let’s fast forward a decade and we will have the even more pronounced affordability problems of Greater London, Sydney, Stockholm or Brussels. Which will be even more problematic in another decade and the decade thereafter. When will the tipping point happen? We are in the period of expensive cities! Development Land in cities is scarce and monopolised. Those without, will pay high prices. Presently, this is the millennial generation.
We need to quickly change (not wait decades for governments to actually realise the fundamental drivers of this problem) the incentives around land ownership (LVT please) and our planning approach to alleviate this unnecessary growing issue. Yes it is unncessary and there are solutions. Otherwise, the millennial generation will be transferring the profits of their labour to the older generation for decades and the generation thereafter to their generation and so on. And, the banks will continue to benefit from ever larger mortgages and longer repayment periods. The ultimate challenge is getting the government to react and make the necessary changes. They need to heed the message.
As Kenneth Boulding (1956:8) in his book 'The Image: Knowledge in Life and Society' stated on the problems of messages getting through to people (their image of the world): "our image is in itself resistant to change. When it receives messages which conflict with it, its first impulse is to reject them as in some sense untrue.”
It therefore could take a very long long time…..