Since I was a child, all of Ireland’s economic crises have been endogenous: the result of weak local management, poor politics and an unwillingness to confront local interests. A rentier class, living off the labor of others, includes most of these vested interests. While the global economy has been largely supportive, when we go wrong, we have only ourselves to blame. In the economy, Ireland is doing badly from within. With the current housing fiasco, we are jeopardizing an economy that generates opportunity and jobs, through our own stupidity.
Since the 1980s we have experienced two major economic crises which have come with the distinct ‘Made in Ireland’ brand. We lost an entire decade, 1977-1987, because the political class failed to run the shop carefully. At Garret FitzGerald, we had a leader who spoke the language of financial probity but ran the place like Juan Peron. In Charlie Haughey, a man of expensive Eva Peron tastes, we had a cavalier borrower, who came to his senses in the late 1980s, only after more than 100,000 people had already emigrated. One was a social democrat who behaved like a populist, the other a populist, period. In the days of the Celtic Tiger, the entire political class – from politicians to civil servants and central bankers – cheered happily as Ireland went from a country with one banking system to one with a linked country, giddy by the foolish belief that we could get rich by buying ourselves bits of Ireland with other people’s money.
If people get rich doing nothing and watch house prices rise, that’s problematic for a society because it rewards hoarding rather than production.
Today, a brilliantly innovative economy, perhaps one of the most dynamic in the western world, risks being undermined by another local failure: Ireland’s inability to provide housing for its people at a within reason. This is a political failure in which many of us are complicit.
It may seem counter-intuitive, but let’s start by looking at the wealth statistics released by the Central Bank this week. The data shows that the wealth of the Irish is increasing. You might be wondering that proof that you’re getting richer is a good thing? Yes and no. If we get richer because we produce more products to sell, are more innovative, and generate more revenue, with new or existing businesses winning in competitive markets, that’s good wealth. However, if people get rich by doing nothing and watch real estate prices rise, this is problematic for a society because it rewards hoarding rather than production. Rising housing wealth creates income and generational inequality and is ultimately a mirage, as we saw so clearly in 2008.
According to the Central Bank, the net worth of Irish households is now over €1 trillion, or nearly €200,000 for every man, woman and child in the state. That may sound good, but the problem is that most of that €649 billion is made up of real estate assets. There has also been a substantial increase in savings during the pandemic, which will be depleted. Digging a little deeper, we see that the value of private real estate increased by 95 billion euros year-on-year (YoY) in the first quarter – the highest annual revaluations on record. In total, real estate prices increase by more than 14% nationwide. Nearly 70% of total household wealth in the Republic is made up of assets. Additionally, as taxes in Ireland relate to labour, consumer spending and business rather than property, this wealth is not taxed and, more problematically, this means that inherited wealth now provides a lifestyle to “rich children” inaccessible to those who work and try to save. Inheritance “constructs” inequality.
Property drives a wedge between those who own property and those who don’t, between those who own houses and those who rent. It is a dangerous corner and, if left unresolved, it risks derailing the country. If the game is that the wealth of one generation is based on the looting of the generation that comes behind it, the game stops because the country is running out of young people with that kind of money.
Ireland needs to build and keep building. The solution to too few houses is more houses. No matter how you dress it, it’s the only way
We are already seeing homeownership rates plummeting among young working adults. The proportion of 25-34 year olds who own their home halved between 2004 and 2019 (60-27%). They just don’t have the income. They then compete with others in the rental market. And we know the story there. Latest Daft.ie update reports just 716 homes available to rent nationwide on August 1 – up from 2,500 a year ago.
Meanwhile, the number of evictions in the first half of 2022 jumped 58% from the second half of 2021, according to Focus Ireland. The nationwide average market rent was €1,618 (rising to €2,387 in parts of Dublin) per month between April and June, an increase of 3.3% on the first three months of the year and 12.6% more than last year’s figure. .
What is the solution ? Well, it’s not that difficult. It is necessary to intensify land use, speed up construction, penalize hoarding and promote the development of existing and potential sites. Planning for better land use means building denser communities. Above all, Ireland needs to build and keep building. The solution to too few houses is more houses. No matter how you dress it, it’s the only way. Nothing else creates houses, other than building additional houses.
A tax on the value of sites is essential: tax the sites, all of them – yours, mine and everyone else’s. Property creates wealth, but at the risk of sounding like the 19th century French anarchist Pierre-Joseph Proudhon, property is a form of theft, as rising house prices steal the future of hundreds of thousands of our knocked-out neighbors. Tax the sites and in a jiffy these unused sites will accumulate these buildings. We must encourage with huge, not small, incentives the redevelopment of abandoned sites and buildings. And we have to build social housing, subsidized by the public treasury – yes, we lucky ones.
Unless housing wealth is taxed and hoarding of unused land and homes is penalised, we can conclude that Ireland is not serious about fixing housing. Homes are a matter of dignity. Homelessness has to be the most stressful state imaginable, leading to all kinds of personal, family and societal trauma.
Each time the wealth of housing increases, the value of everything else decreases. Everything is connected. The worker is undermined, as the hoarder is rewarded. As house prices go up, the more you have to work to get that house, so the value of your labor goes down. Inflation in house prices means, arithmetically, deflation in everything else. You can only undervalue someone’s work for a while, until they say they’ve had enough. We are close to that. I can feel it, can’t you?