Cliff Taylor: The Government is about to go really big on housing

The Government is about to bet the house. Or rather to bet its political future on housing. The new strategy plan for this most thorny of problems, to be published later this month, is not going to hold back. There will be big money and big targets as the Government parties try to address this area of maximum political exposure, one where Sinn Féin has been making much of the running.

The plan is being drawn up by Minister for Housing Daragh O’Brien, but it is clear that the Department of the Taoiseach is having a major input. And in turn Micheál Martin’s support – and his view of the vital position of housing in the coalition’s future – is driving a lot of this. While the finishing touches have still to be put to the strategy, the target numbers will be big – across the board. Very significant additional State resources will be committed.

This is all driven by the clear view in Government that housing is the vital political issue, and the key reason why Sinn Féin have been gaining in the polls. The loss of the Fine Gael seat in the Dublin byelection – and the poor result for Fianna Fáil – will only add to the political impetus.

Normally incumbency in office gives an advantage as government can “do” things. But in housing – given the long lead-time and the complexity of the issue – this can be a problem too. Sinn Féin and the other Opposition parties can claim they would do a better job and would get things done more quickly.

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Whether anyone could in fact quickly increase housing supply to 35,000-plus is debatable given the problems in areas like planning and industry capacity and the troublesome economics of the sector. But this is the Government’s big attempt to try.

We will have to see how this fits alongside another document to be published shortly, the Summer Economic Statement from the Department of Finance. This will set a targets for the budget deficit for next year and beyond, designed to be a brake to ensure that the public finances do not spin out of control.

Choose to allocate more to housing and less is left for other areas. Or taxes can rise, but as Tánaiste Leo Varadkar is talking about cuts in the tax burden, then that won’t be popular either.

Meanwhile significant extra spending in areas like climate change are also likely in a revised National Development Plan. To say it is not clear how this can all sit with a falling budget deficit is to state the obvious.

Tensions

There are real tensions in Government about this, not only between parties but – it seems – within them. Fine Gael's Paschal Donohoe and Fianna Fáil's Michael McGrath, the two budget Ministers, will argue for prudence. The rest of the Cabinet will want the housing plan and more cash for their own departments. If the ESRI says it is okay to borrow for housing, the argument will go, why not borrow for other stuff too ?

Housing must , of course, be a priority. But it won’t – can’t – be fixed quickly. A fundamental goal of any plan must be to get behind why housing supply was so slow to respond as economic growth boomed before Covid. If these problems are not addressed then billions may be spent without getting the required result.

A key issue is the cost of building, particularly of apartments. Economist Ronan Lyons has argued for some years that it is vital to discover exactly why costs are so high here. People talk about developers and builders " cashing in" – and I'm sure some do. But the real mystery of the housing market in recent years was why a lot more houses were not built. If there was "cashing in" to be done, in other words, the industry was making a bad job of it.

It seems a particular focus of the plan will be getting more apartments built. The industry has complained that it is not economic to do so now at a reasonable cost – requiring developments to be pre-sold to funds and then rented out at very high cost. It looks like some more State subsidies or tax breaks are coming down the line here to close the affordability gap. We saw, during the boom years, how badly designed subsidies and tax breaks can lead to unintended consequences. Danger here, as George Hamilton would say.

It makes sense to have a housing strategy and to make this a national priority, in the way dealing with Covid-19 was. The danger is that political pressure turns it into an exercise in throwing paint at a wall and hoping enough of it will stick. That turns it into an exercise in adding yet more schemes and incentives to the bewildering mixture which is now evident in the market, some helping, some distorting, some working against other ones.

Tax breaks

Just look at the row this week over tax breaks for institutional landlords renting to local authority tenants. It would make much more sense to use much of the money spent on these schemes to build local authority accommodation. But right now families on local authority lists need a place to stay – and so the cycle continues. Putting in place fixes which will take a few years to work are not a strength of our political system.

The problems in getting building “done” need to be sorted – the cost, the planning delays, the incentives for land use, the conflicting schemes and incentives and the lack of capacity in the sector.

If the new plan makes a genuine attempt to address these key constraints then it could lead to progress. If not, if it is another mix of new schemes, incentives and tax breaks, it will be just another housing plan which is doomed to fail.