Ireland is spending big on housing. So why is the sector still in crisis?

State spending on housing has shot up in recent years. An analysis in this newspaper counted €8.3 billion in State resources directed to housing in 2024, when State investment, day-to-day supports for people in accommodation and tax breaks and incentives are all added up. And this excludes some spending that is impossible to calculate – such as the subsidy to local authority tenants who pay below market rates, or the tax revenue foregone from excluding the family home for the calculation of capital gains tax. Add in spending in areas such as roads and water infrastructure, much of which is to enable houses to be built, and it is clear that the scale of the State commitment is huge.

International comparisons are difficult because of different housing systems, but OECD data suggests that the State has gone from being one of the lowest spenders on housing in the middle of the last decade to among the highest now. The most recent figures, for 2022, show Ireland in fifth place among 32 countries surveyed and, as spending as a proportion of GDP was the measure used and Ireland’s GDP is inflated by multinational activity, Ireland is probably a bit higher in the league.

There is an element of catch-up here, after investment was slashed following the financial crash. The supply of housing here is low by international standards, partly due to these years of underbuilding. Also, the sharp rise in the population in recent years, resulting from the strong growth in the economy, has been vital. Housing prices have risen as a result and are higher here, relative to incomes, than in most other countries.

Major State investment is appropriate, given the scale of the crisis and its social and economic implications. But clearly the huge problems in housing are persisting. Is this just the inevitable delay in making progress in an area where higher investment takes time to yield a result? Or could the money be better spent? This needs to be a major issue for the forthcoming general election debate, no doubt informed by the Commission on Housing report, which is understood to be with Housing Minister Darragh O’Brien and which will presumably be published before too long.

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The big picture – mind the gap

If we stand back, it is clear that State investment is justified because, left to its own devices, the private sector would not be able to deliver enough homes at a price people can afford. There are issues worth mining in to here – and again we might hope that the Commission on Housing will have some insights on why building costs here are so high and some proposals to help deal with this. Notably, lowering costs via the waiver on development levies and connection charges for builders – saving around €12,500 per house – seems to have been a factor helping supply over the past year. This waiver has now been extended for another year.

But there are deeper issues too. Builders complain about regulations. Planning is clearly too slow, though a change in approach last year and the ending of the Strategic Housing Development application process, under which developers applied directly to An Bord Pleanála, appears to have helped. There are significant delays between the Government apparatus and local authorities in approving schemes and freeing cash. All these delays adds to the cost – and, crucially, the risk – of development. That means finance can be hard to obtain, especially from Irish banks which were stung by the last property crisis and are thus loath to lend to the sector.

Yet even if costs can be reduced by cutting planning delays and other expenses, there is a viability gap to be filled in many areas of the market. Developers say that if the State were not effectively underwriting or supporting a lot of the apartment projects, they simply would not be built. And State investment is also central to the supply of social and affordable housing, via funding and financing for local authorities, approved housing bodies and the Land Development Agency. The State also attempts to close the viability gap by supporting house buyers through a range of schemes – and of course giving ongoing subsidies to those renting local authority housing, or in newer cost-rental properties.

Addressing the issues

Consider the huge range of supports now on offer. A typical apartment development is likely to be subsidised by the State – perhaps through Croí Cónaithe, which supports apartment building where developers can show a viability gap, or Land Development Agency supports for cost-rental apartments, or a separate State scheme that helps developers bringing forward cost-rental developments.

[ No bedroom and €2,000 a month: Why cost-rental is an alternative to private market ]

Developers building a housing estate are helped by the waiver on levies and often advance purchase deals from local authorities or approved housing bodies for social housing. They may borrow from Home Building Finance Ireland, an agency that borrows with a State guarantee. Or if it is an affordable scheme, it may be undertaken by an approved housing body for a local authority, funded by the Housing Finance Agency, whose borrowings are also backed by the State.

New home buyers will be assisted by the Help-to-Buy scheme and perhaps the First Home Scheme – under which the State takes an equity stake. If they can’t get finance from a bank, their local authority may give them a loan. The cost-rental tenants will pay a rent that is below the full market cost. Purchasers of affordable housing are helped to buy a property below market cost. State supports are everywhere, in other words. The question is whether the money is being well spent.

To the extent that it is supporting developments that would not have happened and helping people to access housing, clearly it is getting a social and economic return. But there are questions. The buyer supports – Help-to-Buy and the First Home Scheme – support demand and in a market where supply is short this is likely to leave prices higher than they would otherwise be. The patchwork of schemes and supports to boost supply are also having an impact – €5 billion plus in investment spending is bound to do so. But it has seemed to be one scheme on top of another as the Government tries to have an impact. A clear assessment is needed as to whether this money is being spent in the best way possible – and is forensically directed at the issues that are actually inhibiting housing development.

The general election debate will feature an argument about whether we should see more of the same, or whether change is needed. Housing has been the key focus of Sinn Féin, who we can presumably expect to publish a detailed plan on how it would progress, building on its earlier promises on boosting social and affordable housing. This will involve the Government taking an even bigger role in building on State and local authority land. The party has been clear that it wants to end the demand-side supports – Help-to-Buy and the First Home Scheme. How it proposes to do this will be interesting, as will whether it sticks by its plan to abolish the schemes immediately or opts for some kind of a phasing-out. And of course this could all be affected by coalition negotiations post the general election.

[ Housing ‘biggest issue by far’ in local elections as affordability ‘torn to shreds’ by Fine Gael, says SF leader ]

Changing course is not easy

As we have seen in the housing market, every decision has a trade-off and nothing is straightforward. Controls on rents help those in existing rentals, but seem to be a factor in cutting new supply for those looking for a place to rent, as landlords leave the market. State cash supports help buyers – and may encourage short-term supply – but new home prices have been rising by 9 to 10 per cent and development is being led by the schemes to locations on the edge of Dublin and in the commuter countries, where houses can be built at costs that qualify for the €500,000 Help-to-Buy limit.

And for the next government, whatever shape it takes, there will be an expectation of a new dynamic in tackling the crisis. But unwinding what is there already, or changing course, is not straightforward. Many home developments have been started on the basis of one or other of the schemes offered by the State to support developers, or on the expectation of qualifying for one. And an analysis of the Property Price Register – and developer sources – suggests that many housing schemes are based on the availability of Help-to-Buy – and in some cases the First Home Scheme – to underpin demand at certain prices. And there is no guarantee that doing away with the supports will lead to a quick fall in prices.

This suggests that a new or revised housing plan, depending on who is in power, needs to be carefully phased, with a focus on increasing supply at affordable prices of the right kind of housing. This does not mean that a plan can’t be radical. But there is no plan that will change things overnight, or even in a few months. The better news is that as of now the resources are available and the key task is to direct them properly. A lot of money is being spent and we need to see a really strong return.