The article below is the second in a four part series that examines Fine Gael housing policy and answers some of the most common questions that people ask about housing. You can read Part One here. Parts Three and Four will be published on this website next week.
Government Housing Policy Explained - Part Two - Why The Government Won’t Build Public Housing
All housing experts agree that a fundamental shortage of housing lies at the heart of the housing crisis. There is simply not enough homes of the right type in the right locations for the amount of people that need them.
The private sector has shown itself to be unable or unwilling to build enough housing to meet this excess demand. So logically the state, which has the necessary land, finances, expertise and legal powers, should step in and build enough public housing to bring the crisis to an end.
But this isn’t happening. In 2018 the state directly built just over 800 permanent homes, when it should have built tens of thousands.
So why is the government not using the resources of the state to build the necessary public housing?
As discussed in Part One of this series, the answer to this question has been determined by the government’s policy of prioritising the return of ‘normality’ to the private banking sector.
This ‘normality’ requires the re-privatisation of the entire banking sector. In other words the state needs to sell the 71% of Allied Irish Bank, 14% of Bank of Ireland and 75% of Permanent TSB that it currently owns.
But it can’t sell these shares until there’s enough investors willing to buy them at an acceptable price - which isn’t the case at present.
The price that any potential investor is willing to pay for Irish bank shares is directly linked to the value of the loan books of those banks. The value of those loan books is, in turn, directly linked to the price that people are willing to pay for the houses, offices, factories, shops and other assets against which the loans were originally issued.
The collapse of the property market that began in late 2006 destroyed the loan books of the Irish banks. The tidal wave of negative equity that engulfed the housing and wider property sector turned once prized Irish bank shares into worthless junk.
Here we come to the absolute crux of the issue – the point at which the objective of returning the banks to ‘normality’ goes head to head with the government’s stated desire to ‘solve the housing crisis’.
The government wants house prices to keep climbing to make the loan books of the bank’s fat enough to draw in the investors that will buy their shares in AIB, Bank of Ireland and PTSB.
They want house prices to climb close to Celtic Tiger levels and above because a large portion of the current loan books of the banks are made up of Celtic Tiger-era mortgages.
Beyond that, they need a new generation of families to take out large new mortgages to further improve the loan books and future profitability of the banks.
At some point in the future, when the loan books are suitably fattened up and the ongoing profitability of the banks is assured, the government will be able to sell their bank shares and return the banking sector to ‘normality’. Or so the plan goes.
And this is why the government won’t build the public housing that is needed to end the housing crisis.
Building hundreds of thousands of public housing units would remove a similar number of families from the private rental and private home-purchase markets.
Providing people who currently rent in the private sector with affordable, secure public housing would cause private rents to collapse - a scenario which would leave many landlords unable to pay the mortgages on their rental properties.
Similarly, providing large numbers of people with the option of secure, affordable, public housing would dramatically reduce demand for over-priced houses and the new mortgages that are needed to buy them.
The net effect of providing hundreds of thousands of families with public housing would see private rents, private house prices and demand for private mortgages drop and the government plans to ‘normalise’ the banks holed below the water line.
Put simply, the widespread provision of public housing would undoubtedly solve the housing crisis by providing large numbers of people with secure and affordable homes. But by taking the heat out of the private rental and private home-purchase markets it would also undermine the government’s priority objective of returning the private banking sector to ‘normality’.
In 2008, when faced with the impending collapse of the private banking sector, Fianna Fail and The Green Party had to choose between protecting the interests of the banks and protecting the interests of the general public. They chose the banks.
When Fine Gael and Labour came to power in 2011, they too were faced with choosing between the banks and the people. They chose the banks.
Today, Leo Varadkar and his government are daily choosing to focus on solving a thirteen-year-old banking crisis instead of the housing crisis, because they can’t solve both.
Instead of building the public housing that would solve the housing crisis, the government is deliberately corralling families into extortionate private rental and overpriced private-purchase so as to artificially inflate the loan books and profitability of the private banks.
Judge the political establishment not by their weasel words about solving the housing crisis, but by their actions to protect the banks.
In parts 3 and 4 of this series we will show how other key elements of the government’s housing policy are designed to bolster the private banks as opposed to providing our people with secure, affordable homes.