The Housing Crisis and models of Public Housing

In the past week, homeless figures in Ireland have broken the politically toxic 10,000 mark. In reality, the number of homeless people has been far in excess of 10,000 for quite an extended period, but has been kept depressed through the government redefining homelessness. The number of people deprived of housing goes into the hundreds of thousands, and is something felt acutely by younger working class people in particular.

On the back of this years-long crisis in housing, Dublin City Council and the Housing Agency are beginning to look towards Vienna’s approach to public housing as an alternative to the thoroughly neoliberal model used in Ireland. CEO of the Housing Agency, John O’Connor, said “there is much to learn from our European counterparts and from Vienna, in particular”, with deputy chief executive Brendan Kenny praising the model as “living proof that demonstrates how providing high quality, affordable housing is the basis for an inclusive, thriving, healthy society”. A shift towards a more Austrian style public housing model ought to be welcomed, but what does that actually mean?

Public Housing in Ireland: A Brief Overview

Housing provision in the past number of decades has been done overwhelmingly through the private market. In the early-to-mid 20^th century, public housing builds were the dominant form of housing provision in the state, and accounted for roughly 65% of total housing output at its peak during the second World War. By 2000 this fell to 6% and by 2015, and accounted for less than 0.01% of total builds in 2015. Concurrently, successive Irish governments engaged in a mass privatisation of local authority housing, selling roughly 230,000 units of it’s 330,000 total housing stock.

Source: Department of Local Government and Housing

The decline of public housing, along with a population growth in the same period of roughly 61%, indicates a near complete shift towards a market-based model of housing provision. The result is that the corresponding increase in demand has been left largely to the private market to satisfy – this took on a particularly sharp character in Ireland’s period of strong economic growth from the 1990’s up until 2008, with housing prices for new builds increasing by 451%, despite construction costs only increasing by 208% in the same period.

The departure of the state from the housing market has had a negative effect, with large property developers making supernormal profits in absence of a competitor that would undercut their prices. However, these numbers should not be taken in isolation. Given the long term decline of public housing provision from the 1970’s onwards, it seems unlikely that it is the sole contributing factor in this increase in housing prices. Other contributing factors, such as the migration of populations from rural Ireland to urban centres in search of employment and third level of education, the establishment of branches of multinational companies in Ireland, the usage of property as a means of speculation, lax banking regulations and labour costs are all likely central factors in the rapid increase in housing prices.

Public Housing and the Irish Property Bubble

The supply of land is ultimately fixed and therefore vulnerable to externalities. At the same time, housing demand is essentially inelastic, due to the fact that everyone needs a consistent level of shelter to some degree. A consequence of these factors means that even when the private market is operating at near maximum efficiency, there will always be a sector of the population unable to afford access to housing. As a result, the need for state intervention into the market for socially efficient outcomes is essentially indisputable.

Under Part V s.96 of the Planning and Development Act, 2000, private property developers may be expected to contribute a section of their housing builds to social housing under the relevant local authority. This presents two core issues; Pegging the construction of social housing to the construction of private, for-profit housing results in a public housing supply which is pro-cyclical – that is, when the economy is growing, more houses are built in the private sector and therefore there is a greater supply of public housing stock. However, the demand for public housing typically increases in a counter-cyclical fashion, when the economy is in a downturn and fewer private houses are being built, and people are unable to afford housing on the private market.

Source: Department of Local Government and Housing, Department of Public Expenditure and Reform

In this regard, rather than act as a price stabiliser in the event of an economic downturn, the Irish model of public housing provision contributed to the property bubble by basing the increase of its housing stock largely on negotiations with private developers who were already seeking planning permission for their own projects. In addition to this, the focus of the Irish state has been on demand-side subsidies (such as rent supplement) based on means testing and allocation to only some of the lowest income sections of the population, who would otherwise not be able to afford private housing anyways. This has meant that the private for-profit housing market was not in competition with the public sector, and as such, there has been little to no moderating effect or downward pressure on prices in the private housing market as a result of public policy.

The Austrian Model

In contrast with the Irish model, the Austrian model of public housing provision is based on supply-side stimulation; Instead of buying housing stock from private developers, housing is directly built either by state authorities or by third party Limited Profit Housing Associations (LPHAs) which receive subsidies from the state. 62% of residents in Vienna are in publicly provided housing, with the median rent taking roughly 30% of an individual’s income, compared to around 55% for a typical Dublin resident. Roughly a third of housing output is publicly provided, indicating a creeping shift towards market-dominance of the total housing stock, but this is still at a rate vastly higher than most other jurisdictions.

The “Austro-Keynesian” approach lead to an increase in public housing builds in the wake of the global economic crisis with a 10% increase in public housing builds helping to mitigate the 21% contraction in the private housing builds, as opposed to Ireland which saw a sharp decrease in builds across the board.

Source: European Mortgage Federation

The result of this counter-cyclical, supply-side approach to public housing, is that house prices remain relatively stable in Austria, compared to Ireland. The lynchpin of the Austrian model appears not just to be direct state-funded housing builds, but the LPHAs which use state subsidies to leverage long term commercial banking loans at low interest rates, made possible due to tight regulations of LPHAs making them reliable debtors. The various sources of funding for LPHAs enable them to engage in housing builds and low-cost provision which consequently depresses market rents and drives down the cost of housing generally. By offloading much of the legwork onto LPHAs, this has enabled the Austrian state to minimise its expenditure on housing to 0.9% of its GDP, compared with the UK (2%), France (2.2%) and the Netherlands (3.7%).

Limitations

The Irish model of housing provision highlights the potential dangers of a demand-orientated model in exacerbating potential property bubbles, whereas the Austrian model poses an alternative approach which yields price stability even in the midst of severe fiscal crises. However, the Keynesian model (and certainly the neoliberal model) has not sufficiently challenged the issue of private ownership, which is inherent in any market based provision for housing and the root cause homelessness.

So long as private ownership remains a key element within the housing market, the supply will be provided based on profit maximisation as opposed to social need. The ongoing crisis of supply in Ireland is a product of that process – a government unwilling to direct state investment into the housing sector, but also an economic model which sees housing fundamentally as a commodity. 

It would be a positive to reform our public housing model towards a more Vienna-style model, but doing so will require mass housing builds and challenging private developers and landlords. There would need to be a struggle in society, through the form of street protest, rent and mortgage strikes, occupations and so on. We would need the expropriation of vacant properties currently left idle for the purposes of property speculation, the establishment of a state construction company on the basis of democratic public ownership to ensure secure employment and the removal of the inefficiencies of the cost added by the profit overhead of private companies, and the mass construction of public housing provided on a cost-rental basis.

A socialist housing policy would be environmental, sustainable, planned, and affordable, in stark contrast to the costly and unsustainable anarchy of the private market.