Through the looking glass

Posted by: Jules Birch

19/08/2010

Financial meltdown? Check. Housing market boom and bust? Check. Housebuilding halt? Check. But the housing crisis in Ireland is very different to the one on this side of the Irish Sea.

If our planning system can be blamed for exacerbating the long-term under-supply of new homes, theirs led to a development frenzy that produced an over-supply of homes (as well as offices, shops and hotels) in almost all parts of the country.

Between 1996 and 2005, at the height of the Celtic Tiger boom, the Irish built 550,000 new homes, an average of 55,000 homes a year.

Taking the relative populations into account, that’s the equivalent of England building more than 600,000 a year. Only Spain built an equivalent number of homes per head and that was helping to satisfy apparently insatiable demand for holiday homes.

Over the same decade the population rose by only 350,000 - making a huge surplus inevitable. And yet between 2006 and 2009, the Irish built another 250,000 homes.

According to a recent report by the National Institute for Regional and Spatial Analysis (NIRSA), there are currently 300,000 empty homes in the country and more than 600 ‘ghost estates’ of new homes that are more than 50% empty or unfinished. 

Incredibly, the counties with the most vacant stock in 2006 went on to build the most new homes - often encouraged to do so by tax incentive schemes. 

In the absence of a way to move those empty homes this side of the Irish Sea, the solutions to the country’s problems are far from obvious but the NIRSA team say they have to start with substantive change to a planning system that was driven by the demands of developers and speculators and ambitious, localised growth plans. 

The results of the speculative bubble were even worse than over here. A state-owned asset management company has acquired £88bn of property debt. Banks were reacpitalised or nationalised with public money.

By the end of 2009, house prices had fallen up to 40% from their peak. Meanwhile, severe cuts in public spending have led to rapidly rising unemployment. NIRSA says there needs to be an inquiry into a planning system riddled with peverse incentives and cronyism to match those already carried out on financial and banking regulation. 

But Ireland could take years to recover from its planning mistakes. Nationally, there is enough excess land zoned for housing to last 17 years and despite the empty homes developers continue to build new ones - 11,000 over the last 15 months. By head of population, that’s still the equivalent of the 100,000 that England managed last year.