Last week, I caught up with Sinead Donovan, the chairperson of Grant Thornton in Ireland and the incoming president of Chartered Accountants Ireland.
Donovan was thoughtful and frank across a wide range of topics – from shattering glass ceilings to the next generation of accountants to nearly walking away from her job more than a decade ago. The interview will go live on the site in the coming days, but, ever since meeting Donovan, I keep thinking about her comments on Ireland’s housing crisis.
In her role as chair of Grant Thornton, she has witnessed first hand the struggles of new employees, particularly those from overseas, to find any sort of long-term accommodation. Plus, as a partner in the firm’s financial accounting and advisory services division, she is talking to multinational executives on a regular basis, and housing keeps on coming up.
“People cannot get housing. They cannot afford the housing that is there. There is nothing to get. So that is going to start having a serious impact on multinationals bringing in people here,” she said.
“We have people in our teams who come in from the Philippines, who are sleeping on friends’ couches for three months. And these are people that are well paid, but they can’t get anywhere.”
We know housing is now a generational crisis, impacting mobility and demographics. But the crisis is also as a result of policy choices – some made decades ago, others much more recently.
It begs a question: as we seek to overcome this generational crisis, are we now making the right policy choices?
That question was the subject of a number of pieces last week. Sadly, when you piece them all together, it seems we are not yet on the right track.
Take the issues of Rent Pressure Zones, a policy that seeks to prevent price gouging by landlords in certain designated areas. On a simplistic level, it seems like a good idea – and for those already renting in the designated areas, it is certainly a help.
The trouble, however, is the knock-on effect on new renters, something Ronan examined at length week. Essentially, it has created a two-tier rental market – those safely enclosed within the system, and those looking to get in.
The numbers are stark. Between 2015 and 2022, market rents increased by almost 75 per cent, while in the same period, rents for sitting tenants increased by just 19 per cent. Given the average tenancy lasts four years, it means renters experienced a blend – one year in four their rent rose by the market rate, and three years in four it rose by the lower “sitting tenancy” rate.
As Ronan explained: “Rent Pressure Zones protect sitting tenants – but at a cost that is paid by those in the open market. Mobility in the rental market grinds to a halt, as only those who simply have to move will do so. But those who simply have to move are disproportionately drawn from the most vulnerable in society: such as those who have newly arrived in a city or indeed to a country or those whose family circumstances have changed.”
Sean went further, arguing that interventions such as rental controls and the current eviction ban are trying to treat the symptoms while actively making the disease worse.
In real terms, the policies are not doing anything to help the supply-side problem, an area everyone acknowledges needs to be remedied – after all, estimates say that Ireland is missing between 200,000 and 250,000 rental homes.
In fact, these policies are actually hampering future supply. Since rental controls were introduced back in 2016, supply has grown much less than in the Celtic Tiger period, which was comparable in terms of house price increases. The number of homes available to rent has fallen by around 60 per cent since 2015.
Rent controls inhibit supply by discouraging new building, encouraging landlords to leave the market, discouraging landlords from maintaining their properties, and encouraging tenants to stay in properties that aren’t the right fit for their needs.
As Sean argued: “There’s an art to rent control laws. They need to give the tenant as much protection as possible while being mindful not to disincentivize new supply. One way of doing this is exempting new supply from rent control rules. Another is to use ‘third generation’ rent control, which limits the rate of rent increase within each tenancy. An overarching principle is that investors need stability and predictability. Lower rents they can handle, so long as those rents can be relied upon.”
The trouble, however, is there is now a clamour for further intervention through mortgage interest relief. With the ongoing cost-of-living crisis, it is hard to argue against anything that helps hard-hit householders.
However, the policy will make the housing crisis worse. Any extra relief for property, one particular asset class, only compounds the inequality between owners of property and owners of other financial assets like pensions, something Stephen argued in his column last week.
As Stephen put it: “In a world where the young rent from the old (and the institutional), any relief would help the old out more, and they do not need it. Any transfer from taxpayers to landowners misses an opportunity to help renters, who are among the largest and most affected groups in our society.”
Yes, there is a housing crisis. And yes, there is a cost-of-living crisis. And yes, there will need to be short-term policies to help. However, short-term policies should not be detrimental to long-term objectives. We have been here before. and we know how it ended.
Elsewhere last week, Sean had a wide-ranging conversation with Private equity-focused M&A advisor Anya Cummins. The Deloitte partner moved back to Ireland just as the Irish PE boom was heating up, and she talked about how the industry has changed corporate Ireland, and where it’s headed next.
One of Ireland’s most recognisable entrepreneurs, Chupi Sweetman founded her business in 2013 and has bootstrapped it to a €5m turnover. With a new injection of cash, the brand is now aiming to expand its retail presence and is making a major technology play. She spoke to Rosanna.
Europe’s wind sector is in peril, and it can’t decarbonise power unless it rediscovers its confidence and unites to build the supergrid, says Supernode founder Eddie O’Connor. Ahead of the publication of his new book, the entrepreneur spoke to John.
Finally, Ireland lost a boardroom titan last week when Gary Kennedy sadly passed away. Tom spoke to a number of his friends and colleagues, who remembered a man with ingrained decency, a wonderful sense of wit, and an astute business brain.