What would the housing system look like it we designed it from scratch? This seems like an obvious question. But in truth, policymakers’ time is usually dominated by particular pressure points – ‘fire-fighting’ as it’s known in policymaking circles. The vast majority of effort is focused on incremental changes to the existing system, rather than implementing a comprehensive vision.

To me, the overarching goal of a housing system should be to ensure that all individuals and households have access to housing appropriate to their needs at an affordable cost. The key word in this is need, not demand. The distinction is critical – at least in the sense I use the words – and one that tends to get forgotten when considering how many homes need to get built.

When people talk about housing demand, they usually mean a quantity of households or transactions consistent with a particular price point. Housing need, on the other hand, sidesteps a particular price point and refers to the underlying number of households. This may seem an obvious distinction, but it is worth highlighting that there are very different implications if policymakers are targeting need, rather than demand.

Need versus demand

A system overly focused on demand, not need, will consider equilibrium as the end point – and implicitly consider ‘excess supply’, which would see prices fall, as unhealthy as ‘excess demand’, where prices are pulled upwards. But it is a basic truth from Econ 101 that just because something is an equilibrium does not mean it is optimal.

This distinction between housing need and demand perhaps explains why there is so much disagreement on how many homes should get built every year in Ireland. The government has adopted a target of reaching 33,000 homes per year, compared to an average of roughly 20,000 the last few years. I have argued for the last five years, however, that the true number of new homes the country should be building per year is closer to 50,000.

The reason my estimate – which aligns with other figures, including one of the projections by the Central Bank as well as estimates from Goodbody – is so high is that it is based off housing need, not housing demand. Ireland’s overall population is projected to grow from less than five million in 2016 to between 5.6 million and 6.7 million by 2051, with latest estimates indicating that Ireland is tracking most closely to the high migration/low fertility scenario developed in the projections after the 2016 Census.

This would mean that the country will have a mid-century population of 6.5 million. Given the existing stock of occupied dwellings in 2016, likely obsolescence between the 2010s and the 2050s, and the prevailing average household size mid-century, this means that Ireland needs to build between 2.8 million and 3.4 million dwellings, between 2016 and 2051.

This table combines information on Ireland’s projected population growth 2016-2051 with scenarios for obsolescence and average household size, to generate high-level estimates of the number of new homes needed to be built per year to meet underlying housing need.

In this table, I have highlighted a baseline scenario. This baseline is where Ireland’s household size falls by 2051 to something in line with the current average Western European average – i.e. preserving our status as somewhat belatedly converging to European norms for demographics (rather than a more rapid catch-up scenario, which might suggest 1.9, or a continued outlier scenario, which might suggest 2.3).

The other parameter shown is obsolescence, i.e. the number of dwellings that fall out of use each year. A rate of 0.4 per cent is below what the Central Statistics Office assumes in its national accounts but above the very unusual levels recently observed 2011-2016, which likely reflect (ironically) the lack of new homes built.

Put these two parameters together with the overall population size of 6.5 million by mid-century suggests housing need of close to 49,000 homes per year for the entire period 2016-2051. What is helpful about the above table is that it shows the equivalent figures for alternative assumptions at current population growth, which give a range of 38,000-61,000 – while the same exercise could be done for alternative projections for overall population.

This figure is, of course, just a top-level aggregate and it is possible to break it down and look at specific demographic groups. This is a topic to which I’ll return in my next column – but for now, it is worth highlighting two things.

First, it explicitly includes in its total households that are suppressed currently because of an unhealthy housing system. Perhaps the most obvious examples are those 25–34-year-olds who are often bunched into ‘crammer households’ with other people unrelated to them or else still at home with their parents. This is a critical point for local authorities to consider, as the default ‘Housing Need & Demand Assessment’ tool effectively ‘bakes in’ current living arrangements for these and other age groups.

The second point to call out relates to our ageing population and its implications for housing need, again a point to which I’ll return in more depth in the weeks to come. Ireland’s over-65 population will nearly triple in size between the 2010s and the 2050s, making up well over half of the increase in population between 2016 and 2051. Our 85-plus population will increase by a factor of close to five. This means that when thinking of housing need, we should really be thinking of housing and care needs in an integrated way.

Meeting all need

Back to 49,000 homes per year and how we get there. Underneath that headline number, we can think of two main types of income groups. First, there are those with incomes sufficiently low that they meet the threshold for state support to meet their housing (and care) needs – these are Group “A” in the first figure above. And secondly, there are those whose incomes are sufficiently high to be able to cover the cost of their housing (and care) needs and who therefore receive no housing (and care) support from the State – group “B” in the figure above.

A housing system fails when there are parts of society that fall outside these two groups – in other words, those whose incomes are too low to be covered by the market but too high to qualify for state support. This is group “C” in the figure above, what might be termed the ‘forgotten middle’ of housing policy.

Thought of this way, the high-level vision for housing policy is somewhat straightforward: make sure that those households in ‘Group C’ are moved either into ‘Group A’ – where they are covered by state supports – or else into ‘Group B’, where they are covered by the market. The second figure, below, shows the two main sets of tools that policymakers have at their disposal to do this.

First, they can increase the threshold for state support, bringing more of the income distribution into the supported housing sector – moving the horizontal line further out. And secondly, policymakers can aim to ensure that a greater fraction of the income distribution is covered by ‘the market’, i.e., without any need for subsidy or support – moving the dashed line down.

The two sets of tools – increasing the share covered by ‘the market’ and increasing the share covered by ‘social housing’ – would be substitutes in a system where ‘Group C’ didn’t exist. If you did one, it would, mathematically, reduce the need for the other. However, in a housing system that is chronically failing to meet the housing needs of its population, these two sets of tools are instead complementary tools. Both must be part of the solution.

Outlining this type of conceptual framework is, you might argue, the easy part. Bringing it into the real world is much tougher. Over the next number of columns, using information on the cost of providing homes in the market and on the income distribution, I will present estimates of the size of the ‘forgotten middle’ in Ireland. As mentioned above, one area of particular focus will be Ireland’s younger households, including (or especially) suppressed households – i.e. those that would in in a healthier housing system have formed households but have been stopped from doing so because of a lack of housing. A second focus group are Ireland’s older households, many of whom are trapped in homes that no longer meet their needs in a system that, almost by design, expects them to stay put regardless.