September 10, 2000
The Belgians have a lot to teach us, and not just about strong beer and frites. We need more rented homes fast: why not float a few municipal bonds to pay for the land and the development?Continuing on this week’s strong astronomical theme, did you know that the only two man-made structures that can be clearly seen from the moon are the Great Wall of China and the Belgian motorway system?
The Great Wall, I could have guessed but the Belgian motorway system – what’s that all about? The reason is that Belgium’s motorways – part of Europe’s finest transport system – remain, uniquely, floodlit throughout the whole night. So, when the rest of Europe is in darkness, Belgium’s motorways shine like a beacon towards lonely astronauts. Would you also be surprised if you were told that Belgium is one of the safest places to drive in the world, despite having the cheapest and most easily available cars in Europe? Probably not.
Let’s forget astronomy and stick with the Belgian theme for a minute. How come Belgium, the country with the highest population density in Europe, has never suffered from a housing price bubble? Sounds odd to us who are told that our housing problems stem from new population density.
Did you know that one in three Belgian households – more than the population of greater Dublin – rent their houses? Or try another one, at a time when Irish private rents are skyrocketing, how come 81 per cent of all those Belgians who rent (that’s 870,000 people – greater than the population of Munster,) do so affordably in the private sector?
Before you think that McWilliams has lost it and is now running a competition for free mussels and frites, washed down with some fine Trappiste beer at the new Belgo Restaurant in Temple Bar, I’ll quickly explain my Belgian fetish.
In the light of Ireland’s demented traffic and housing problems, Belgium offers us some interesting paradoxes. They have managed to cram three times as many people into half the space with a brilliant road, rail and underground system which shuttles the punters around effortlessly. Because of this, development has been geographically democratic. Antwerp has developed faster than Brussels since 1980; Ghent and Bruges are cities in their own right, not merely satellites as Drogheda and Port Laoise threaten to become.
This development has occurred without Teutonic political will; in fact, Belgium’s political system is so profoundly divided, both linguistically and ideologically, that it can make our own version seem efficient. Similarly, recent years have seen Belgian politicians snared with their fingers in the till. So they’re not squeaky clean either.
Back to cars and houses. In contrast to Belgium, only one in ten Irish people live in private rented accommodation and over half the people renting here live in council houses. Whereas in Belgium the private sector does the job, in Ireland the provision of affordable housing is viewed exclusively as the government’s prerogative. I wonder why that should be?
In the early 1990s when I lived in Belgium, I put Ireland’s lack of basic progress on these simple fundamentals of life down to the fact that we were much poorer and as we got richer, we’d catch up with our more ‘sorted’ continental neighbours.
In 1990, Ireland’s GDP per head was 75 per cent of Belgium’s but such has been the helter-skelter of the 1990s, we are now almost ten per cent richer. Yet, we still languish. There are 60 per cent fewer of us in twice the land mass and yet we’re screaming about a housing crisis. We have one car for every three of theirs with acres more space, yet we have traffic jams in every two-horse provincial town. This simply does not make sense. The Belgian example tells us that not only should we not have a crisis, but a little hard thinking would eliminate any bottlenecks easily.
The American biologist Richard Dawkins has argued famously that ideas spread from mind to mind much as viruses spread from host to host. It’s an exhilaratingly cynical view because it suggests that to succeed, an idea need not be true or even useful, as long as it has what it takes to propagate itself.
I get the feeling that in late 1990s Ireland, bad ideas, such as four-wheel drives, are spreading like a contagious virus. Solutions to our housing problem provide excellent examples of this ‘ideas as virus’ phenomenon. The most readily accepted idea now, stemming from a few high-profile reports, is that the rising population and demand for accommodation explains all the increase in house prices. Conventional wisdom says that supply is just catching up with demand and when it does, house prices will stop rising.
This is about as convincing as suggesting the rise in fatalities on the roads is due exclusively to the rise in the number of cars and the increasing number of under-21s owning cars. When these people learn to handle the wheel properly, the number of fatalities will start to fall. This is nonsense.
It is clear to anyone that a variety of auxiliary factors such as speeding, drink driving and the state of the roads – not just the demand for cars – are causing the weekly carnage.
Similarly, what is fuelling the ‘speculative bubble’ called our housing market is not just 40,000 punters looking for a roof over their heads. Who says the low interest rate, which is far too low for a booming economy, isn’t a factor? Or loose credit policies from banks keen to placate avaricious shareholders? Or what about over-borrowing by petrified first-time buyers? Or plain greed, fear, opportunism or slick marketing? What about planning deficiencies? All these culprits are in the pot.
Unlike the Belgian example, the private sector does not provide cheap, affordable housing because it is chasing returns on investment more consistent with internet stocks, than three-bedroom semis in Kildare. No one can blame them, they are property developers after all, not the Sisters of Perpetual Succour.
However, in chasing these returns the Irish building culture has priced 40,000-odd people out of the market. And even when the housing market collapses (as I’m sure it will), certain people will still be priced out.
Unfortunately, the State and those it employs to sort out these growing pains appear to have caught the non-thinking virus. The latest idea doing the rounds is that developers should set aside 20 per cent of all developments for council housing. This is yet another example of the same twentypercentism which has us building single lane bypasses around market towns when floodlit motorways, visible from the moon, are needed.
It is also the very twentypercentism which has farmers getting paid for setting aside land when they should be encouraged to sell. Imagine, the fall in the price of land if all our “set aside” land was sold? The state is shamelessly trying to pass on its responsibility to the private sector. For example, in 1984, 33.4 per cent of all houses built were council houses. By 1998, this figure had fallen to 7.6 per cent. No wonder we have an accommodation problem for low-income people.
I’m told the reason the state does not want to build council houses is the cost. I’ve no argument with that. But we still have a problem of how to finance low income, low rent and, by extension, low return (for investors) housing in the private sector.
Two weeks back in this column, I shed a tear for the redundant Dublin bond trader, whose lot had been made considerably less enviable because of the lack of interest in the Irish government bond market. Apparently, activity in this market has dried up so much that turnover in the second quarter was around ï¿½300 million in a market of ï¿½33 billion.
So we have ï¿½32.7 billion of Irish government bonds doing nothing.
Why doesn’t the state repackage these bonds as housing bonds? The state could simply retire some of the existing bonds (which nobody seems to want anyway) and reissue a state housing bond. This can be viewed as ‘trading in’ old bonds for new ones. The proceeds could be put into a fund that could be used to buy land and build council houses. Or, even simpler, Dublin Corporation could issue a Dublin Housing Bond.
The private sector, in fact Irish pension funds, could finance the entire project. In EMU, the yield on such a bond would be extremely low for the borrower, in this case, Dublin Corporation. For example, the yield on Irish government bonds is now about 5 per cent. A Dublin Corporation housing bond would only be a per cent or so higher.
Therefore, the annual rent per house needed to pay this would also be very low and, given the low incidence of defaulting on rent/mortgages, the risk on the bond would be minimal. For investors, a 5 per cent-plus yield is a lot more than they are getting on deposit and a lot less risky than holding stocks at present high prices. Finally, for the Dublin bond dealer, it gives him a new product to flog.
This would be a perfect example of the municipality, the international financial market, the State and the building profession working together to solve the housing problem. Incidentally, you can also finance motorways this way.