THE THREE-SIDED COIN: SOCIAL HOUSING, MORTGAGE RULES & CONSTRUCTION COSTS Ronan Lyons, Trinity College Dublin Housing Ireland’s Recovery European Commission/ESRI, November 2015

Short run: construction costs relative to income Let’s take a 2+2 family on €45,000 (roughly 60 th %ile) Monthly disp income of ~€3,000 means max on housing ~€1,000 How many sqm of new construction could they afford? Take a building of bedroom apartments in Dublin DCC effective min size of 85m2 – also height restrictions, costs relating to lifts and parking per unit, ceiling heights, orientation… At €1,830/m2, hard costs of ~€155,000 per unit “Soft cost multiplier”: finance, levies, VAT, 12.5% profit, prof’l fees Full cost – excl land – of ~€275,000 (~€1,400 a month) At net yield of 5%, and allowing 20% maintenance costs Vs. Prevailing two-bed rents of €1,200 (Dublin), €600 (other cities), €500 (outside cities) ESRI-EC | November 2015Ronan Lyons - The Three-Sided Coin 2

Linking construction costs to everyday incomes Status Quo – 2+2 family Hard costs / sqm €1,830 Min sqm 85 Multiplier 1.77 Total unit cost (excl land) €275,185 Cost/rent ratio 200 Break-even monthly rent €1,376 Break-even rent / sqm €16 Annual gross income €45,000 Max monthly housing spend €1,000 Max sqm 62 Monthly subsidy required €376 ESRI-EC | November 2015Ronan Lyons - The Three-Sided Coin 3 Allowing land costs, only richest 15% of households could afford new 2-bed without subsidy

Status Quo – 2+2 family Scenario – 2+2 family Hard costs / sqm €1,830€1,500 Min sqm 8560 Multiplier 1.77 Total unit cost (excl land) €275,185€159,300 Cost/rent ratio 200 Break-even monthly rent €1,376€797 Break-even rent / sqm €16€13 Annual gross income €45,000 Max monthly housing spend €1,000 Max sqm 6275 Monthly subsidy required €376-€204 Linking construction costs to everyday incomes ESRI-EC | November 2015Ronan Lyons - The Three-Sided Coin 4

Beyond the short term: fixing land use policy from “last use” to “best use” 5 Dublin Bus core routes & depots ESRI-EC | November 2015Ronan Lyons - The Three-Sided Coin

Incentives & need for joined up taxation 6 ~150 acres DCU Phoenix Park Green space Terminus of X-city Luas Train station O’Connell St (1 km) ESRI-EC | November 2015Ronan Lyons - The Three-Sided Coin

Lack of supply: causes, not symptoms ESRI-EC | November 2015Ronan Lyons - The Three-Sided Coin 7 Firstly, for those on moderate incomes, excessive construction costs House prices tied to incomes (sensibly) – but costs not Housing standards as discrimination against low-income families Secondly, for those on inadequate incomes, dysfunctional social housing system Housing subsidies should not be a fixed supplement They should bridge the gap between inadequate incomes and construction costs – the bigger the gap, the bigger the aid Core Q: what % of households should we subsidise? Build cost of homes should be benchmarked to that E.g. if 30%, cost of minimum socially acceptable unit (in monthly terms) should be one third of disposable income of 30 th percentile

Are we heading in the wrong direction? Thank you for your time! Looking forward to questions and comments ESRI-EC | November Ronan Lyons - The Three-Sided Coin