Marc Coleman, economist and founder of Octavian Consulting, discusses the urgent need for political consensus on housing
Make no mistake about it, this crisis will have political consequences. In my new book, “An Economic Response to Covid-19″, I describe how policy choices during the last crisis created huge divergences between the sheltered and non-sheltered sectors of the economy, differences that were only partly reduced by recovery. For now, we are in this together. Saving lives, taking care and following the rules. So before the differences emerge and work their inevitable impact on our body politic, let us try to form a consensus on the one issue where the prevailing consensus is actually well-informed and needed, namely Housing.
When you have population growth and a deep recession, particularly of the deep kind that occurred between 2008 and 2013 inclusive, any public economist worth their salt will tell you to invest in public housing.
Just as the Coronavirus will lay bare, rather than cause, other differences in our economy, the recent recovery didn’t create our housing problem. It was always lurking in the long grass. Long-term population growth and continued immigration would, I said over a decade ago, push our population to 5 million in the Republic and 7 million on the island by this year.
With the the Central Statistics Office last available estimates, for April 2019, at 4,921,500, we should be passing the 5 million total about now. This is healthy and normal. If we had the population density of Denmark, for instance, we would have some 9 million people in the Republic (13 million on the island). If we had Germany’s population density those figures would be 16 and 23 million respectively. If we had England’s they would be 30 million and 42 million. What I tried to explain back then was that Ireland was on a date with destiny, recovering a lost century and a half as capital people and technology flowed into a modern economy, restoring it to its full potential at an accelerated speed.
Just as the Coronavirus will lay bare, rather than cause, other differences in our economy, the recent recovery didn’t create our housing problem.
The problem is that our house-planning, building and infrastructure investment has not kept pace with that rapid restoration. Far from it. In my new book, I lay bare Ireland’s “lost decade” of public investment in housing and public infrastructure. Between 2008 and 2018 (the last year for which we have comparable data across a range of national accounts and demographic variables) over a third of a million new citizens entered the state, through a combination of childbirth and net inward migration. As a result nearly 180,000 new households were formed, yet less than 100,000 new dwellings were built.
When you have population growth and a deep recession, particularly of the deep kind that occurred between 2008 and 2013 inclusive, any public economist worth their salt will tell you to invest in public housing. That is what, repeatedly, I urged governments to do. They did exactly the opposite. Contrary to popular narratives, current spending rose but capital spending collapsed.
To see just how severe this collapse was, contrast the 6 per cent rise in government spending between 2008 and 2014 on one hand with a staggering 36 per cent fall in government investment between 2008 and 2018. In fairness some of this was corrected last year (the goal posts of 2008 and 2018 are chosen for the availability of national accounts data for a full year). Even accounting for that, it remains a fact that despite being 3 years well into a strong recovery, public investment in 2018 had fallen by more than six times over a decade of recession and recovery more than public spending had risen during the recession itself. From 5.3 per cent of GDP in 2008 public investment was just 1.9 per cent in 2018. With a rising population, this metric should be growing, not falling.
As a matter of urgency, this policy imbalance must be corrected when the new programme for government is announced.
When Danny McCoy says that we have a combination of private affluence and public squalor he is, as far as the capital account of our exchequer goes, bang on the money. He, I and a growing number of economists and commentators all agree that this situation is no longer economically, socially nor, as the last election shows, politically sustainable. As a matter of urgency, this policy imbalance must be corrected when the new programme for government is announced. Covid-19, or no Covid-19. There is of course a caveat. The wastefulness of the children’s hospital project cannot be repeated. With over half a million unemployed watching, the next governments must ensure that meritocracy and value for money are the driving forces behind all public spending decisions, capital and current.
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