This week the Government is announcing yet another package of measures designed to encourage vacant homes to be brought into use. On the face of it, there is nothing wrong with this. Quite the opposite: who could oppose vacant homes being brought into use in the midst of a chronic and worsening housing shortage?
But it is important to consider what a healthy housing system would look like – in all aspects, including its vacancy rate. And doing so should give us pause before committing ourselves to a housing system with the lowest possible vacancy rate.
Housing is not a homogeneous commodity and individuals and households are not interchangeable stocks of human capital. Instead, each dwelling is unique – from its internal condition to its exact location. And each person or household is similarly unique, in the bundle of constraints and preferences that they have.
People will of course want to live near their employment and their children’s schools, if relevant, but they may also want certain kinds of homes. There are other locational preferences also: being close to elderly parents or other relations or being close to nature for example. And households will also have different preferences in relation to dwelling features. For some, a southerly orientation will come almost top of their list, while for others a spare bedroom – more important in these days of blended families and shared custody – will be far more important.
Like the labour market then, where each worker and each job are unique, the housing market is one where matching must occur. Any given dwelling will not suit every household, just like any given job will not suit every worker. This means that, in a healthy housing system, it should take a little time for someone to find the home that matches all their requirements – and their budget.
Those in charge of ensuring a healthy housing system, therefore, must think in terms of where the ‘slack’ or excess capacity is going to be in that system. Crudely put, there are two choices that policymakers have. They can opt for a system where housing provides the slack – there are more homes than households. Or they can opt, explicitly or implicitly, for a system where people represent the surplus instead.
Trying to minimize vacancy is, whether policymakers know it or not, trying to bring about a system that puts housing before people. If it came to it, which would we rather have: people with homes, or homes without people?
In almost every system across the world, the preferred choice is clear: make sure the housing system has some in-built slack so that the risk of people being without homes is minimised. One example is New York City, home to one of the world’s tightest rental markets for decades now.
In a 1960 review of the housing system and rental market in that city entitled ‘Building a Better New York’, Anthony Panuch – advisor to Mayor Robert F Wagner – reviewed progress in the preceding decade. The conundrum facing him was that – despite 380,000 homes having been built, the total number of units still needed was, in 1960, the same as it had been ten years earlier: 430,000.
While there are lots to learn from what went wrong in New York City in the decades after World War II, the key point here is that in that figure of homes needed, policymakers agreed that a minimum threshold for vacancy was required for a healthy housing system. In the case of New York, they targeted a vacancy rate of at least 3 per cent – so that tenants could operate in a system without undue pressure. The estimated vacancy rate in the city wat that time was just 0.4 per cent.
In Ireland, the vacancy rate has been falling steadily over the last number of years, a sign of increasing stress on the system. For a country that, not so many years ago, was considered a poster child of empty homes, this might seem like some turn-around. But in truth, the severity of ghost estates was always somewhat misunderstood.
When the Department of Housing undertook its first survey of ‘Unfinished Developments’ back in 2011, there were a total of almost 180,000 units in those developments. That is indeed a large number – equivalent to almost 10 per cent of the stock of homes in the country at the point. But the devil was in the detail. Almost 100,000 of those ‘units’ were unstarted, just planning permissions granted on a page.
And of the remaining 80,000 or so homes in unfinished developments, about 35,000 were occupied. It was only in the other 45,000 homes, approximately, that there was anything like what people imagined when they thought of ghost estates. And the majority of those units were far from complete. The true number of homes lying empty and idle in the new housing estates across the country a decade ago was closer to 18,000 – or 1 per cent of homes – than ten times that figure.
According to Geodirectory, the estimated vacancy rate across Ireland at the end of 2022 was 4 per cent – a figure that includes not only homes in developments left unfinished at the end of the Celtic Tiger but also empty homes in any other setting. Five years earlier, the estimated vacancy rate countrywide was 4.9 per cent.
The share of homes vacant varies considerably around the country, as you might imagine, with three counties having rates above 10 per cent (Leitrim, Mayo, and Roscommon). But again, in all three counties, the rate of vacancy has fallen sharply since 2016.
Falling rates
In Dublin, the estimated vacancy rate was 1.2 per cent at the end of 2022, down from 1.6 per cent two years earlier. This is an extraordinarily low vacancy rate for a major city. And, realistically, policy should be looking to build in more slack – not less – into the housing system. In other words, if our housing system were truly healthy, we would see more empty homes, not less.
This may seem academic but the costs are real. The lower and lower that vacancy rates are driven – through a combination of a lack of housing and policy measures – the further the housing system will drift from one where a household can assess their constraints and preferences and take the time to find a home that meets their needs.
Further, the type of policy measure being used also matters. Most countries do not try to reduce wasteful vacancy through taxpayer largesse. Instead, they use their main wealth tax – the annual residential property tax – as a tool to ensure that housing is being used well.
Ireland, however, has an extraordinarily low property tax, at effectively 0.1 per cent of market value. This is one-tenth the rate used in much of the high-income world. It is a testament to how bad the housing shortage is that Ireland has managed to combine very low penalties for leaving homes vacant – through its low property tax – and very low vacancy rates.
All of this is not to say that we should simply abandon any efforts to use our stock of buildings better. But a far more fruitful avenue for policymakers would be thinking about non-residential space that is not being used.
Just because there is no obvious issue about empty homes doesn’t mean that we don’t have lots of empty space. I would encourage readers, next time they are walking down a main street, to look above the shop and try to figure out what the top floors of buildings are being used for. Similarly, with a boom in office construction in Dublin in recent years, and a change in conditions in online services, there is talk of a risk of surplus office space in the city in the years ahead.
Because of how commercial and residential building codes have diverged in recent decades, it is not the case that any of these new buildings can simply be swapped over into homes if unused. This is a topic of much discussion across US cities, and it seems that the cities with the most potential for offices-to-apartments are those with office blocks built in the 1960s to the 1980s.
In Ireland’s case, we don’t really have that kind of stock. But what we do have are buildings that used to be homes – in particular Georgian and Victorian buildings – that drifted over into use by small businesses over recent decades.
An opportunity exists for policymakers to steer existing businesses that occupy such space into newly built offices. There is a clear positive externality here beyond simply converting a Georgian four-story-over-basement from the offices of a marketing firm or solicitor to five high-end apartments, one on each floor. That externality is bringing residents back into the city.
But it is impossible to know the potential scale of space above shops or small business space that could be repurposed without a cadastre of real estate in this country. Our Land Registry remains critically incomplete and focused on land, not on the structures built on that land.
If policymakers and voters want our land and buildings used better, we need to start with some very basic first steps: knowing what exists, knowing who owns what, and knowing who lives where.
End article.
Ronan Lyons articles on the housing crisis are of high quality and I’d suggest that anyone who is interesting in reading further gets a subscription to TheCurrency as he has a decent backlog of articles on this subject.
Two points of information for the author.
1. The data from the Central Statistics Office (CSO) shows the vacancy rate for dwellings was 4.3% in 2021. This also represents a slight increase in Dublin. This statistic was calculated based on metered electricity consumption. This doesn’t take into account commercial property which has a vacancy rate of 14%
2. Vacant property which is in a bad state of repair is currently exempt from property tax.
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Text of article:
This week the Government is announcing yet another package of measures designed to encourage vacant homes to be brought into use. On the face of it, there is nothing wrong with this. Quite the opposite: who could oppose vacant homes being brought into use in the midst of a chronic and worsening housing shortage?
But it is important to consider what a healthy housing system would look like – in all aspects, including its vacancy rate. And doing so should give us pause before committing ourselves to a housing system with the lowest possible vacancy rate.
Housing is not a homogeneous commodity and individuals and households are not interchangeable stocks of human capital. Instead, each dwelling is unique – from its internal condition to its exact location. And each person or household is similarly unique, in the bundle of constraints and preferences that they have.
People will of course want to live near their employment and their children’s schools, if relevant, but they may also want certain kinds of homes. There are other locational preferences also: being close to elderly parents or other relations or being close to nature for example. And households will also have different preferences in relation to dwelling features. For some, a southerly orientation will come almost top of their list, while for others a spare bedroom – more important in these days of blended families and shared custody – will be far more important.
Like the labour market then, where each worker and each job are unique, the housing market is one where matching must occur. Any given dwelling will not suit every household, just like any given job will not suit every worker. This means that, in a healthy housing system, it should take a little time for someone to find the home that matches all their requirements – and their budget.
Those in charge of ensuring a healthy housing system, therefore, must think in terms of where the ‘slack’ or excess capacity is going to be in that system. Crudely put, there are two choices that policymakers have. They can opt for a system where housing provides the slack – there are more homes than households. Or they can opt, explicitly or implicitly, for a system where people represent the surplus instead.
Trying to minimize vacancy is, whether policymakers know it or not, trying to bring about a system that puts housing before people. If it came to it, which would we rather have: people with homes, or homes without people?
In almost every system across the world, the preferred choice is clear: make sure the housing system has some in-built slack so that the risk of people being without homes is minimised. One example is New York City, home to one of the world’s tightest rental markets for decades now.
In a 1960 review of the housing system and rental market in that city entitled ‘Building a Better New York’, Anthony Panuch – advisor to Mayor Robert F Wagner – reviewed progress in the preceding decade. The conundrum facing him was that – despite 380,000 homes having been built, the total number of units still needed was, in 1960, the same as it had been ten years earlier: 430,000.
While there are lots to learn from what went wrong in New York City in the decades after World War II, the key point here is that in that figure of homes needed, policymakers agreed that a minimum threshold for vacancy was required for a healthy housing system. In the case of New York, they targeted a vacancy rate of at least 3 per cent – so that tenants could operate in a system without undue pressure. The estimated vacancy rate in the city wat that time was just 0.4 per cent.
In Ireland, the vacancy rate has been falling steadily over the last number of years, a sign of increasing stress on the system. For a country that, not so many years ago, was considered a poster child of empty homes, this might seem like some turn-around. But in truth, the severity of ghost estates was always somewhat misunderstood.
When the Department of Housing undertook its first survey of ‘Unfinished Developments’ back in 2011, there were a total of almost 180,000 units in those developments. That is indeed a large number – equivalent to almost 10 per cent of the stock of homes in the country at the point. But the devil was in the detail. Almost 100,000 of those ‘units’ were unstarted, just planning permissions granted on a page.
And of the remaining 80,000 or so homes in unfinished developments, about 35,000 were occupied. It was only in the other 45,000 homes, approximately, that there was anything like what people imagined when they thought of ghost estates. And the majority of those units were far from complete. The true number of homes lying empty and idle in the new housing estates across the country a decade ago was closer to 18,000 – or 1 per cent of homes – than ten times that figure.
According to Geodirectory, the estimated vacancy rate across Ireland at the end of 2022 was 4 per cent – a figure that includes not only homes in developments left unfinished at the end of the Celtic Tiger but also empty homes in any other setting. Five years earlier, the estimated vacancy rate countrywide was 4.9 per cent.
The share of homes vacant varies considerably around the country, as you might imagine, with three counties having rates above 10 per cent (Leitrim, Mayo, and Roscommon). But again, in all three counties, the rate of vacancy has fallen sharply since 2016.
Falling rates
In Dublin, the estimated vacancy rate was 1.2 per cent at the end of 2022, down from 1.6 per cent two years earlier. This is an extraordinarily low vacancy rate for a major city. And, realistically, policy should be looking to build in more slack – not less – into the housing system. In other words, if our housing system were truly healthy, we would see more empty homes, not less.
This may seem academic but the costs are real. The lower and lower that vacancy rates are driven – through a combination of a lack of housing and policy measures – the further the housing system will drift from one where a household can assess their constraints and preferences and take the time to find a home that meets their needs.
Further, the type of policy measure being used also matters. Most countries do not try to reduce wasteful vacancy through taxpayer largesse. Instead, they use their main wealth tax – the annual residential property tax – as a tool to ensure that housing is being used well.
Ireland, however, has an extraordinarily low property tax, at effectively 0.1 per cent of market value. This is one-tenth the rate used in much of the high-income world. It is a testament to how bad the housing shortage is that Ireland has managed to combine very low penalties for leaving homes vacant – through its low property tax – and very low vacancy rates.
All of this is not to say that we should simply abandon any efforts to use our stock of buildings better. But a far more fruitful avenue for policymakers would be thinking about non-residential space that is not being used.
Just because there is no obvious issue about empty homes doesn’t mean that we don’t have lots of empty space. I would encourage readers, next time they are walking down a main street, to look above the shop and try to figure out what the top floors of buildings are being used for. Similarly, with a boom in office construction in Dublin in recent years, and a change in conditions in online services, there is talk of a risk of surplus office space in the city in the years ahead.
Because of how commercial and residential building codes have diverged in recent decades, it is not the case that any of these new buildings can simply be swapped over into homes if unused. This is a topic of much discussion across US cities, and it seems that the cities with the most potential for offices-to-apartments are those with office blocks built in the 1960s to the 1980s.
In Ireland’s case, we don’t really have that kind of stock. But what we do have are buildings that used to be homes – in particular Georgian and Victorian buildings – that drifted over into use by small businesses over recent decades.
An opportunity exists for policymakers to steer existing businesses that occupy such space into newly built offices. There is a clear positive externality here beyond simply converting a Georgian four-story-over-basement from the offices of a marketing firm or solicitor to five high-end apartments, one on each floor. That externality is bringing residents back into the city.
But it is impossible to know the potential scale of space above shops or small business space that could be repurposed without a cadastre of real estate in this country. Our Land Registry remains critically incomplete and focused on land, not on the structures built on that land.
If policymakers and voters want our land and buildings used better, we need to start with some very basic first steps: knowing what exists, knowing who owns what, and knowing who lives where.
End article.
Ronan Lyons articles on the housing crisis are of high quality and I’d suggest that anyone who is interesting in reading further gets a subscription to TheCurrency as he has a decent backlog of articles on this subject.
Two points of information for the author.
1. The data from the Central Statistics Office (CSO) shows the vacancy rate for dwellings was 4.3% in 2021. This also represents a slight increase in Dublin. This statistic was calculated based on metered electricity consumption. This doesn’t take into account commercial property which has a vacancy rate of 14%
2. Vacant property which is in a bad state of repair is currently exempt from property tax.