By This Time Next Year We Could End Homelessness

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Let’s start with the conclusion: if by this time next year if there are people still homeless, it’s because the Government made a policy choice.  And the policy choice was to tolerate homelessness.

Now, back to the beginning.

The Government will be spending €7.1 billion this year.  It won’t be spent on public services, or social protection or investment.  And there will be no debate on it.  There will be no current affairs programmes, no panel discussions, no commentaries in the print media.  The Government will spend €7 billion this year and very few will know.

This €7 billion is being spent on paying down debt.  It comes from the Government’s considerable cash balances.  At the end of 2013, the Government held €18.5 billion in cash.  This is made up of money that has already been borrowed and revenue from bank investments (e.g. bonds held in Bank of Ireland, etc.).  The Government is taking the €7 billion and paying down Government debt to lower the debt/GDP ratio.  This is how it works:

chart1

As seen, debt at the beginning of the year is estimated to €203 billion.  The Government will be borrowing €8.7 billion.  This results in a debt of €211.5 billion.  Debt is rising – both in absolute terms and as a percentage of GDP.  That’s because economic growth is low and we still have a deficit.

However, the Government will be taking €7 billion from their cash balances to write down debt.  This changes the level of debt.  Let’s continue the table above.

tab2

When the Government does this – use €7 billion to pay down the debt – the level of debt falls, in both absolute terms and as a percentage of GDP.

Here is the question:  is using that €7 billion to pay down debt the best use of that money?   In the following I’d like to put forward an alternative use for that money and see what issues that throws up.

There are 90,000 people on the social housing waiting list.  There are an estimated 5,000 people homeless at any one time.  And there are tens of thousands of unemployed building workers – many of whom are being forced to emigrate.  So let’s take half of that money the Government is using to pay down debt – €3.5 billion – and use it to build social houses, house the homeless and put some people back to work.

The Minister for Housing estimates that it costs €162,000 to build a single social house unit.  This is based on requests for small developments from local authorities so this can’t be taken as average cost.  I’ve seen lower estimates but let’s work with this.

The €3.5 billion would build approximately 20,000 social houses.  This would house over 20 percent on the waiting list. And this programme could target the nearly 3,000 living in emergency accomodation.

This would make a significant impact on housing need in Ireland – though it would only be a beginning.  More housing could be brought on stream if currently unsuitable social housing were brought back into the system – the average cost of rehabilitating social houses is €17,500.

The impact on employment would be considerable.  35,000 direct jobs would be created – that is, jobs on site.  NERI estimates further job creation given the impact on downstream sectors (building supplies, transport) and the additional demand injected into the economy.

chart1

In the year that the social houses are built, nearly 60,000 jobs are created.  Of course, once a house is built you can’t rebuild it.  The need for labour goes away as it is a temporary expenditure.  However employment still increases because of the demand that was injected into the economy – even on a once-off basis.  A programme of building over 20,000 social houses this year will still mean a permanent employment increase of 3,000 by 2018.  That’s a big boost.

Stay with the NERI estimates economic growth would also be higher.   By 2018 GDP could by more than €800 million higher.

And what about public finances?    The €3.5 billion expenditure would not require extra borrowing – don’t forget, the money in the cash balances has already been borrowed.  So, neither would it require any extra taxation nor compensating spending cuts in other areas.

However, it would appear on the books – that is, it would drive up spending in 2014 and, therefore, the deficit.  But there be would be no negative impact next year.  If anything, it would have a positive impact down the years.

chart2

In 2014 the deficit would rise by one percent.  Is that important?  No.  The Minster for Finance has continually stressed that the goal is to reduce the deficit – as per the Maastricht requirements – to 3 percent by 2015.  Since the expenditure is a once-off, it is not repeated in 2015.  In fact, the deficit falls even further than the Government projections after 2014 because of the extra demand injected in the economy.  If anything, building social houses brings more manoeuvrability to public finances, not more restraint.

The only downside – if you want to call it that – is that by 2018 the General Government Debt will be 108.6 percent of GDP rather than the Government’s estimate of 107.2 percent.  Any reasonable response to that would be:  so what?

Let’s recap.  Ending homelessness and reducing the social housing waiting list by nearly 20 percent would:

  • Entail no extra borrowing, no additional tax increases, and no compensation spending cuts
  • Increase employment by 60,000 in the year that the houses are being built; after that employment would experience a permanent increase of 3,000 annually.
  • While the deficit would rise in 2014, from 2015 on the deficit would actually fall faster that Government projections.

There are other benefits.  Spending money on hotel rooms for homeless would be eliminated.  Further, 48 percent of those social housing waiting lists are in private rented accommodation receiving rent supplement.  On average, for every 1,000 social housing units built, the state would save €2.3 million on supplementary payments.  And more rental accommodation becomes available on the open market.  This would put downward pressure on rents and mean that private sector tenants would have more money to spend in the consumer economy.  There any number of benefits from building more social housing.

The only argument that could be made against this proposition is that the EU Commission would oppose it.  Would they?  Would they say – we don’t want the deficit to fall faster, we don’t want more tax revenue, less public spending, higher growth, more people at work, less people homeless and fewer people waiting on housing lists?  I know that many people don’t think much of the EU Commission but they’re not irrational.

This is one alternative to the Government’s decision to spend €7 billion on paying down debt.  Building social housing to house the homeless is both socially equitable and economically efficient. But first we have to start a debate about this.  We have to put it in stark terms.

To conclude (again):  if by this time next year if there are still people are homeless, it’s because the Government made a policy choice.  And the policy choice was to tolerate homelessness.

The good news is that it doesn’t have to happen.

Photo taken from focusireland.ie

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