We have a housing crisis. 90,000 on the social housing waiting list of which 60 percent have been waiting for two years or longer. The private rental sector is not fit for purpose for many household types (and, in any event, is a highly fragmented, mom-and-pop operation). There are over 100,000 in arrears and that doesn’t count buy-to-let mortgages. The planning system is unreformed and we are stuck with inefficient and costly suburban sprawl. And there is a major supply problem in the main urban areas, especially Dublin, where rents are experiencing double-digit inflation.
So what’s the answer? Blame the workers, of course.
Prime Time had a feature on the housing crisis followed by a panel discussion. And what comes up? The alleged high cost of labour in the construction sector. There were two parts of these assertions.
Hubert Fitzpatrick of the CIF claimed:
House prices today are approximately 50 percent of where they were seven years ago but the cost of actually building those houses has not fallen by the same extent.
Economist Ronan Lyons stated:
The Government needs to be very forensic in saying if we have labour costs in construction that are 25 percent higher than in West Germany, why? Is there a reason for that? Can we get our labour costs in line with Eurozone partners?
We have had a spectacular roller-coaster ride in the property market, fuelled by speculation, non-regulation, massive capital inflows and, then, outflows – and we come back to ‘wages are too high’. You really would weep.
How valid are these assertions? Not very when you look up some basic facts.
First, it is true that property prices have fallen substantially. It is also true that building costs haven’t fallen by the same extent. But during the boom period house prices rose at an exponential rate compared to building costs.
Between 1994 and 2007, new house prices more than quadrupled. Construction costs didn’t even double. If house prices were to fall back in line with the cost of building a house, they’d have to fall even further, by more than a third. If there are problems in investment returns or margins, it’s not coming from the cost of building a house – of which wages are a significant component.
What about the claim that construction labour costs are 25 percent higher than West Germany? Here is the latest data from the European Labour Force Survey which measures labour costs per hour.