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Colin Harvey is Professor of Human Rights Law in the School of Law, Queen’s University Belfast, a Fellow of the Senator George J Mitchell Institute for Global Peace, Security and Justice, and an Associate Fellow of the Institute of Irish Studies. In November, his group, Ireland’s Future sent a letter to An Taoiseach calling for a new conversation about the constitutional future of the island of Ireland.
The polls from Michael Ashcroft – conducted by professional polling companies – gave the first indication of a majority in Northern Ireland in favour of reunification with the south, but the demographic breakdown is the real shocker:
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Following on from what I was saying at the top of the last podcast, I got in a couple of Twitter debates, I won’t say Twitter spats, it was all very polite, I’ll link the threads on the website, but I got in a couple of Twitter debates during the week. It was about housing, building and planning policies. People are, rightly, very annoyed when they see homelessness all around them, and derelict buildings, empty houses, and prime sites that lie empty for decades.
The thing is that, as with almost every problem, there a quick, simple, easy-to-understand solution that is completely wrong. In this case the two quick, simple, easy and completely wrong solutions are rent controls and using compulsory purchase orders – CPOs – to forcibly buy empty properties and house homeless people in them.
The first thing to say here is that I don’t doubt for a moment the good faith of the people who I was disagreeing with, I’m certain that they are motivated by nothing but a desire to help their fellow citizens.
But let’s take those ideas in order. The Swedish economist Assar Lindbeck, said “Next to bombing, rent controls are the most efficient known technique for destroying cities.” What he meant is that, like with any product, if you artificially lower the price, then the producers respond by just stopping the production of that product. Why should they invest over here when the government forces them to give that product away for below its market value, when they can invest over there and make more money.
Most people will see the flaw in that argument; even if it’s true that rent controls lead to dereliction, that is treating housing like just another commodity like lawnmower widgets – but housing is much more important than that, and we can’t do with a shortage of housing in the way that we could probably manage with a shortage of lawnmower widgets.
And I agree, housing is different, it’s not just a product, and that means we’ll probably need special rules to deal with it. But just because we have special rules, that doesn’t mean that people won’t still act in their own rational best interests. Everybody will still try to get the best housing they can for the best price, and developers and landlords will try to get the most profit from their investments.
At the moment we have a serious lack of suitable housing, and that is causing rents that are high and rising. But the problem is that rents are a method of rationing. Rent controls might or might not keep rents down, but they don’t produce any extra supply. So if you have 100 houses needed in an area with only 90 houses, rent control or no rent control, you are 10 houses short.
Rent controls might protect the 90 people who do get the houses from being exploited, but it does nothing for the 10 people who don’t. But the real question is what happens next? People like Assar Lindbeck would say that there is no incentive to build more housing for those 10 if the government just orders developers to make no profit, or at least a lower profit than if they built elsewhere. And, it’s worth remembering that those 10 are the poorest and most vulnerable to begin with.
But we’re in a time of crisis, mightn’t rent controls get us through that crisis, at least give some short-term relief. Well they might, but at the cost of a lot of long-term damage.
Let’s look at the current situation. I wrote a book more than ten years ago that talked about how almost all, more than 80 per cent of the building land around Dublin was controlled by eight individuals. Just eight. That piece was based on an article written more than 10 years before that, and 20 years later, the situation has not changed, it’s got worse if anything.
These individuals are sitting on that land, they can use it as equity to borrow against and invest elsewhere and make themselves even richer, and they drip-feed the housing market with land, at astronomical prices making themselves even richer again.
The great majority of their holdings they sit on, and they’d be crazy to do anything else. If they sold more than a tiny amount, they would massively deflate the price of the rest of their land banks. And, they don’t pay a cent in tax on this vast wealth. They are behaving perfectly rationally. It’s our tax laws that are irrational, and believe me that’s no accident.
These are hugely rich and influential people who are able to bend the ears and twist the arms of governments to make sure that those tax laws stay just the way that suits them. Now let’s add onto that political lobby, another political lobby. The people who benefit from rent controls. They’re renting at way below the market rate, that’s worth cash in their pockets.
This might start out benefiting normal people, but experience in places like New York shows that it’s quickly a benefit that concentrates on people who are really quite wealthy, it’s people who are looking for a new lease at market rates who pay the price. And the old money defends that privilege fiercely, opposing any development that would diminish their advantage by building enough for everyone. Put them alongside the land hoarders and that’s a powerful political force.
Or, you could go the way of Berlin, which is trying to force rent controls on all leases, new and old. Berlin is a very thinly populated city, it has a fraction of the population density of Paris, but it’s Berlin that has a housing crisis almost as bad as Ireland. And when they’re trying to deal with it with by using rent controls, they really mean business.
The city government has a special department of detectives to try to find and close down apartments let on Airbnb. They’ve tried not only to keep rents from increasing, but also tried to give themselves the power to order existing rental contract prices to be lowered, and to set the rents in newly-built apartment blocks. Some areas of Berlin even have regulations about exactly how you can renovate an apartment, you can put tiles in your bathroom, but only if they are ceramic tiles, marble tiles aren’t allowed because that would make it a luxury apartment and put upward pressure on the surrounding rents.
They are basically bringing in new laws every year in a whack-a-mole way to try to prevent the housing market from functioning. The result is that there is kilometre after kilometre of vacant land in the city, very little building going on, and a huge housing crisis.
The second issue that I commented on Twitter was an idea that we should use compulsory purchase orders – CPOs – to seize vacant properties to house people. This is well-motivated, but it’s a bad idea. It’s a bad idea mostly because there is a better way of doing this. The way to do this is to tax property. Ireland is the only developed country that doesn’t have a serious property tax. We focus all our taxes on income and economic activity. Economic inactivity gets away scot-free.
There are huge tranches of vacant building land – derelict buildings, brown-field sites, and those huge land banks, and people are sitting on them tax free. Their value is provided by the amenities that society builds around them, but they suck the lifeblood and the value out of anything that they are near.
The simple solution is use it or lose it. Tax unused and under-used land, vacant buildings, and empty houses. As soon as the owners realise that they’re costing them money, not making them money, you can be sure that they will release them onto the market; that extra supply will home the homeless and drive down prices for everyone.
Why is that better than CPO? Here’s why: CPO is a difficult, slow, expensive and cumbersome system. It has to be. You have to protect people’s rights, and if you don’t, you’ll find yourself in court pretty quick. And they have to be compensated. And that means compensated at the prices of the crazy expensive market rate that we have now.
And there is a huge systemic problem. You have to create a bureaucracy that decides what properties to CPO, and how much to pay for them. When you create a system where public servants of ordinary means are making decisions that can make or cost very rich people many millions, it is hopelessly naïve to imagine that money will not circle around and, one way or another, influence the public servants who are making the decision.
Taxes, on the other hand, are brutally simple. You make X amount of money, you pay Y amount of income tax. You have X square meters of vacant land, you pay Y amount of vacancy tax. It’s simple maths, and nothing is incorruptible, but maths is significantly less corruptible that woolly decisions made for soft, immeasurable reasons, that just happen to benefit ah very generous people.
The problem here is that nobody likes new taxes, but sometimes we need them. The real irony is parties like People Before Profit, supposedly a very left-wing outfit, voted to prevent our very modest property tax in the first place, and are now fighting like cats and dogs on local councils to keep it as low as possible, even though this means cutting services like libraries, so they can give big tax cuts to landlords and millionaires in the swankiest parts of town, while renters get nothing. That’s the real problem. Ireland is a small country. No matter what the party, the temptation to cut soft decisions in favour of your crowd is just too great. That’s why we need cold hard, mathematically calculated decisions, not sending out a public servant to decide whether his brother-in-law’s friend’s house should be CPO’d or whether his bathroom tiles are acceptable.
