* IMPORTANT: After signing your name please verify your signature by clicking on the confirmation link that will be sent to your email account. If you miss this step then your signature will not be included.  Thank you for the support.

HOUSES FOR HOMES, NOT FOR PROFIT

This whitepaper/petition looks to start the discourse on the idea that residential property should only ever be owned by a person or the state itself.

It looks to outline the benefits that adopting this change would have for the people of Ireland and it also explains how this policy change could, and hopefully would solve the housing affordability crisis currently experienced in Ireland.

A house/ home is a fundamental requirement for a person to live, while a company can never live in a house. Is it time to draw up a new social contract to protect one another and should we now consider banning companies from owning residential property? Not from building it or selling residential properties, just from owning them. This ban would only apply to residential property not commercial or industrial property.

UNDERSTANDING THE ISSUE -why the status quo is no longer fit for purpose.  

Before I make a few observations, I should point out that this paper is politically agnostic and has no agenda other than starting the debate on a policy change that I believe is now essential to ensuring a secure, fair and sustainable residential property market for generations to come. Anything outlined below is by way of highlighting the bigger picture and is not part of any sub agenda and should not be taken out of context.

Broadly speaking, what has been unfolding in capitalist countries over the last 100 years is a consolidation of wealth. Globalisation, successful corporate lobbying, societies shift towards a materialistic value system and centralised governing systems has allowed individuals and companies amass huge amounts of wealth giving these companies and individuals significant competitive advantage.

These companies in the past tended to operate in their immediate geographic location but with the proliferation of globalisation it means these companies now operate on a global scale. We can see that in Ireland as we now have US, Chinese, Russian, European, UK, South Korean and Brazilian funds to name just a few buying up Irish residential properties in huge swathes.

There are several issues with this new corporate landscape. The people of Ireland, who require a house or home to live in Ireland are now competing with corporate entities to purchase these houses. Not only can these companies never live in these houses, but they are purchasing these houses to make a profit. So Irish people are now competing with companies to purchase something that is a fundamental basic requirement for them.

When you dig into the competitive landscape of residential property a bit more you really begin to realise how allowing these companies to purchase these houses that we need to live is actually causing most of the affordability issue.

UNFAIR PLAYING FIELD

A company only pays taxes on its profits. They earn their revenue (income) then they take off all their operating costs and outgoings (wages, rent materials etc) and only then do they pay a very small amount of tax (12.5%) on this leftover profit figure.

We the Irish people pay a far higher tax and we pay it on our top line income before any costs come off. At the highest rate we pay 52% on all our income before we deduct any costs whatsoever. If we were to be treated the same as companies, we would deduct all our monthly running costs (mortgages, rent, food electricity etc) and only pay 12.5% on whatever was left over.

So you can begin to see how a system configurated like ours, really favours a company over an individual. Now if this person and this company are competing to purchase the same house you can see what an advantage the company has already. It is important to remember that the company is only buying the house to generate a profit while the person is buying the house as they need somewhere to live.

In 2016 (census year) the Central Statistics Office (CSO) compiled a report titled “The 2016 Geographical Profiles of Income in Ireland 2016.”

In that report they outlined the following data point

Nearly two thirds (62.6%) of Irish households had a gross income of less than €60,000 in 2016. In contrast, only 14.1% had an income above €100,000, see Figure 1.2.

(follow link for full report https://www.cso.ie/en/releasesandpublications/ep/p-gpii/geographicalprofilesofincomeinireland2016/incomeinireland/

It is important to note that this was based on households and not individuals so the average income above is for the entire household.

This report is useful because it gives an indication of the earning power of the Irish population. If you extrapolate that further and apply the current bank lending restrictions, whereby you can only borrow up to 3.5 times your salary then 63% of the country would not be able to borrow more than €210,000 (3.5 x €60,000) at a time when the average asking price in the country is €303,000 and €412,000 in Dublin, according to the MyHome.ie Q2 2021 Property Report in association with Davy. I appreciate that the earnings figure is from 2016 and the house figure is from 2021 but what they show is that average prices in the country are up to 50% more than what 64% of the country can realistically borrow from a bank. put into plain English that means that 64% of the country would need to be able to borrow 50% more than they can currently to be able to afford an average priced home.This is a huge divide.

(follow link for full report https://www.myhome.ie/reports )

WHY IS THAT

So why in a market that has a limited purchasing power do prices run so high? Surely the house prices should be set by the affordability of the people who need to live in them. You would think that would be the rationale but unfortunately, it’s not.

Ireland is a small open economy. We are constantly told that Foreign Direct Investment (FDI) and a low corporate tax base is the lifeblood of our economy. It gives us a good insight into the thought process of the advisors advising at the governing level and the prioritisation of certain sectors.

After the great financial crash in 2008, investment funds were invited in and actively sought out by the government who had been advised at the time that this was the only way to stabilise the ship and prevent catastrophic damage to our economy. Taxpayers had already stepped in to bail out the banks and all the foreign funds did was purchase the property portfolios from NAMA who had already bought these properties at a huge 30% discount from the banks (this 30% discount was enabled/facilitated by the state(taxpayer) who nationalised some banks and parts of others).

Ireland has been a success story for these funds who have gotten rich on the profits they made in the preceding years. We still have funds who own thousands of Irish homes, renting them out for profit even though these homes are worth about twice as much as they already paid for them. The profit to be made in Ireland can still be seen easily by the influx of build-to-rent complexes whereby developers build hundreds of apartments and sell them onto funds who then rent them to the Irish people for profit. As if the funds didn’t already have enough of an advantage from the tax laws outlined above, these relatively new schemes have the effect of stopping the Irish people from even competing to buy these units as possible homes. 

You can’t blame the funds for coming into Ireland to make a profit or for building these build-to-rent schemes, after all they are companies and their mission statement is usually to expand and make profit. However, you can clearly see how disruptive and unfair this model is and how it creates an affordability crisis in the residential housing market and does not benefit the Irish people in the slightest.

If you look at the following very basic example (for illustrative purposes only) you can begin to see how allowing these multi billion corporate entities to compete with Irish citizens is the biggest driver of the affordability issue.

Suppose there were only 100 people living in Ireland and there are only 100 houses too. In this closed system the prices of houses will be dictated by the earning power of the Irish citizens (the people who will ultimately live in these houses). The people earning the most will pay the most and will purchase the best houses but nearly everyone who wants to purchase a house will have the possibility of purchasing a house if they want to, as the market prices will be dictated by the collective earning power. So as people buy the houses the remaining pool of people will compete for the remaining houses until we get to a point where everyone who can buy a house or wants to buy a house will buy or at least have the option to buy one.  In this scenario the prices will be dictated by the real residential economy demand (by the people who will ultimately live in the houses)

Now take this same example and add in 10 multibillion-dollar corporate entities with far deeper pockets. As they will be able to outspend anyone in the market, they will have the pick of the houses they want, and as long as they can see a way for them to make a profit, they will continue to purchase houses. In this scenario the prices of houses are no longer set by the earning power of the Irish citizens who will end up living in these houses. In this scenario the price of houses will be significantly skewed upwards because of the presence of these companies who can never live in any of these houses and who are only there to make profits.  If/when these funds purchase a significant number of the houses, the Irish people will have to pay more for the remaining houses. In this scenario there will be people who could have afforded to buy a house in the first scenario who won’t be able to purchase a house now as the prices are no longer based on the earning power of the real residential economy demand.

It is my belief that some areas of our society are so essential that they should be protected from profiteering. We saw it with the water charges. Irish people had always paid for the water systems in Ireland through taxes and when the government tried to privatise the system and introduced a possibility of a private company making profit off something as fundamentally important as water, we all said no. I would argue that housing is as fundamental a requirement as water and should be protected for the Irish citizens. We know that companies will do what companies do and will try to make profit wherever they can so if we are serious about protecting the residential sector and the Irish people, then we need to introduce an outright ban on companies purchasing residential property.

Remember democracy is only a system to do the will of the masses. And if we, the Irish people feel strongly enough about something that is not being addressed by our public representatives then we have a duty to raise the flag and bring it to their attention.

The only reason we have public representatives is because it would be far too hard to get 5 million people to vote on every issue, so we vote for representatives to represent our will at government level. Sometimes this basic tenet of democracy gets lost in the mix so it’s important that we as citizens raise the alarm and give an alternative solution to be debated when we see things going wrong.

The above policy change of banning companies from owning residential property is only the start of the debate, and tons of logistical things would need to be considered, Like how would we introduce it? I would suggest that this policy could be grandfathered in whereby any companies that currently own Irish properties wouldn’t have to sell immediately. But when they do eventually sell, they have to sell to a person or the state and they cannot buy more. That way there would be no market crash event and ownership would transfer at a manageable cadence. I’d also suggest you’d probably need to put in an upper limit on the number of homes an Irish individual could own as without that you may move from a scenario where a company owns 10,000 homes to one where an individual owns 10,000 homes. But given the far higher tax on individuals as outlined earlier I suspect that might not be an issue. Either way an upper limit of 10-20 houses per citizen could be introduced as that would give scope for a healthy renting market (but would stop any person affecting the market in any serious way) for anyone who did not want to purchase and would also allow people buy houses for their kids if they wanted to.

Some will rightfully point out that as we are part of the EU these rules would have to be extended to all EU citizens too. My response to that would be that is the current state of play too and the issue of affordability is not being caused by French or German citizens buying houses in Ireland, but by large corporations buying them. There is also a lending phenomenon that depresses that kind of interest because banks don’t really like to lend to people who are not living in the country where the property is situated so if you were an Irish citizen living in Ireland you might be able to get a rate as low as 2% for mortgage on an Irish property but if you were an Irish citizen living in New York you would be paying a lot more at around 5-7%, if the bank would even lend to you at all.

Others who are current property owners might be worried about what a policy like this might do to house prices, and admittedly as it’s never been done before, we can’t know with any certainty. It could stagnate the prices of houses for a decade or two, but is that necessarily a bad thing if you are buying a house to live in and not make profit from? It might even cause a slight correction in the short term, but again that is no reason not to do it.

Full disclosure here, I am a property owner and a policy like this is more likely to devalue my house than make it appreciate in value, but I am happy to pay that price if it happens, as I am one of the lucky ones who has a house. If we keep on the current trajectory, we could conceivably end up in a not-so-distant future were companies and funds own all the residential houses and the only option is to rent. That is not a future I would like to embrace, nor is that a future I would like to inherit.

The property affordability crisis is very similar to the climate change issue. Correcting it will require change and some people may have to shoulder a bit of the pain but not addressing it and pressing on with the current set-up is guaranteed to end badly.

Luckily, the affordability crisis is unlike the climate change crisis in one important way, insofar as it can be addressed very easily and relatively quickly if we decide we want to fix it.

My decision to write this whitepaper is not borne out of any personal agenda for myself, in fact this policy change has more chance of hurting me than helping me, but it’s not about me or any one individual. It is about our society and community at large and what is best for us, both now and in the future. For me this crisis is nearly an ethical one. We need to do the right thing for each other, and we need to act now.  

If you are already a homeowner, you realise the security that owning a house gives you (both now and when you retire, as you will likely have paid off the mortgage by then). I believe we should all be helping each other to be able to realise the option of that security in our lifetimes.

If you are one of the very lucky who own a house that is valued at over €800,000 your initial reaction to a policy like this might be fear, or self-preservation. What happens if my house becomes worth less in the short term? It might!  A policy like this may have adverse effects on the price of residential property in the short term but the property market has a natural cycle anyway and price corrections come with the territory. Property prices have crashed time and time again but over the long term they have always appreciated. While there may be short term pain (there may not be!) the benefits enjoyed in the near future and by future generations will greatly outweigh any challenges we might face in the short term.

Another interesting observation about houses that are worth more than €800,000 is that most of the people living in them would not be able to afford to buy them under the current lending guidelines based on the salaries they earn. So if you were lucky enough to have bought a house in the 50,s, 60’s, 70’s, 80’s or 90’s for between €2,000 and €250,000 and that house is now worth €800,000 plus then you have enjoyed extraordinary luck and have benefited from asset growth that was largely created through huge debt programs that are now falling on the shoulders of current and future generations. I truly believe that without corrective action taken now we are on a trajectory where the option to own your own home will only be available to the top 10% in the not-so-distant future.

This whitepaper is only designed to start the debate on this idea that companies should be prevented from buying residential properties, and all of the above challenges will come out in the wash. If you agree with the idea in principle, that residential property should only be owned by people or the state, then we can work out how to make it happen. When we decided to go to the moon, we didn’t do it by listing all the reasons why it would be hard, or the challenges we’d face, we decided what we wanted to do and we set out to overcome those challenges. If we believe that residential property should only be purchased by the people who need to live in the houses, then let’s all agree on that and then we can work out how to make it happen.

This paper is not about bashing anyone or any government party or looking to blame the current crisis on any government policy. This paper is about being honest with how we got here and getting consensus on the solution.

Running a country is a very challenging task and thankless at the best of times. You inherit structures and policies that are not fit for purpose, and you end up fire fighting for your entire term struggling to implement the changes you set out to address. I’m thankful to all the public representatives who serve us and do the jobs they do. I don’t for a second question that they do them to the best of their abilities too, I’m just trying to do my part as an Irish citizen to help the country and people I Iove.

The recent publication of “Housing for all -  a New Housing Plan for Ireland states the following

“Housing for All - a New Housing Plan for Ireland’ is the government’s housing plan to 2030.

It is a multi-annual, multi-billion euro plan which will improve Ireland’s housing system and deliver more homes of all types for people with different housing needs.

The government’s overall objective is that every citizen in the State should have access to good quality homes:

·    to purchase or rent at an affordable price

·    built to a high standard and in the right place

·    offering a high quality of life

https://www.gov.ie/en/publication/ef5ec-housing-for-all-a-new-housing-plan-for-ireland/

While I commend the spirit and intention of the plan, I don’t think it will be realisable, and will be destined to fail until we address the cause of the affordability crisis which is companies buying properties to make profit. I would argue that until you ban companies from purchasing our homes, no number of new builds will solve this affordability crisis. If we want to get serious about achieving housing for all at an affordable price then we need protect the residential property sector and ensure that the houses that get built are built for people, bought by people and remain owned by people.

I genuinely love our country and I’m thrilled to be living here, I love the Irish spirit, I love how we put people first, I love our compassion and artistic nature, I love how we were voted the best good country in the world recently and I also love how we are known for being world first adopters of progressive ideas. I hope this idea will be added to the list in years to come.

Where there is a will, there is a way and if the Irish people believe that the above policy change makes sense and will lead to a more sustainable residential property market for us and the generations that come after us then I would urge you to add your name to this petition. If this petition gets 100,000 signatures, I will Petition the Houses of the Oireachtas on your behalf. While a petition to the House of the Oireachtas technically only needs one vote, as with anything there is power in numbers and a petition by 100,000 has a far greater chance of being taken seriously than a petition by 1.

I appreciate the time you spent reading this whitepaper. Not all will agree with the above and I respect your opinion whatever it is. This piece is not intended to be read as fact but more as a thought provoker on whether we need to draw up a new social contract with each other on how we treat residential property. Will this proposal benefit the generations to come after us? only time will tell. If you agree with the proposal that only people and the state should be able to buy residential property, then please sign this petition and send it onto anyone you know who might be interested too.

Yours sincerely

John Mathews

* IMPORTANT: After signing your name please verify your signature by clicking on the confirmation link that will be sent to your email account. If you miss this step then your signature will not be included.  Thank you for the support.