Irish Housing: private developers cannot deliver cheaper housing than the public sector

After the launch of the Irish government’s “Rebuilding Ireland” programme, TV3’s “Tonight with Vincent Browne” on 19 July 2016 discussed the plan and the general issue of housing. One of the main points discussed was whether houses should be built by the state or by the private sector — and who could do it at lower cost.

It is particularly hard to believe that profiteers can offer houses to the market for cheaper prices than public bodies can. Like any capitalist enterprise, the private house-building sector will only sell houses to the market when it is profitable to do so. In today’s case this happens to mean selling at prices that few can afford. The risks are too high for developers and banks will not lend to them. As such, they have all but stopped building. In response to this, Ireland’s minority government have offered a whole package of subsidies in their “Rebuilding Ireland” plan to get private developers building houses.

On the housing episode of “Tonight with Vincent Browne”, Financial Analyst Karl Deeter from the Mortgage Brokers Association expressed his view that, along with Fine Gael TD Colm Brophy, he doesn’t mind whether the state or the private sector build the houses. Deeter, the former ethics officer for Renua, went on to say that he thinks the private sector is capable of delivering housing cheaper than the state, claiming that “the cost of delivering housing is not cheaper when built by the state. And that is just a fact. The same as gravity is just a fact”. He cited “costs that are difficult to account for, like how you personally socially value something” which need to be taken into account when considering the cost of housing.

Deeter’s main reasons for arguing that private developers could deliver housing cheaper than the state are discussed below (these were published on factcheck article at following the televised programme). To each claim a response is offered, which argues further the need for a state-run house-building programme.

Claim 1: ‘Local authorities would have to pay permanent employees (as opposed to contractors) to do the work’

Response: All workers should have a right to permanent employment, and should not have to follow precarious work patterns working simply when private capital requires their labour. Given the scale of the housing crisis in Ireland, the extent of the works required certainly means that there is is a strong case for the state to provide permanent employment to a large number of workers to get the necessary houses built.

Claim 2: ‘They would have to pay them premium rates’

Response: If the alternative is low wages, then the idea of workers being paid premium rates is definitely a positive. Higher wages mean a better standard of living, and also has advantages for the wider economy.

It is unsurprising that a commentator in favour of boosting the private sector is also keen for wages to be kept low. Low paid workers would, quite simply, not be able to afford the houses they are building.

Claim 3: ‘They [the state] would have to accrue a “large trailing liability” in the form of pensions’

Response: Pensions look after society’s eldest. Profits pocketed by housing developers do not. It may be that Karl Deeter prefers for the house cost not to incorporate a small amount towards looking after people later in life. Public sector pensions for construction workers are by no means a drain on an economy. Private developers, who sell at prices which few can afford and put homeowners in unmanageable debt, on the other hand, do create a significant drain on the economy as was witnessed in 2008 and onwards.

Claim 4: ‘State procurement takes longer and is more expensive than private procurement’

Response: This is speculative. The state has every means of getting jobs done when it wants to. Today’s situation is more one in which the state does not have the political will to carry out a house-building programme. In general, state procurement which ‘takes longer’ uses systems designed to get the best value and quality. The cost of procurement is minimal on the scale of infrastructure projects.

Claim 5: ‘The private sector tends to deliver infrastructural projects more quickly than the State, which would save money’

Response: There is no reason to believe that the public sector is not potentially as capable of delivering infrastructure projects just as quickly as the private sector. We need only to look at the efficiency with which the government is carrying out their nationwide water meter installation programme. If there is the political will to do something, public bodies are more than efficient and fast at completing a set of works.

The private sector will only deliver housing to the market if there are financial incentives — which come and go. The country’s housing situation is currently too critical to rely on financial incentive.

Claim 6: ‘There would be higher “input prices” (the cost of building materials, basically) because suppliers tend to charge more in bidding for State tenders’

Response: This is again purely speculative. If the state were to undertake a mass house-building programme on a large scale, its purchasing power would mean that it could buy materials at a much lower cost than the private sector. Fine Gael Housing Minister Simon Coveney himself told radio shows on the day of the launch that the state’s tendering programme would ensure that the best price could be achieved.

Even if the private sector could build houses at lower prices than the public sector, which is highly unlikely, this would come at a cost of low wages, poor employment, and a lower quality of housing. The right wing arguments made against the state building of housing are from the same philosophy of austerity, low wages, and economies prioritising private interests rather than public good. It is abundantly clear that a continuation of these policies, which have so far failed to show any benefits, will do little to resolve Ireland’s housing crisis.