A disadvantage of our five-yearly electoral cycle is that it discourages long-term thinking by our politicians.
onversely, one would think that the likelihood of losing the next election over the housing crisis would have provoked radical action – but the Government is caught in a tailspin of complexity.
This administration may just have enough time left to see new homes being constructed at sufficient scale to convince the electorate that this crisis will pass. The answer lies in the principles behind last week’s ESRI report, suggesting the State could prudently double existing borrowings for social housing construction to €4bn a year and double output to 18,000 units a year.
However, even this will still leave the overall market well short of the 35,000 units a year which are needed. The answer is to put the ESRI’s suggestions on steroids, and borrow money like no Irish government has ever done.
Interest rates have been falling since the 1980s and have hit rock bottom. Irish bond yields are negative for eight years, 0.4pc for 20 years and just 0.8pc for 30 years. The State should now borrow every last cent which can be raised for capital expenditure, and lock in the ultra-low cost of borrowing for perhaps 50 years.
This would enable a vastly enhanced public programme of house-building and investment in other infrastructure, such as hospitals and transport, as never seen before.
The money needed in the short- to medium-term should be spent, but we would also be borrowing for future capital expenditure, at guaranteed low rates.
Not only is the money very cheap, but it is readily available. And this is not gambling on interest rates. We’re in the extraordinary position where they can’t get lower. Maximising our borrowing now, for 50 years or more, is like taking out an insurance policy.
This can easily be done by governments through interest rate swaps. In fact, you could lock in today’s rates, at zero cost, for potential borrowing in five years.
Another way of doing it is to issue 50-year bonds – as the German and Austrian governments have done.
Ireland has never invested enough money in infrastructure, and borrowing for capital expenditure survives any economic scrutiny.
You can’t argue with borrowing over 50 years to fund building houses that will give at least 100 years of economic value – particularly when one current practice is leasing them and never owning the asset.
Not only that, but as the ESRI report points out, the big positive gap between forecast economic growth and the cost of borrowing reinforces the ability to fund the debt. Moreover, a programme of turbocharged capital spending on houses and infrastructure will not only help solve the housing crisis, but the multiplier effect will further boost economic growth.
I suspect that one of the reasons the State is not borrowing is the lack of any long-term vision. But if raising the money is the easy part, the hard part is using it effectively.
The Government must move rapidly to large-scale direct construction of social housing. This solves a societal problem and will reduce pressure in the “affordable” sector. More of the money should be lent to builders and developers who cannot raise finance, at a rate of 8pc.
And the State should employ contractors to build the range of private housing that we need. En masse and fast.