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Ireland’s housing market has too many regulations, not too few

It was not especially shocking yesterday to read an article in the Irish Times lamenting the fact that the Irish State, in 2009, banned the construction of “bedsit” apartments. That was, after all, a catastrophic mistake: Bedsits were being built, and bought, because people wanted to live in them, because they suited their needs. They are ideal for single people who want a modicum of independence, a space to call their own, a first step on the property ladder, and a chance to move away from home. It was always madness to ban them.

No, the shocking part was the identity of the author of the piece: No less a voice than that of Una Mullally herself, perhaps the most consistent and relentless advocate of Government intervention in the housing market in Ireland over the past decade. Here is some of what she had to say:

What happened with the bedsit ban was that a layer of inexpensive accommodation was stripped out of parts of Dublin in particular, but other cities too, leaving people – many already vulnerable to eviction or arrears – out on their ear. And that cheap accommodation was never replaced with something decent at similar prices. Instead, people on very low or no incomes, were left to compete with everyone else for shelter.

This is so self-evidently correct that there is not much point adding to it. Economists can make the straightforward economic case for why the ban was a mistake much more effectively than we could here, so let’s just leave this part of the article with a statement so rare, and so unusual, that the words should be treasured, savoured, and rolled gently across the tongue:

Una Mullally is right.

The much more interesting question, and one that deserves a discussion, is why we got it so wrong in the first place. And that is not an economic question. It is entirely an ideological one.

The impulse to ban bedsits comes, in effect, from the same good intentions that brought us the minimum wage, and social welfare: That there should be a standard of living beneath which nobody in society should be permitted to fall. A social safety net. This is a good, and noble impulse. But the difficulty is that implementing it is not easy. There are two broad ways to do it: Positive measures, and negative measures. A positive measure is something like social welfare: Just give people money. That will increase their income. Usually, it works, unless you spend too much and run out of money.

But banning bedsits falls into the same category as the minimum wage: Neither costs the Government anything. They are imposed by regulation, and they limit the choices a person can make. The minimum wage works so long as it is low enough for employers to afford. After all, if you wanted to abolish poverty, why not just raise the minimum wage to €100 per hour? Everybody would earn €4,000 for a standard working week, and that would be the end of it, right? Of course not. It would cause massive unemployment. And of course, many people would have freedom taken away from them: If you want to work for €25 an hour, and you think it is worth your while, why shouldn’t you have that choice?

This is the problem with trying to abolish poverty or inequality by law and regulation. It simply does not work. When Ireland banned bedsits, the thinking was that people were being forced into them. And, of course, that was partly true: Nobody would live in a bedsit who had the choice to buy a two bedroom apartment. The problem is that the reason they were buying the bedsits was that other people were already buying the two bedroom apartments, and the studio apartments, and all the rest, and those who would previously have bought bedsits could not compete with them. Rather than raising people on the bottom rung of the ladder up, we kicked them off the ladder altogether.

The same principle applies elsewhere: Imagine, for example, if you abolished private schools, as some in Sinn Fein and Labour want to do. Would this “increase equality” in education, as they claim? It probably would, actually.

But that is not the problem. The problem is that it would increase equality not by making public schools appreciably better, but by making private schools worse. You would lower the overall standard of education, just to tear a few rich kids down. And they’d probably just pay for grinds anyway. This kind of thing, repeated often enough, is why every communist society ever governed has ended up equally poor.

And that’s what we did with Bedsits. We thought we could abolish poverty by law, by making it illegal to build houses that poor people could afford.

The end result, in fact, has been more competition for houses on the next rung up the ladder, which, in turn, affects the next rung, and the next rung. By reducing supply, we have driven up costs, and in so doing, created far more poor people (in terms of housing) than we had before.

And of course, we have not stopped there. Rent controls will have the same effect, discouraging, as they do, new landlords. Landlords in Ireland are fleeing the market in record numbers. Here is a secret: They are not fleeing the market because there is too little regulation.

Almost all of Ireland’s attempts to alleviate housing poverty over the last decade have made the problem worse. The solution is to allow the market to provide what consumers want, and get Government, and City Councils, out of the way as much as possible. Unfortunately, we seem to still have a long way to go before people figure that one out.

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