How many times have we seen it; the abject failure of the state and its institutions to see the blindingly obvious solutions to societal problems? The housing crises is the most obvious current one, where the state controls all the input levers, including land supply, planning, access to finance, and the cost of the finished product, and yet remarkably is incapable of reconciling the extraordinary demand with supply of high quality, affordable housing.
Minister Murphy took over Simon Coveney’s 2016 housing strategy, promising to build 25,000 housing units per year from 2020. He suggests there are five pillars to the “strategy”; address homelessness, accelerate social housing, build more houses, improve the rental sector, and utilise existing housing. In truth there is one; build more houses according to need, and the other “pillars” will fall into their place.
It is interesting to see what has happened since the housing strategy was released. In Dublin where the supply of housing is most restricted, the scorecard for housing provision is sobering; of 1,500 houses that were expected to be delivered by year end 2018, 22 are completed. To put this performance into context 200 were to be delivered by end 2016, another 800 end 2017, and 500 end 2018. By the end of 2017 it is expected that 169 out of the planned 1,000 units will be completed, all in Dublin City Council areas. The remaining three local authorities in Dublin have yet to produce any plans for housing arising from the housing strategy.
These figures suggest that local authorities, who are the house building organs of the state, are incapable of carrying out this function. If given a fair wind, in their absence the private sector could step into the breach, but there are drivers in the gift of the state that are the core problems; principally a cumbersome and opaque planning system, and the costs of development that are artificially high because of state interference.
When assessing the viability of a site, developers factor plot costs into the sale price the units are likely to achieve. After all, the cost of laying a brick is the same in Ballsbridge as it is anywhere else, and so the principal variable in deciding the cost of building is the plot cost. Given the lack of building over the past ten years there is practically unlimited demand in all areas for housing, and indeed we have seen that in the last quarter more lending has been approved by the pillar banks than was drawn down.
The issue then is the very first cost input (which arises whether a local authority or private) for the developer is the plot cost. Lesson one in economics is that where there is a demand, the absence of supply will cause the price of a commodity to rise. In this case it is the price of properties with planning permission that is rising because of unsated demand for accommodation. This feeds into a disproportionate impact of plot cost on the value of finished accommodation. Greater visibility, accessibility, speed of decision making, collaboration between developers and planners in relation to outcomes, and outcome foreseeability in the planning process is urgently needed to dial down the scarcity of plot costs as a function of property values.
Cost of state interference
Whereas 40,000 new units is the accepted number of new housing units required per year to accommodate population growth and changing household makeup for the year to end November 2016 just shy of 13,000 building commencements were reported. We can calculate the tax take on this by multiplying by the average cost of a property (€281,432 for the latest available year, 2015), and dividing that number by 45%, which is the value of the state’s share in your new house, between planning and development levies and contributions, VAT, PAYE, PRSI, stamp duties, Corporation Tax and Capital Gains Taxes. The gross sum thus collected by the state and its agents from housing is €1.65bn.
Given the demand for housing, the availability of funding to buy housing, the societal impact of the unavailability of housing, the effect the lack of housing is having on the desirability of Ireland as a destination for companies wishing to set up here, the disproportionate cost of accommodation, the inability of the public sector to deliver affordable accommodation, there is a need for new thinking that is otherwise absent.
With a little imagination and creative thinking, one would have thought the Rebuilding Ireland strategy would run to 5 as opposed to 115 pages of guff and blather, most of which will be ignored and not implemented as is the natural order of these things. Some suggestions to accomplish these include;
Insist on guidelines and targets, while committing additional resources to the planning process,
Make the planning process more transparent and efficient
Prioritise the delivery of infrastructure (roads, water, services) required for housing delivery
The effect of these changes should make more plots available for development and will inevitably soon remove their value premium currently arising.
Reduce rates of categories of taxes from those applicable to building and development that are passed on to property purchasers in the form of increased prices,
If it appears developers are not passing on decreasing costs to purchasers, increase the taxes payable on their profits,
Modify by increasing the LPT payable on the units whose cost is reduced to account for the reduced plot and development costs.
We don’t need to wait another year, or another six months to realise what is happening is not going to deliver housing. What we need are more simple and effective solutions to the problems.
Barry Lyons is a solicitor who acts for several developers. The views expressed here do not necessarily reflect those of his clients. He can be contacted at firstname.lastname@example.org