The Housing Fix is a series of the Irish Times that examines solutions to Ireland’s housing crisis – arguably the biggest social and economic problem in the country and its next government – ahead of the general election.
More than a decade after the biggest real estate crash in Europe, the real estate and housing market continues to be in trouble. The Irish central bank estimates that the state will need 34,000 new homes a year to keep up with demand over the next decade.
We don’t have exact dates yet, but only 21,000 are likely to have been completed last year. Increasing pressure on the rental market forced average rents to rise more than 5 percent to a record $ 1,403 across the state in the third quarter, according to recent Department of Housing figures that 10,448 men, women and children were homeless in November 5 percent increase over the previous year.
Here, some leading real estate experts comment on the measures required to increase supply to meet demand.
Radically overtaking property tax
Chief Economist at Goodbody Stockbrokers
According to Dermot O’Leary, chief economist at Goodbody Stockbrokers, there is concern that policymakers will focus on short-term corrections to housing, the country’s main domestic problem.
“Let’s face it, governments don’t have a lot of experience in intervening in the real estate market, but there are some areas where this can have a positive impact. The first area concerns its role in the land market. The government is both direct and indirect through various government agencies the largest landowner in the country. “
O’Leary sees the vacancy levy introduced in 2015 and the Land Development Agency (LDA) launched in 2018 as good initiatives, both of which aim to free up land for housing construction, but which have so far been implemented “rather modestly”. he says.
“The LDA has been slow to achieve this, and some government agencies do not seem to allow them to interfere in their land holdings. It is unlikely that the market will be supplied with homes for a period of time. Greater urgency is required. “
The vacancy fee has had some success locally to stop hoarding land, but a “much more aggressive” implementation of the law is needed to fill the gaps, said O’Leary.
Substantial price increases for the provision of services, especially for water, would also have increased construction costs, he added.
“A brave politician could cut the upfront costs by funding these costs by radically revising the property tax system. The councils are empowered to increase property taxes by up to 15 percent, but in many cases have so far decided to lower fees for political reasons.
“By spreading the cost of providing services such as water over a longer period of time, the upfront cost of delivering housing can be reduced, which has a positive impact on the offer.”
Reduce construction costs
Founder of real estate developer Ballymore Group
According to Sean Mulryan, whose Ballymore Group is working on mixed developments in Dublin’s northern port areas and housing projects in Kildare and Dublin counties, the government urgently needs to deploy a task force to assess why building houses outside of Dublin city center is much more expensive than large English cities in Dublin.
“35,000 new homes may be in demand annually, but people cannot afford them – and that largely depends on the high standards that buildings in Ireland have to meet,” Mulryan said. “If you look at places outside of Birmingham and Manchester, property prices are almost € 100,000 cheaper than outside of Dublin. And that’s not because English construction companies work with lower profit margins. “
“The English build very good houses, but the standards we have to meet are higher. In Ireland, we have made three changes to the regulations within 10 years that have made delivery of a home costly. While some are very welcome, others have not been able to justify the increase in construction costs for the minimum efficiency they have stated. “
“The government urgently needs a task force to assess why building houses outside of Dublin city center is much more expensive than building it in major English cities,” said Sean Mulryan, founder of the Ballymore Group. Photo: Nick Bradshaw
Mulryan estimates that about 10 percent of homes completed in Ireland last year have not been sold due to affordability issues. The prices for these houses are 10 percent below the 15 percent that developers normally aim for.
The builder says that builders are also struggling with rising labor costs amid a shortage of construction workers. “I would say that labor costs in the Dublin area have increased by 25 percent in the past three years, and raw material costs in one direction only: up.” We need to train our own and convince young Irish traders that they have a future here. “
On a more positive note, Mulryan has seen property prices in Ireland stabilize in the past 12 months after rising since 2013. The developers began to question “the reality of the cost of home delivery and the affordability of buyers to the central bank.”
A period of political stability
Managing director of the real estate finance company Cullaun Capital
Stephen Bell, who served as Chief Risk Officer at Ulster Bank and AIB after the crash before founding Cullaun Capital in 2018, will need a period of political stability and consistency to drive the build up.
“This sector is all about time,” says Bell. “If someone lays the foundation stone for a residential project today, houses will be available sometime in 2021. People screaming that things have to go faster are likely to be the cause of some of the negatives, because the more unsafe builders and investors feel, the less likely they are to get involved in projects. “
While much of the political focus is on family living, Bell says more emphasis must be placed on the needs of younger and older people – with the Government’s Project Ireland 2040 development strategy, which forecasts a population increase of 1 million over the next 20 years 1 Million more people over 65.
“In Ireland, the focus is still on the solution for the living needs of a semi-D with three bedrooms and gardens at the front and back, developed in 1995. However, we do not consider different and emerging needs, ”says Bell.
“Living together is a great example,” he says, referring to accommodations that offer studio spaces with shared kitchens and living areas. “This will never be a solution for the majority of people, but it will also be a solution for some. There are many 25- to 30-year-old employees (foreign direct investments) who are not interested in owning their own home or living in a suburb with a garden. “
Bell has also called for greater cooperation between the public and private sectors. “Wouldn’t it be great if different stakeholders actually sat down in a room and found out which things the state is best at and which are left to the private sector?”
“What you have now is that the state gets involved in many ways – if it doesn’t have enough money to do everything. In some counties, raising the National Treatment Purchase Fund’s basic maintenance rate by EUR 20 per week could result in private construction of a new nursing home. Instead, you get 50 percent more money for public sector nursing homes that are of lower quality and have problems meeting the standards of the (Health Information and Quality Authority). “
Streamlining bureaucracy and regulation
New managing director at Clúid
The social housing sector, non-profit organizations and associations, including many charities, accounted for around 40 percent of social housing production last year. With increasing demand, this production will continue to grow. Fiona Cormican is the new managing director at Clúid, the largest housing association with 7,500 properties. It is one of the largest developers – and landlords – in the country. Cormican believes that it is important to recognize social housing as a “very valuable piece of the puzzle” of all housing supply, not just an add-on.
Clúid focuses on new buildings. Last year, more than 300 houses were completed, and it is planned to exceed this by 2020. Both are manufactured as part of traditional procurement – with Clúid being responsible for the design and tendering for the construction or design and construction, with the contractor taking responsibility for both design and construction.
Cormican says the models used can deliver new buildings for € 245,000 or less. The organization manages the rental contracts, whereby the tenants are usually dependent on the differential rent and the payments depend on income. The locations are selected according to the needs of the municipalities. Funding is provided through government grants and loan funding from the Housing Finance Agency.
She believes the sector is set for further growth. The Irish Council for Social Housing has around 270 associations, many of which are much smaller. Many have innovated in terms of design and energy efficiency. The strength of organizations like Clúid lies in their years of experience in development and the models that have been developed in cooperation with small and medium-sized construction companies for efficient delivery.
Progress could be made even faster if bureaucracy and regulation were streamlined with efficient processes between local authorities, builders, associations and the government. Everyone is working hard to improve delivery, but every effort must now be made to accelerate supplies. This in turn can enable families to move out of private rental housing and free up more space in this sector.
Increase the range of affordable houses
Managing Director of the Bank of Ireland Corporate Banking
The gap between supply and demand for new residential property is expected to close in another five years, according to Tom Hayes, chief executive of the Bank of Ireland Corporate Banking.
“We need creative solutions to alleviate the problems of the future, and we shouldn’t be afraid to question the approaches of the past. We need to examine what we build and where we build, the height and density of our homes to create sustainable urban areas, and the specific needs of an older population.
“It is clear that there is one area of the housing sector that is not adequately supplied – affordable housing. We know that there are a number of house builders and other stakeholders who are considering ways of increasing the supply of affordable houses and we believe that local authorities should do more to reduce pressure in this area ,
“This should include local government making an equity contribution to the cost of purchasing a new home and then maintaining a stake in that property for the life of the owner. Banks clearly play a role here and we are currently reviewing a few options in this area. “
While Hayes says the central bank’s regulations on mortgage lending control excessive inflation in property values, they price new homes at a time when costs are rising.
“Input costs such as labor and materials are under upward pressure, and government tax revenue still accounts for a significant portion of all costs. To increase the supply of housing, we need to look at all of these factors and have some mature conversations. It must be profitable for home builders, offer a reasonable profit margin and affordable for first-time buyers. “
Remove PRSI and USC from rental income
Head of Housing and Advice at Sherry FitzGerald
The government’s 2020 budget decision to extend the system of buying assistance for first-time buyers until the end of 2021 should support housing construction, particularly in rural Ireland. However, the pace of activity growth will inevitably disappoint without further intervention. According to Marian Finnegan of Sherry FitzGerald, the largest real estate agent in the residential property market.
“Our housing market requires a lot more than just homes for first-time buyers,” she said. “The number of available rental properties has decreased rather than increased in recent years, which is mainly due to the withdrawal of private investors from the market.”
Finnegan believes that it is clearly cautious to adopt policies that stimulate or encourage new private investors. “The reintroduction of 100 percent MIR (mortgage rate relief) into the 2019 budget was a small step in the right direction. However, the market cannot afford the luxury of baby steps. radical measures are needed. “
Simply removing PRSI and USC from rental income would have a positive impact on income returns and supply, she says.
Sherry FitzGerald estimates that the demand for new homes is currently around 40,000 a year. “All measures, including a reduction in VAT on construction activities, particularly those related to the development of housing, need to be reviewed in the light of this persistent imbalance,” said Finnegan.
“All in all, we have to be willing to take bold positive steps to offer all types of real estate, rental properties, real estate that makes it easier for us to get started, real estate that we need to trade on, and equally important real estate that we target have to act to increase. One approach is not enough – the time for crisis solutions is now. “
The buy-to-rent sector is the key
Joint managing partner of the developer Quintain Ireland
Eddie Byrne, who was jointly responsible for the development of more than 9,000 homes at the US private equity group’s Lone Star bank near Dublin in the coming years, says the buy-to-rent Sector (BTR) plays a key role in increasing supply.
“Critics at BTR have missed the point: we have a housing crisis, not a housing crisis,” he said. “There are simply not enough houses, regardless of whether they are owned, rented, social or shared. The only measure that will change is to increase the supply of all types of accommodation. “
Outside of Dublin’s small pockets, Byrne says it is not profitable to build apartment blocks for owner-occupiers, as the construction costs are in relation to the selling prices.
“This means that the BTR developments do not shift the opportunities for owner-occupiers, but offer vital care that would otherwise not be available and serve a large group of people who rent without necessity. Satisfying this demand is the key to stabilizing rents. “
Byrne says there needs to be a better understanding of how government intervention can both support and hinder the market.
“We have the buying support system that has helped thousands of people buy their own home and has expanded the pool of potential buyers. It is crucial that this did not lead to an increase in property prices due to the macroprudential regulations of the central bank.
“While the loan is unlikely to change by 3.5 times the salary, it is worth noting that it is one of the strictest ceilings in the world and is driving many aspiring homebuyers into an underserved rental market.”
Increased building codes have been estimated to have contributed more than € 30,000 to the cost of each house in the past five years, he said. “Environmental and safety regulations are critical, but since the tax authorities tax a significant percentage of the cost of each new home, is there a way to share the cost burdens of the regulations to make more projects profitable?”
Additional reporting: Cliff Taylor