Monday 21 August 2017

DCC's decision on student units defies any logic

The first students have arrived at the new Grangegorman campus in Dublin 7 — but where will they all be accommodated?
The first students have arrived at the new Grangegorman campus in Dublin 7 — but where will they all be accommodated?

Ronan Lyons

A couple of weeks ago, Dublin City Council sent back two planning applications for student accommodation near the new DIT Grangegorman campus in Dublin 7. Combined, the two private developments would have added about 1,000 new purpose-built student units.

In justifying its decision, the council made two interesting - ok, baffling - points. The first was that it feared an 'overconcentration of student accommodation' in the area. It is as if, when agreeing to locate DIT on one site, nobody thought that these 20,000 students would need somewhere to live.

That is, to me, baffling enough. But follow this logic through. Economists are obsessed (rightly so, in my view) with the concept of opportunity cost: what happens if you don't do something is as important as what happens if you do something.

This is particularly important if we think about the fear of displacement. I should point out that I'm a local resident myself and neither I, nor anyone I've talked to, is worried about this if student accommodation is allowed to go ahead.

However, some local residents, according to media reports at the time of the decisions, fear the area will become overwhelmed with students. Again, this fate was largely sealed once it was decided to locate DIT on the site.

I studied the dynamics of the purpose-built student accommodation sector closely last summer and part of that work involved understanding how students currently live. It seems reasonable, based on the evidence, to allow for about one-third of Irish students living at home with their parents - this is about twice the UK fraction.

But the important stuff is what happens with the other two-thirds, not the ones who stay at home with Mammy. Currently, the typical student lives in a three- or four-bedroom house with a number of other students. Each has a budget of €500 a month - closer to €600 in Dublin.

This means that, once DIT is ready to go, a group of four students will have a budget of between €2,000 and €2,500 a month to rent a family home. How many 1-income or 1.5-income households could compete with that?

In short, I can't think of a way to displace local residents from Dublin 7 more rapidly than to put DIT there and not allow student accommodation to be built.

It gets worse, though. The council goes on to question the need for student accommodation. It asks the developers to justify why they are building student accommodation at all, "rather than standard residential accommodation".

Before we get into the numbers, think about that for a second. A private company does its market research. It is fully aware that DIT itself plans to provide student accommodation and it is acutely aware that competitors are also at work building homes for students.

Nonetheless, developers crunch the numbers and are happy that they will easily fill 500 new units. Not only this, they go off and raise capital to do the same. Raising capital means convincing quantities of people, probably in London or New York, that they are not going to back a loser. This will include articulating the need.

After all that process, the company have their funds, happy that not only have they vetted their own numbers, but that they have people who are putting savings on the line. Then, after all that, the council turns around and questions why are they doing this in the first place.

We need to stop questioning the motives of those who want to develop. These are pretty obvious: they spot a need and want to meet that need, in doing so making a profit. It doesn't really get any more or less sinister than that.

But Dublin City Council's response makes even less sense when you look at the numbers. The city is already grossly understocked when it comes to purpose-built student accommodation. In 2016, there were roughly 76,000 students in the city, of which 42,000 were 'non-local' (from outside the city).

Only 11,000 of these students could be accommodated in purpose-built student accommodation, however. The other 30,000 'non-locals' (including many international students) had to find homes in the private rental market. This means three- and four-bed houses which could have accommodated families on lower incomes.

So, even in 2015, Dublin - and Ireland as a whole - desperately needed new student units. But the picture looks far worse as we scroll forward. Basic demographics tell us that the 18-22 year-old population will rise by 60pc between 2014 and 2029.

On top this, you need to add in net migration, rising enrolment rates and a growing share of international students. Taking these into account, the total number of third-level students in Ireland is set to rise from 168,000 in 2014 to between 250,000 and 300,000 by 2024.

Focussing just on Dublin, and allowing for the fraction living at home with their parents - and even allowing for half of all students to still live in the wider rental sector - Dublin needs at least 30,000 new purpose-built student units in the next few years.

That's 60 blocks similar to the ones the council has just sent back to developers. And we wonder why rents in Dublin 7 have risen by 75pc in recent years.

It's particularly concerning to hear the council talk about 'standard residential' vs student homes. Dublin has in recent years had a chronic shortage of each of the following: office space, hotel rooms, student accommodation and apartments.

Starting with office space, and now spreading to hotel rooms, these problems have been righting themselves. This is what a smart city does: it harnesses developers, and the capital they have access to, to meet its needs.

If there is a problem when it comes to the viability of building apartments in Ireland - and there definitely is - then this needs to be tackled directly. Holding up much-needed student homes as hostage definitely won't solve the problem.

In fact, it will make it worse. Rents in Dublin 7 will rise even further and locals will feel more displaced.

Ronan Lyons is assistant professor of economics at Trinity College, and author of the Reports

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