Friday 31 October 2014

Construction recovery is vital but we mustn't repeat past mistakes

Published 24/02/2014 | 02:30

'SHOVEL it or get off the plot" is a way of characterising the Government's planned approach to developers. The Coalition wants the construction sector to increase its contribution to the economy. While not wanting to repeat the dependency on a building boom of the Celtic Tiger era, the level of building of family homes, offices and infrastructure isn't matching the requirements of the country. Construction activity of just 6pc of GDP is about half what is envisaged as sustainable for an economy of this size and level of growth.

The lack of building is also keeping those who are only qualified to work in the construction sector on the dole queues. Getting the labour-intensive construction industry back up to 12pc of economic output will create another 60,000 jobs.

And the market is demanding affordable family homes in certain parts of the country, notably Dublin.

In an effort to get building going again, the Coalition is planning a number of policy changes. Greater flexibility in the planning system will allow developers to provide what the market wants from existing projects which have planning permission without having to go back to the drawing boards with new applications.

Developers who have shovel-ready projects will be helped to get going through reductions in development levies and the easing of the requirement to hand over one in five houses to social and affordable housing. The Government is taking the view that both measures are effectively taxes which inhibit the building of required homes. Local authorities now have the revenue from the property tax to pay for additional infrastructure and more social housing.

And part five of the Planning and Development Act 2000 never really matched its noble intention of ensuring the integration of people from different social classes. Nonetheless, the watering down of the part five measure will be contentious and raises societal questions about how to ensure an adequate mix within communities.

Aside from these carrots, the stick being applied is the threat of a punitive tax on developers who aren't building on zoned land where they either already have or can easily get planning permission. Some developers want to deliberately sit on sites until prices rise, while others don't have the funds to start work.

Often the problem is not getting the finance from a bank but having the initial equity stake. At a time when house viewings in Dublin are attracting up to 30 buyers due to shortages, the Government is taking the view it will force developers to build – or else pay the price of sitting on the land.

"If an insolvent developer is sitting on a valuable piece of land, they should just be selling it," a government source said.

The tax on vacant sites was proposed at one point as part of the property tax, when it was meant to be a site valuation tax. But it dropped off the radar when the Government decided the property tax would be based on the market value of the house.

International investors, who do have the equity, are coming into Ireland to finance projects and this trend is going to continue.

Fine Gael is considered to be keen on doing away with the additional taxes on development, while the Labour Party wants to see the vacant site tax. But taking a longer view, the Coalition is going to have to show it has learned the lessons of the boom and bust – with a more coherent planning system that takes a national view of what is required.

Ministers will sit down this Thursday to consider the proposals in a draft paper, but decisions won't be taken for another few weeks.

THE proposals are coming right from the top, with Taoiseach Enda Kenny and his officials taking a direct role in drawing them up. Tied into this plan is an examination of undeveloped sites in Dublin and the blockages in infrastructure plans. Interventions in the property market and construction industry are always dangerous for governments. The Coalition would be well advised to tread carefully.

The temptation to go for jobs and taxes associated with building will be ever present, but that's what landed the country in the present predicament. Those who forget the past are condemned to repeat it.

Irish Independent

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