Construction 2020 – a mixed bag that will be burst by bureaucracy
NOT long ago I wrote about how state intervention in the market can have unintended consequences. The governments recently published stimulus package for the construction industry "Construction 2020" contains many sensible initiatives, but the most startling is the strategy to ease the severe shortage of housing stock and rising prices by boosting demand.
The government is proposing introducing "mortgage insurance", "to allow banks share the risk of mortgage lending with the public sector".
One would think that the taxpayer has had enough pain supporting the banking sector for now, but the only consequence of making it easier for purchasers to borrow more is that prices will rise even faster.
This proposal, like many state interventions, already lags a fast moving market as the banks are back competing to lend and some are offering 90pc mortgages.
The manager of a south Dublin bank told me last week that he typically has 10 mortgage approved customers competing for individual houses coming on the market.
The only way to solve the housing crisis and control prices is to quickly boost supply.
"Construction 2020" contains various ideas to increase funding for construction, starting with the creation of a High Level Working Group, chaired by the Department of Finance and bringing together the banks, NAMA and "other key stakeholders."
Again I suspect that by the time this group has taken action the financing problem will have diminished as the banks are already approving loans for residential development. Also, several overseas funds have moved on from buying investments to also buying development land and land-backed loans and they will prove to be a source of development funding.
If one is to influence a market at all, the key to success is "speed" and rapid results are needed to alleviate the Dublin housing crisis.
The flaw at the heart of "Construction 2020" is that our land zoning, planning and development system, and "the way we do things", will not allow any significant results for years, by which time the market will have developed a new set of issues.
There are far too many organisations liaising with each other to allow effective action. There are probably 30 government bodies responsible for various outcomes in the plan and that excludes all the liaising with local authorities, stakeholders and industry groups.
I'm all for long term planning but we typically fall into the trap of involving too many people, which is a recipe for getting nowhere.
"Construction 2020" sets its face against using tax incentives to stimulate sectors of the market and somewhat sniffily states that "all property tax incentives were subjected to a comprehensive review and the decision was made to abolish every one of them." Government is wrong on this as just because tax incentives were left in place too long before, doesn't mean this government shouldn't be able to control targeted schemes – e.g to get offices and houses built quickly.
Tax incentive schemes will trigger a burst of development, jobs and tax income long before most of the task force's and working groups involved in "Construction 2020" have issued a final report.
Another effective use of tax incentives would be to stimulate the conversion of hundreds of vacant Georgian buildings in areas like Mountjoy Square and surrounding streets back into houses and flats. Many of these buildings struggle to find office tenants to pay €40,000pa, but converted to flats, they could produce €60,000p.a.
The cost of conversion and complying with fire certification is unviable, but a tax break could overcome that and see hundreds of housing units created quickly and life brought back into the city.
Local authorities shouldn't need longer than a week to identify sites on which housing can be delivered and the authorities should also look at rezoning sites currently zoned for unlikely commercial development.
I suspect that many towns in Ireland have at least one large commercial site on the town boundary, probably in NAMA, and already serviced with roads, drains and public transport.
The closest examples to me are Bray, where a large "edge of town" site is zoned for a new "town centre" alongside the Dart line. That site could accommodate hundreds of houses and apartments as could the Cherrywood lands in Dun Laoghaire-Rathdown which are served by Luas.
Such re-zonings require the removal of the ludicrous "windfall tax".
"Construction 2020" is well intended, though with some flaws. Its greatest weakness is that bureaucracy and a lack of direct action will see few extra sods turned.