Thursday 15 November 2018

The right moves: Land Development Agency could be a game changer

Paul McNeive
Paul McNeive

Paul McNeive

The Land Development Agency (LDA) has the potential to fundamentally change the supply of land into the development market, and to increase the numbers of houses built - and their cost. The new agency, with a €1.25bn war chest to buy both State land and privately-owned sites, is a long-overdue attempt at long-term planning. It's interesting to look at where the wins, and the pitfalls, may lie.

The Government is staking much on the LDA's ability to control the supply of land, to counter the boom-bust cycle in land prices and house prices. They say that they will counter volatility in land prices "as a result of land speculation".

I'd suggest that volatility in land prices is far more influenced by movement in house prices than it is by land speculation, but the aim to reduce prices by releasing land onto the market when demand is strong and supply is short can work.

However, this must imply some element of holding land, by the new agency. By its nature, assembling large development sites, building infrastructure, and perhaps securing planning permission (even with compulsory purchase powers behind you) is probably a 10-year project - longer than the typical boom-bust cycle. So the agency will have to commit to working sites up for development, in the knowledge that by the time they are ready, the market may well be unsuitable. This is one of the big risks that developers take on. Presumably then, the agency will have to sit on the land - and risk being dubbed land speculators!

I expect that the agency will always have a number of sites being prepared allowing them to accelerate or slow progress according to how the market looks.

The big warning for the LDA, is that it usually takes at least twice as long as the best estimate of the most experienced developer to get a greenfield site under development. Indeed, if the LDA is to stay involved in the development, they will find that five-year projects will become 20-year projects. That's property development.

The LDA's objective to address delays in assembling development sites, by compulsorily buying out different ownerships to create large single-ownership sites, has huge potential. It will be interesting to see how dynamic a role the agency takes in this, given the reluctance of State agencies to use their compulsory acquisition powers, e.g. the local authorities and Nama.

It seems likely that the LDA will acquire some of the older industrial estates inside the M50, which are largely obsolete, but are perfect for high-density residential development. Dublin Industrial Estate, Glasnevin and some of the estates on the Naas Road in Dublin 12 are good examples. Dublin City Council is playing its part by rezoning the land and it would be great dynamic land management to see the LDA come in, assemble the sites and get them on the market quickly.

I have sympathy for existing occupiers who may be operating there for years. The problem is that the market value of their old buildings, which may be adequate for their current use, won't be enough to buy a modern building. The local authorities should rezone more land now for industrial use, to stimulate building and reduce prices overall.

Another banana skin will be the day the agency pays a 'vulture fund' multiples of what it paid to Nama for a site, with the profit funded by the taxpayers.

It would be far better to see the State building social housing directly. However, boosting overall supply is planned to provide a minimum 40pc of social and affordable stock. Lowering prices and rents will also take more private occupiers out of the affordable sector, some of the affordable sector out of the social sector, and hopefully serve to reduce the number who are homeless.

The test of the LDA strategy will be whether or not it can break free of the dead hand of bureaucracy and get sites on the market.

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