Saturday 16 December 2017

Private lifts and sunny views - but still a real housing mess

Cartoon by Stephen Byrne
Cartoon by Stephen Byrne

Ronan Lyons

Priory Hall has become something of a byword for the excesses of Ireland's building boom; best expressed as, "build 'em fast and hope for the best".

Indeed, it is likely that the Priory Hall saga was one of the key reasons the Government recently brought in the Building Control Amendment Regulations (BCARs). And that, hoped the Government, would be the end of that.

Unfortunately, it is not that simple. It is not just a matter of more regulation is good, and less regulation is bad. Unsurprisingly, Priory Hall would not pass the BCARs, but then again, it didn't pass existing regulations at the time either. Effective regulation is not about lots of laws, it's about enforcement. And this is where Ireland is out of step with other countries.

The BCARs effectively place all the burden - and financial liability - of meeting regulations on the professionals involved in the building project, in particular the architect. This is in stark contrast to most countries, where inspections by officials are a key part of making sure a building is fit for purpose.

So instead of having a team of inspectors, Ireland has opted for a significantly more expensive 'solution' to the problem of shoddy construction. And therein lies the rub. House prices are rising rapidly in Dublin due to a lack of housing. Dublin has added roughly 65,000 new households since 2008 but only 25,000 new dwellings.

In a normal market, rising house prices are a signal for new construction to begin - but if regulation needlessly imposes costs, the break-even point will be higher and fewer projects will be started. Remember: we are not talking about weaker regulation, we are talking about the same standards being more efficiently met, using best practice from our European neighbours.

The BCARs affect all project, big and small, from a house extension to a multi-storey apartment block. Some architects estimate they have added €30,000 to the cost of a self-build family house. In a country where the value of a four-bed bungalow is €150,000, this is huge additional cost to bear. It makes many otherwise viable projects unviable.

The evidence from the construction sector is stark. The first six months of the new regime produced fewer than 2,300 commencement notices, almost 40pc down on the same period in 2013 - itself a year which saw one of the lowest number of commencements in decades.

The point is not at all that we should scrap building standards. The point isn't even necessarily that we have to move to an inspections-based system like other countries, rather than a liability-based system - although I think that is the better way. The point is that, when introducing new regulation, governments in the EU are supposed to undertake a regulatory impact analysis. They need to be able to answer the question: what will the impact of a proposed new regulation be on society and on the economy?

Given that there is no agreed estimate of the cost of BCARs on a new unit, this clearly has not been done. This is a far cry from evidence-based policy-making and smacks, instead, of TDs wanting to be able to say on the doorsteps "we've done something about shoddy construction", instead of actually thinking about the best way to respond to the issue of poor build quality.

This, however, is just the most recent addition to regulatory costs. It cannot explain why there was so little construction in Dublin from 2008 to 2013. A natural suspicion is that there was simply no capital to finance construction projects, or that all the builders were bust. But this does not tally with the flurry of interest in Irish real estate from overseas investors during this period, keen to get the high yields associated with Irish property.

Instead, the answer to why so few new units have been built in Dublin probably lies with government, rather than market. In 2008, barely a year after the Department of the Environment brought in well-researched guidelines about specifications for new dwellings, Dublin City Council introduced its own standards.

What they introduced - which applies mostly to apartments - is very tough to justify. To start with, they raised the minimum unit size requirements by about 25%. So, in the region where land is most expensive, you have to build bigger units! This is economic logic turned upside down.

Not only that, every unit has to have its own basement car parking space, regardless of how central the project is or indeed how close to a DART or LUAS station. Basement car parks are expensive, so having a one-to-one ratio, rather than one-to-four where infrastructure permits, adds perhaps €10,000 per apartment.

Similarly, there are onerous requirements about lifts. Instead of one lift and stairwell for something like ten units, which would promote a sense of community, there has to be one lift and stairwell for every two units. Aside from the social effects of splitting people up into silos, this adds costs - lifts are expensive - while taking up a lot of space.

And then there are orientation requirements! Nowhere is the "planner knows best" mentality better captured than in Dublin City Council's ban on north-facing apartments. This is something, of course, best left to the market. Those people for whom orientation is important can pay the premium for it, while those who don't care - and simply want to live somewhere central - can save the money and live in a north-facing unit.

In a very general sense, I can see where the planners are coming from. Of course it would be nice if everyone had dual orientation apartments with double-balconies. Then again, of course it would be nice if everyone drove a Merc but not everyone can afford one. By raising the bar too high, they don't benefit everyone, they just restrict supply.

I am all in favour of value-enhancing regulation, such as requirements around energy efficiency, amenities and green spaces. But we need to audit the cost of building a home and find out where unnecessary regulation is making viable projects unviable. It seems as though up to €30,000 could be wiped off the cost of building a unit in Dublin simply by bringing it into line with the rest of the country. Perhaps the same amount again could be saved by revising the BCAR requirements.

This would be a major step forward in bringing on stream more housing supply. And that matters if we are to ensure we have sufficient affordable quality homes.Lots of regulation is no substitute for good regulation. Government needs to know the difference.

Ronan Lyons is Assistant Professor of Economics at Trinity College Dublin and author of the Daft.ie Report

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