Wednesday 22 November 2017

Changes to housing policy are welcomed, but supply won't begin to return to normal levels until 2018

First-time buyers still face major hurdles getting on to the property ladder Photo: Tim Ireland/PA Wire
First-time buyers still face major hurdles getting on to the property ladder Photo: Tim Ireland/PA Wire
Paul Melia

Paul Melia

Normally a 30pc hike in the number of new homes under construction could be considered a surge, if it weren't for the fact that it's coming from such a low base.

So far this year, work has begun on 8,220 units, an increase of almost 1,900 on the same period last year. But in Dublin, where demand is keenest, the number of houses and apartments under construction has dropped to 2,407. Any fall, however small, is unwelcome for a market in dire need of properties.

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Click here to view full-size graphic

Various policy changes have been introduced to help spur development including a tax rebate for first-time buyers, provision of a €200m infrastructure fund to open up lands for housing, coupled with a reduction in development levies in urban areas and tweaking of the Central Bank lending rules.

In addition, changes to planning rules will allow developers to seek permission directly from An Bord Pleanála for estates of 100 units or more under a fast-track planning system. So where does that leave the housing market, and can we expect a return to normal activity any time soon?

Experts say that whatever about the merits, or otherwise, of these decisions, they do provide certainty.

"The Central Bank has reviewed its rules and that's put to bed, which is a good thing," chief executive of the Housing Agency John O'Connor said.

"The first-time buyer (FTB) grant is announced. A lot of developers are through the turmoil of dealing with debts and dealing with Nama so they're back into focusing on development again.

"On the delivery side, it's down to a judgment from developers as to whether there is a market and will people buy at the price. A number will provide houses under €300,000 in Dublin or close to it, if there is that FTB market, but they will be cautious and won't build speculatively. They will probably build to order.

"We are seeing development in areas such as Hansfield and Adamstown where they're selling, but sales are still low. Now, 10 or 20 a month is a good month. In the boom, it was hundreds."

The big problem in recent years has been the lack of new homes coming on stream. Around half of new builds are one-off homes, unlikely to be offered for sale on the open market. Between 20,000 and 25,000 are needed per annum just to keep pace with demand.

In the absence of activity in recent years, there's a backlog which needs to be satisfied. So will the changes introduced bring numbers up to the required level?

"I think the big word is supply, and there's a lag time in coming up with policies and delivering homes," chairman of the Residential Agency in the Society of Chartered Surveyors Ireland, Ronan O'Hara, said.

"It's taking longer than we would have hoped. Planning takes longer than we would like. Selling a private home takes longer than we would like. I think each year you will see an increase, but it won't be dramatic.

"If we hit 15,000 next year, I'd be reasonably pleased. We should be looking at 20,000 units a year but I don't think we'll get there."

In a 'normal' market, around 5pc of stock trades hands every year, or around 100,000 homes. In Ireland, it's at 2pc.

Chief economist at Sherry Fitzgerald Marian Finnegan said finality around Central Bank lending rules would help spur demand and she did not believe that prices would spiral out of control.

"We're selling less than we should be, we're building less than we should be, we have too much cash in the market and rents are too high. Into that mix we can add fast-track planning, help-to-buy, improvements in development levies and changes to Central Bank rules. The outlook has totally changed," she said.

"The Central Bank has kept the restrictive 3.5 times loan to income limits. Therefore, you can't see prices spiral out of control and we should see more FTBs coming back into the marketplace.

"We damaged the FTB market, and didn't have the investors to provide the rental units. We need to decide how many units we need in the next three years and have a set goal to get there. We might get 18,000 next year, but it's going to take a couple of years before we meet demand."

Others suggest that the 3.5 times loan to income limit will curb prices, but could impact on viability. Hubert Fitzpatrick, director of Housing, Planning and Development in the Construction Industry Federation, said it would be at least a year before normal activity resumes. Just 16,000 units would be delivered next year, he said.

"They're all very welcome initiatives, but it could be 2018 before they have an impact on supply. The commencement activity has increased quite significantly but not in Dublin. A number of sites will open in Dublin under the infrastructure fund, but they will take some time to deliver," he said.

There are also issues with accessing finance, but the real test will be whether homes can be sold with a margin for the developer. There's some way to go before the housing crisis is solved.

"Builders can only build what the market can sell," he said. "There are instances where houses are for sale for €300,000 or less in the Dublin area, but purchasers are not queuing up for them. I think the Central Bank rules will stimulate supply in some areas. The industry will have a greater assurance in that people with mortgages will be able to buy homes. There's no quick fix to it."

Irish Independent

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