Friday 21 September 2018

Lukewarm reaction to Amazon's 1,000 jobs highlights scale of Ireland's housing crunch

The short-term picture for housing is not good for those looking to buy or those concerned about retaining our international jobs competitiveness. Photo: Bloomberg
The short-term picture for housing is not good for those looking to buy or those concerned about retaining our international jobs competitiveness. Photo: Bloomberg
Richard Curran

Richard Curran

It has been a very good week on the jobs front. It isn't that often a major global technology firm like Amazon announces 1,000 new jobs for Dublin. And to cap it all, they appear to be higher end, highly skilled jobs, as opposed to those tough tasks Amazon sets its warehouse operatives who have to pick up products quickly - but that is another story.

Yet, it is real sign of the times when the positive news of 1,000 skilled jobs for Dublin begs a question. Where will they all live? The truth is if they are so well paid they will find somewhere nice in the wider Dublin area. But they could displace other less well-paid people who might want to buy that house or rent in that location.

Some prospective employees abroad might look at the cost of housing in Dublin and decide not to apply for the job.

But Amazon is a smart well-run business and I am sure they are confident they can find the people they need. They may poach a load of them from other firms already in Dublin, in which case it becomes somebody else's problem.

The housing crisis in Dublin in particular has been a social problem for the last five years in particular. It is clearly now becoming an economic problem too.

As the political parties jostled over whether to call or back a no-confidence motion in housing minister Eoghan Murphy, Ibec has produced a very detailed report on how to fix the problem.

It is a solid contribution to the debate but unfortunately it highlights just how complex and multi-faceted an issue it is.

Having read through it, I don't know whether people should shift some of the blame from the housing minister and perhaps have a better understanding of how long this will take to get right.

Mr Murphy is a little like the MasterChef contestant who has been given the wrong ingredients and has to very publicly take the flak from the judges.

Strip out all of the debates about actual house completion figures and Ibec makes a real and stark prediction. If we are to meet our housing needs, we would have to create 80,000 new construction jobs by 2020. If we want to get to building 36,000 houses a year, we would need to create an additional 110,000 on and off-site construction jobs.

Where might these people come from and of course, where would they all live while building the houses?

This would leave "construction employment at almost 9pc of the workforce (similar to levels of 1998-99) and without sources of inward migration the industry would quickly see not just skills but labour shortages and wage pressures", the report said.

In 2006 there were 227,000 people describing their primary industry as the construction sector, with only 5.4pc of these unemployed. That rose to 43.2pc of 154,000 workers in 2011. The recovery in the sector more recently has seen it fall back to 18pc of 124,000 workers in 2016.

Ibec has identified a number of areas where it believes shortages will lie, including general operatives and carpentry.

Last time we had a shortage it was filled by hundreds of thousands of accession state workers from Poland, Lithuania and Latvia. But they are no longer coming.

Net migration from Central and Eastern Europe was only 2,500 last year, partially due to improved circumstances in their home countries. This means they will have to come from third countries.

Ibec identifies very different kinds of shortages in the system too. Take planners. Planning capabilities in local authorities have been reduced over recent years. Staffing levels across local authorities were reduced by 25pc between 2008 and 2014. Dublin's four local authorities saw a reduction of almost 40pc in terms of planners employed.

Estimates suggest there has only been an 8pc increase in planners employed across local authorities. These bodies also have challenges in competing to hire engineers and architects.

Ibec also points, not towards the minister, but the Department. It believes the focus on housing delivery should be sharper. It says the focus and functions of the Department of Housing, Planning and Local Government should be reassessed.

It points to its changed role and responsibilities and how various other new bodies, like the Property Registration Authority and Ordnance Survey have been added to its portfolio. "Essentially it is evolving into the department of property…", the report says.

It needs a sharper remit and a realignment of its composition and functions, Ibec believes.

So much of the debate around housing has been pursued by clearly vested interests which fall into one easy category or another.

Those on the Left want the State to build more houses. Those involved in the industry want to see more tax breaks.

Landlords say they are hard put upon and need financial incentives to stay, while those representing tenants believe they should have more protections and want to see rent rises curbed.

Ibec says construction costs are 45pc of delivery costs for a new dwelling and in recent years have been below the EU average.

But it points to development and land costs, such as taxes, levies, regulations, finance, risk and marketing, as large parts of the final house price.

Developer's margin is also in there as an important part of the development costs. According to the Barker Review in the UK, a 1pc shift in house prices in Britain can alter profits from a development point of view by as much as 8pc.

"For a house with a margin of 12pc in Ireland today, a 1pc miscalculation in prices versus outcome in a development would have a similar impact", Ibec warns.

Of course with prices rising steadily, this appears to have all gone in the developer's favour. But it is more complicated than that and risk costs money.

Big developers, backed by international funds which bought up sites on the cheap, have been driving much of the activity. This means lots of smaller developers, bogged down in legacy debts, cannot raise the finance to do smaller housing projects. The big guys are building. They have bought sites on the cheap and they have the ability to raise finance more cheaply.

Therefore, they are in control of the market.

The high cost of finance holds back smaller projects. Ibec says feedback from its members suggests developer margins in Ireland are around 10pc outside of Dublin and 6pc to 7pc in the capital.

Ibec does back a temporary cut in Vat and incentives to keep landlords in the game, such as interest relief. But it wants this to go hand in hand with greater certainty for tenants and a major push by local authorities to encourage build-to-let projects.

However, it disputes estimates around how much zoned land there is available in Dublin.

It has been suggested there is enough for 116,000 houses, while Ibec says not all of it is in easily developed brownfield or greenfield sites. It puts the figure at closer to 30,000 to 50,000 units.

This is very discouraging for the future unless something is done to accelerate this process.

Nama looks set to flog off more of its development land sites as it enters the final phase of its operations, while also building more houses itself.

Ibec wants to see more social and affordable houses built directly by the State.

The short-term picture for housing is not good for those looking to buy or those concerned about retaining our international jobs competitiveness.

This report gives some solid pointers but also shows how difficult housing will be to fix in the years ahead.

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