Wednesday 21 March 2018

Coalition must act now to tackle a crisis which isn't going away

Finance Minister Michael Noonan
Finance Minister Michael Noonan
Paul Melia

Paul Melia

The Government continues to grapple with the housing crisis, with a shortage of new homes coming on stream continuing to fuel price increases.

Ireland now holds the dubious honour of having the second highest rate of increase in the world, with a survey from the Global Property Guide showing that the cost of buying a home rose by almost 11pc in the past year - second only to Hong Kong, where prices increased by 16.5pc in the same period.

The problem is compounded by a poorly structured rental market, where tenants are subject to hefty increases as demand and a lack of supply fuels hikes, with little or no controls.

This at a time when the State needs to deliver 18,000 new homes in the short term, just to meet rising demand. Many people returning to work as the recovery continues may wish to buy a home, but find themselves priced out of the market.

This is confirmed by the Taoiseach's advisory body, the National Economic and Social Council (NESC), which says that between one-third and one-quarter of the population will find it increasingly difficult to achieve home ownership.

"The scale of the crisis in Irish construction and housing is such that nothing short of a complete remaking of the sector seems likely to succeed," it says.

There are solutions, all of which are under active consideration as the Government prepares its last Budget. The move by Finance Minister Michael Noonan to oblige Nama to deliver homes is one, but more are needed.

Only by taking a long-term, pragmatic approach will a sustainable housing market be developed which avoids a repeat of rapid price increases experienced during times of prosperity, and which will deliver affordable homes for key workers.

Among the measures which are needed include:

- Local authorities, Nama and the Office of Public Works own or control substantial land banks, many in prime urban areas where demand is keenest. Land adds as much as €50,000 to the price of a house. Developers could be offered lands to develop affordable housing, with the State taking a percentage of the purchase price, or alternatively securing units to provide social housing. This would reduce building costs, and help lower prices.

- Address the infrastructure deficits. There is no shortage of land in the cities, but some sites require services including roads, water or power. The Ireland Strategic Investment Fund, which has €7.6bn in available funding, should provide low-interest loans to developers unable to secure commercial funding for these works.

- Homes should be priced as appropriate to the local market. Data on employment levels and industry average rates of pay in specific locations should be assessed prior to construction commencing so that a ready market exists.

- Address the lack of finance. Banks are wary about lending for housing development, even in areas of high demand. This is, in part, because while developers may hold land banks, they are cash-poor and do not have equity to invest. Banks could enter into joint venture arrangements to help overcome this funding gap. Receivers should also be encouraged to develop homes, instead of selling sites.

- Reduce the State's tax-take from housing development. Government charges make up as much as 20pc of the purchase price of a new home, including VAT, development levies and a contribution towards social housing. Development levies could be reduced on a temporary basis to encourage buildings, and payments phased so they only fall due when homes are sold. The VAT rate could also be reduced.

- Fast-track planning applications. While relaxing planning standards should not be considered, given the mistakes of ghost estates and unsustainable development made in the recent past, applications for new estates should be given priority in the planning system so new homes are delivered as quickly as possible. Consideration should also be given to developing more strategic development zones for housing, where a number of developers come together to share the cost of servicing the land and help reduce costs.

- Focus on the areas already served by public transport and with amenities and services in place.

- Use what's already there. The Government has introduced tax incentives to refurbish old properties, to encourage development of apartments above retail and commercial premises in the cities. This should be extended to all towns and villages, where demand exists. Utilising existing properties reduces costs, while providing homes close to essential local services.

- Address the problem of empty nesters. Many existing properties could provide family homes, but are not coming onto the market because there is no alternative for owners to downsize. Smaller sites, which might not be suitable for large-scale development, could be used to provide smaller homes for those willing to move. In addition, incentives could be offered to move, such as a reduction or waiving of the property tax.

- Increase density. There is still a marked reluctance to move away from the three-bed semi-detached model of delivering homes. This doesn't necessarily involve taller buildings, just imagination. Smaller units for students and younger workers, with communal spaces for laundry and storage, should be delivered.

- Debt write-down for developers. Toxic, but worth considering as many sites are not being developed because the sale of homes would not cover the loans.

Irish Independent

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