Thursday 21 June 2018

Politicians and civil servants alone will never solve our housing crisis - so here's an idea...

Liam Collins meets a former developer who declares that the new-build market is not currently viable and urgently needs fresh planning ideas

DEVELOPER: Paddy Kelly
DEVELOPER: Paddy Kelly
Liam Collins

Liam Collins

It should be very clear to us by now that politicians and civil servants cannot solve the housing crisis.

The last time a minister really influenced the housing market was on September 18, 2006, when the Progressive Democrat leader Michael McDowell announced, at a party function in Malahide, Co Dublin, that he would reduce the crippling rate of stamp duty on domestic property - and overnight killed the market almost stone dead.

Of course, politicians and civil servants can create the conditions that could lead to it being solved, but they are going about it in a long-winded and convoluted fashion, instead of letting those who can do the job get on with it.

The surest way to revive the construction sector is to bring back the people who know how to build houses - property developers and builders. It's their business and they'll do it - but only if the conditions are right.

One of them, Paddy Kelly, built swathes of new homes from leafy Monkstown in south Dublin to Smithfield in the city centre to Celbridge, Co Kildare, before amassing massive debts as the market nosedived. We'll come to his views later, which were first articulated during a lengthy address to the Hibernia Forum in Buswell's Hotel in Dublin last November 29.

The first thing to say is that the majority of commentators confuse homelessness with the lack of housing.

This is not about homelessness, which is a separate and far more complex issue. Nor is it about rental accommodation which is also a complicated issue because for historical reasons it seems we are anti-landlord and haven't found a suitable compromise between the conflicting rights of tenants and property owners.

This is about the lack of housing for two particular classes of people: those who expect the State to provide them with a house, and those on low-to-middle income who want to pledge the next 25 or 30 years of their lives by taking out a mortgage to buy a house of their own.

The lack of social housing is a scandal that local authorities have allowed to happen - they have sold off or neglected their housing stock, they have failed to keep pace with demand (although it may have been difficult to gauge) and they seem, over the last two decades, to have been far more interested in building themselves palatial offices than in building social housing for their clients.

This is one area where the minister and his officials can play a pivotal role, but so far they seem to have signally failed to kickstart any plan that gets the right homes built in the right place for the right people.

So let's move on to those who want to buy a home, but can't.

This is an even more serious challenge, because if people cannot buy affordable housing, it upsets the social balance. People will consider emigration, even if we have full employment, and Ireland will no longer be seen as attractive for foreign direct investment.

If you look at the glossy property supplements, or travel around the outer suburbs of Dublin, you will see that there is a lot of construction currently under way. But a great deal of what is on show is priced at levels from €750,000 to €1m and upwards - unaffordable for those who need it most.

With Central Bank rules capping the amount people can borrow, the people who can no longer get their feet on the property ladder are the middle income groups - the PAYE workers on fixed salaries who don't have the take-home pay to get themselves a deposit in Dublin and in other major cities such as Galway, Limerick and Cork, where the property "recovery" has been dominated by cash buyers and the wealthy.

These middle income groups are the backbone of any society - they are the employees in the private sector, the civil servants, the frontline and backroom workers in the health services, education and the security forces. And at the moment very few of them have any chance of getting a home of their own.

One of the main points made by Paddy Kelly in his talk is that, despite this crisis, the Government still looks on the construction sector as a cash cow to be milked for taxes.

"The housing sector should not be a major source of revenue for government - ultimately increasing the cost to the home owner to a point of non-viability," he said, mid-way through his talk.

Our immediate reaction was that of Mandy Rice-Davies: "He would say that, wouldn't he?"

If you want to encourage house building then you have to incentivise people to do it. And you can reduce the costs by the State taking less of a cut. But when Fianna Fail housing spokesman Barry Cowen advocated cutting the 13.5pc VAT on house sales, he was shouted down by the 'tax everything and give it to somebody else' lobby. The State takes €39,000 on the average house priced at €366,000 - which in Dublin is at the bottom end of the market.

"A balanced economy should equate only a sensible ratio of gross national income to the Exchequer from the building sector," argued Kelly. "This requires sensible analysis of the employment level in the sector. In Ireland our employment levels within the building sector have fluctuated in the past decade from 20pc to 5pc. This indicates an unstable sector.

"Government has a 'confidence and supply' contract for it to remain stable. We require a similar contract with government for the building industry," said Kelly.

The figures, he added, are not complicated but stark. "Loan-to-income for mortgage applicants is 3.5 times the combined gross income. The average price of the Dublin home is €366,000. The average salary is €45,000. It costs the average builder circa €325,000 to build and finish a standard four-bed house including all costs [€2,200 per square metre]. The new-build market is not currently viable."

Kelly considers a more efficient planning system, smaller units and higher density are key components in getting more houses built. We've pushed the three/four bedroom semi with garden to the limit and new thinking is required to end the urban sprawl this has created.

The builder of one of the biggest housing estates in the country in the 1970s was asked by "Tayto" Murphy who made millions from the ubiquitous crisp: "What do you do?"

"I build cheap houses," answered the builder.

"Never say that again," Murphy admonished him. "In future, say you build affordable houses."

We don't want cheap houses but we do need affordable ones - and soon. We also need, as Kelly emphasised in his talk, to start planning for the next decade so we don't end up in a never-ending cycle of boom to bust that soured our love affair with property.

Sunday Independent

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