Philip Farrell: Real deal

Hong Kong has a population of 7.4 million people. It also has some of the most expensive real estate in the world, coming in just behind New York.

Philip Farrell

A dose of reality every so often is the sort of medicine that makes us appreciate what we have. The housing crisis has filled many column inches in Ireland over the past 12 months but we need to put things into perspective.

What I'm referring to is the outcry over the new reduced planning regulations introduced here last year by the Government, which brought the minimum size apartment allowable to 45sqm.

Many other countries and regions are also experiencing chronic supply issues. Take Hong Kong, the former British colony now under Chinese control, which has a population of 7.4 million people. It also has some of the most expensive real estate in the world, coming in just behind New York.

Only 7pc of the city's land is zoned for housing and residential property prices have risen by 50pc over the past five years. What is being done about it? One solution is coffin homes: so far, so unappealing. But the name is appropriate. Coffin homes are tiny, up to 2.2sqm in size. If we were talking in fashion terms, they would be a size 0. They accommodate just a bed and some storage in a box and cost up to €300 per month. But what is mind-boggling is that official figures show more than 200,000 people are living is these boxes, while the actual figure is thought to be much higher. Needless to say, wi-fi range is not a problem.

They are 95pc smaller than the minimum living space allowable here. The cost of renting these spaces per sqm works out at four times the cost of a one-bed studio apartment in the Docklands in Dublin.

Not surprisingly, these Hong Kong living spaces have been criticised by many international humanitarian organisations. The United Nations has described them as "an insult to human dignity", but they are now a reality and unlikely to go away any time soon. What I mean is, maybe, just maybe, we should count our blessings.

Our Northern neighbours and property values

Northern Ireland is going through a well-documented period of transition. Among the factors causing tremors are the unknown impacts of the triggering of Article 50, the UK spring budget and last week's Assembly election with its uncertain outcome.

How are Northern residential property values holding up in the midst of all this uncertainty? Figures just released by Her Majesty's Customs confirm an average rise in values of 5.7pc throughout the region in 2016, which is below the 8.1pc increase south of the border.

The average house price for a typical starter home in Northern Ireland stands at €145,000, approximately 25pc lower than the figure for the Republic. A very substantial gap also exists between values in the respective capitals - at the end of Q4 2016, the average value in Dublin stood at €330,000, while the figure for Belfast stood at €170,000, nearly 50pc less, and similar to values in Limerick city. The population of Belfast is 335,000.

Values may be significantly lower in the North, but there are similarities to the South - for example, demand also exceeds supply, especially for new homes located in the main urban areas. The average value of property in Northern Ireland is among the lowest in the UK and prices are still approximately 35pc lower than before the crash. Estimates for 2017 expect prices to rise a further 5pc.

Government leaves private developers to build homes

If you owned large tracts of land which were suitable for housing and you could borrow money at 1pc, what would you do. Build? Apparently not.

Why is the Government so keen to leave the role of house-building to private developers? The current establishment is proposing to build just 26,000 new housing units by 2021. A further 21,000 homes will be provided through existing stock and housing associations. There are currently 100,000 people on the waiting lists nationally for social housing and 50,000 of these people are in Dublin.

If the total number of house completions reaches 18,000 nationally this year, based on previous stats, 40pc, or 7,200, of these will be one-off houses. This leaves in excess of 11,000 new units. The Government will receive 10pc of these through the Part V obligations, ie, 1,100 units. Of the remaining 9,900, and based on current figures to hand, only 20pc (or 2,000) will be purchased by investors and, of course, these will be divided between both private and social tenants, which dilutes the numbers further.

The above figure of 20pc is also falling as investors continue to leave the market in droves as a result of decreasing net returns caused by new rent control zones and onerous personal taxes.

Only this week the European Commission highlighted its concerns over the recent introduction of rent control zones here which have previously proven unsuccessful in other parts of Europe. It's a short-sighted measure, and will yield short-term gain that will be followed by long-term pain.

A recent report by the Department of Housing confirmed that the cost of constructing a typical three-bed semi-detached house in Dublin by the Government is €180,000. Yet a survey last year by the Society of Chartered Surveyors Ireland produced a figure of €330,000, which included site costs, taxes, contributions and developer's profit - that's a difference of €150,000.

The planning authorities have the land to build these homes in many of the locations where they are needed and can borrow the necessary funding at minimal rates. It makes a lot more sense than waiting for the private sector to regain its appetite to invest in residential property, so let's start building.

The solution lies in one word - supply. This must come from on high. Why can't the Government accept this?

Philip Farrell is a market commentator and property consultant.