The business of property
It may take another decade before supply matches demand in the Irish property market, Standard & Poor's found last week.
A report by the rating agency said the property market here remains restrained by what it called "crisis legacy issues".
In particular, it alluded to household debt remaining very high in this country despite the fact that we are eight years on from the onset of the crash.
The key question remains: how are we going to improve supply in our major cities to bring it within reach of the prevailing demand? The Government continues to implement the Rebuilding Ireland strategy, which focuses on five different pillars, or sectors, of the housing industry. The rental sector, which is one of these, is still reeling from the recent introduction of up to 25 rent-controlled zones, including Dublin and Cork city. This is without doubt driving the buy-to-let investor out of the market in those areas.
For many investors the financial returns have reached the point where they no longer stack up. There are simply too many barriers to entry. This may be one step too far. While there are some short-term gains for renters from these moves, I don't believe they will last. Many investors now believe that they can secure a better return from alternative asset classes.
Historically, the planning laws and policies in our cities have favoured low-rise development. Is it now time to start building upwards instead of outwards? Last year, the Dublin city manager, prior to the publication of the Dublin City Development Plan (2016-2022), appealed for the maximum permissible height to increase to nine storeys.
Still, height was limited to eight storeys. Why exactly was this? What is the issue with taller buildings? With our weather, it's not as if it is keeping the sunlight out. And while Dublin has always been regarded as a low-rise city, does that mean this cannot change?
I can already hear the murmurs of dissent. With the notoriously high standards of building regulations that persist in this country, surely it would be feasible to construct taller, quality buildings in designated areas around the capital. This would increase density and provide more affordable and accessible city living for smaller household units. It would also help to reduce urban sprawl. There are many people for whom location is of far greater importance than total living space and, while admittedly many householders like to live in the suburbs, a large number desire city centre living. If residential units are made using a high standard of construction combined with the provision of complementary services and amenities, standards can be retained.
It seems clear now that one upside of Brexit for Ireland will be an additional demand for residential homes, primarily in Dublin city centre, from those moving to work here. Many of these will be based in the city centre. Figures just released confirmed that the number of UK-based individuals looking for an Irish passport in January this year had doubled over the same period last year. This demand, which was unforeseen just 12 months ago, will only create additional pressures on an already limited resource. The population of Dublin city is expected to rise by 180,000 by 2030. Time for us to refresh our traditions.
New homes on the rise
The way in which the total number of new builds is compiled in Ireland is a topic for much debate. For more than 40 years it has been measured using the number of new connections to the ESB grid. This is not an exact science. These particular numbers also include buildings which have been vacant for some time and have been renovated or refurbished and so, technically, are not new homes.
Another significant red herring is the fact that, of the 14,900 new homes added to the grid last year, 42pc were one-off builds.
As a nation, we love statistics. What can be garnered from these figures is that the supply of new homes, while increasing every year, will continue to fall well short of demand for many years. This is likely to mean higher prices.
The number of new homes registered back in 2012 was 8,450. By 2015, this figure had increased by 75pc to nearly 15,000 units - a significant increase - however, it was coming off a very low base. Recently released figures confirm the number of house commencements is also up by more than 50pc year on year. However, the number of completions is still unlikely to surpass the 20,000 mark in 2017.
The actual number of new homes required in 2017 to satisfy demand has now increased to approximately 35,000 as a result of pent-up demand. Delivery of anything above 50pc of this figure in 2017 will be an achievement.
How is the Rebuild going?
When the Rebuilding Ireland strategy was undertaken by Housing Minister Simon Coveney and his department, a monthly progress report was promised. True to his word, an update has been released providing figures to the end of last month. Needless to say the figures are presented in the best possible light. One example? Confirmation that 350 rapid houses are at different stages of construction, which could mean anything really. Originally the plan was that 300 houses would be ready for occupation by the end of 2016. The actual figure came in at just 22.
The update also promises that an additional 2,000 social housing units will be delivered by the end of this year. The ultimate aim is the construction of 26,000 social housing units by 2021. At this juncture this figure looks ambitious but it is too early to cast judgment.
Another pillar of the strategy was to address the accelerating rental crisis. I have grave reservations in relation to the recently introduced 25 rental pressure zones. There are too many anomalies. Two standout examples are Galway city and Co Kildare. Most of Galway city has been included but Oranmore, which has a strong and undersupplied rental market, has been omitted.
In Co Kildare, the towns of Naas, Newbridge and Rathangan are included whereas Maynooth, which is a thriving town with probably the highest demand in the county, is not. Whatever way you dress it up, this does not make sense.
The Government has indicated a strong commitment under the direction of Minster Coveney to address the chronic housing crisis. With the impending leadership battle in Fine Gael and the possibility of a general election around the corner, it's to be hoped that the key driver of this process is not redeployed elsewhere or distracted.
Valuable momentum would be lost if a new Minister for Housing were subsequently appointed. And, while I believe he has not done enough to address the supply issue, to his credit, whether you are in agreement or not, he has been proactive and committed to the role.
How times change
The well-touted announcement last week of work commencing on the expansive Cherrywood development in Dublin is significant in many ways. While many people are still licking the wounds sustained by the demise of the Celtic Tiger - and will be for many years to come - Cherrywood is a sign that we have moved into a new era which is positive, forward-looking and progressive.
The site, which is 60pc owned by the international fund Hines, will eventually comprise of 8,000 residential units, 4,000 of which are to be built by Hines. The other 4,000 will be constructed by a variety of alternative developers. Originally owned by the Liam Carroll property group, the site ended up in the hands of Nama and was subsequently sold to Hines for €270m.
Imagine trying to introduce the concept, back in 2010, of 8,000 new homes over a five-year period in one location. What this highlights is how quickly market sentiment can change. Let's not forget we have just come out of the worst recession for many decades and, no doubt, we will see another in years to come. If we've learnt anything, it is that the property market is all about cycles.
But maybe, just maybe, we've learnt our lesson and will invest in a higher standard of insulation against potential future shocks.
Philip Farrell is a market commentator and property consultant