Friday 24 May 2019

Government should stick to its guns in house building 'crisis'

Morrissey's describe the Martry Bar as 'a substantial modern purpose built lock-up licensed premises on the Kells Road'
Morrissey's describe the Martry Bar as 'a substantial modern purpose built lock-up licensed premises on the Kells Road'
Richard Curran

Richard Curran

When it comes to building houses in Ireland we always seem to be recovering from a crisis (now), in a crisis (2008-2013) or heading towards a crisis (2003-2007).

Before that, in the good old days when nobody had any money, we had a sort of functioning housing market. Unfortunately, it was based on the principle that you had to scrape and scrounge for years just to buy a house. At least if you couldn't afford one, you might have had a chance of getting a local authority house.

Now that the crisis is over we may be heading towards the worst of all worlds. People have high expectations about being able to buy a house. Central Bank measures to prevent another bubble mean people are saving pretty hard to land a mortgage.

And if you can't afford it, you haven't a hope of social housing because there simply aren't enough. This anomaly leaves a lot of people competing for rental properties, particularly in Dublin, where the population is growing rapidly.

And everybody has a solution to peddle. The construction industry believes there is a massive underlying demand for housing and we need to get building more houses. Typically, it turns to government intervention and subsidy as the best way to achieve these aims.

Builders want to see a state-backed builders' finance fund; a help-to-buy scheme with the government providing an equity loan and mortgage insurance; a tax-incentivised savings scheme to help youngsters save their mortgage deposit; interest relief for investment in residential property and full interest relief for landlords; property tax rebates; partial rebate of development levies and other tax allowances for new home purchasers. It is quite a list. Aside from the cost, some measures would completely undermine new policy measures such as higher mortgage deposits and property tax.

The industry has been complaining for some time about what it believes are onerous planning and regulation restrictions about what sort of properties can be built and where. It doesn't like the ban on north-facing apartments in Dublin, for example.

Whenever pressure comes on, over-regulation is seen as a contributor to cost and something that should be watered down.

Yet the brand of self-regulation of the boom failed so many people.

The central argument of the construction industry is we need more houses and fast, and that houses cannot be built at a profit in some parts of the country.

They may be right about that. In 2012 a study was produced for the sector which said the cost of building a 1,189 sq ft three-bedroom house was €194,000 before the cost of the site. Presumably there has been some wage inflation since 2012 and that figure has gone up.

This may well be accurate and could be a disincentive to build, especially in smaller towns. However, we may not need too many new houses there right now and surely housing has to represent a marketplace of price, supply and demand at some point.

Recent sales of residential development sites show how the market is going in the capital or close to it.

In Rathgar an 8.1-acre residential site with planning permission for 211-units, including 199 apartments, is on the market with a guide price of €30m, or €140,000 per unit. No doubt there are buyers who believe they can make money after paying €140,000 per unit for the site. A site in Blackrock in south Dublin recently sold for €6m per acre. In nearby Dundrum, Hibernia REIT recently sold a site at €2.5m per acre, which was reported to be based on a site price of €160,000 for a three-bedroom house and €80,000 per apartment.

In Ashbourne, Co Meath, a site was recently sold which had planning for six detached houses, at a price equivalent to €125,000 per house site. A 2,000 sq ft detached house in Ashbourne is on the market now for around €500,000.

It seems that somebody will make some money out there in the market as it stands right now.

The industry does have some salient points to make. There were 8,819 new house commencements in 2014, up from 4,708 in 2013. Yet almost half of the commencements last year were in February as part of a rush to start projects ahead of the introduction of stricter building regulations.

Outside of the greater Dublin area, the increase in new builds was actually very modest. There is some evidence to suggest that activity has since slowed or is growing at a much slower pace.

Construction activity levels are still well below where international economic bodies would suggest is sustainable. And there does appear to be a sizeable pent-up demand for housing, especially in Dublin.

The Government is in a quandary. Incentivise builders to builder more through subsidies and it can lead to trouble. Subsidising house buyers more can also lead to trouble. Reduce planning restrictions and regulations looks like a step backwards at this point.

The housing market has to begin to resemble an actual marketplace at some point. Given time and limited interference it will.

The real problem is the rental market. Until such time as more houses are built and the price/supply curve falls into line, people are being pushed in greater numbers into an unregulated rental sector. Some struggle to keep a roof over their heads at all. Others are being gouged on price by landlords.

The Government is taking the right approach by building new social housing but it can't come along fast enough. This week's announcement of over €312m for local authority social housing is welcome but just the beginning.

Over 50pc of all rent received by private landlords comes from the State through one scheme or another. That is not sustainable.

There is a demand for new housing but demand does not exist at any price. There has to be equilibrium between the two in any market. Clearly, it isn't there yet. House prices in Dublin and nationally have begun to level off. That is not a bad thing at all.

The Government should hold the line and not water down building and planning regulations or start throwing around a raft of new subsidies to the sector. But it has to introduce new measures to regulate the rental market. You can't fix the housing problem without solving the rental problem.

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