Tuesday 17 September 2019

Stop the sprawl! If we are serious about our future, we must look up

Dublin needs to undertake a series of reforms in its real estate market, write Jason Barr and Ronan Lyons

The tallest building in the Republic is The Elysian in Cork at 71m (pictured). This will change when the 79m Capital Dock, now under construction in Dublin, is completed
The tallest building in the Republic is The Elysian in Cork at 71m (pictured). This will change when the 79m Capital Dock, now under construction in Dublin, is completed

Jason Barr and Ronan Lyons

When Britain voted in 2016 to leave the European Union, it, perhaps unwittingly, handed an opportunity to Dublin to grab a share of London's financial services business.

Companies in the City of London's financial heart like the idea of moving to Dublin - it's an English-speaking city close to both the UK and the Continent. Dublin has a growing financial services base, with almost 40,000 people working in the IFSC.

However, if Ireland is serious about being a player, it must overcome several hurdles. Perhaps the most important of these is its real estate market.

London's success has been driven primarily by the economics of business clustering. In order to succeed, banks and financial firms find that they need to locate as close together as possible. This clustering provides a competitive advantage. It allows companies to remain in the informational loop in a rapidly changing world, and gives them access to high-skilled workers and the web of related businesses. This agglomeration creates a positive feedback loop: when businesses congregate they are more profitable and competitive, and this draws more firms and workers, further enhancing profits and competitiveness.

London's finance and banking industry dates back to the mercantile revolution of the 17th century. Prying loose such an advantage is not easy since these forces of agglomeration are so strong.

Historically, Dublin has been a low-rise city, and today much of its area is legally mandated to remain as such. In the 1800s, when London was cementing its lead in banking, Dublin was one of Europe's largest cities.

During the 19th century, however, it stagnated as its moneyed elite moved to London, and Belfast became the island's industrial hub. At the same time, Ireland was experiencing population loss due to famine, emigration and economic struggles. (Today, we are the only country in the world with fewer people than we had two centuries ago.) As a result, Ireland - and Dublin, in particular - has gained little or no expertise in building up, because it never had to.

Similar to other wealthy European cities, Dublin is preserving its older structures, which places severe constraints on what can be built, despite the fact that our population growth is one of Europe's fastest; as a result, Dublin has an expensive housing market.

Given this history, Dublin faces high hurdles in becoming a genuine alternative to London. First is that employees in the growing finance sector and related industries will need affordable housing. The high costs of homes will make it difficult to make Dublin an attractive place to live. But, perhaps more importantly, financial firms will need office buildings where they can cluster - generally speaking, taller buildings are best for this. It is hard to generate a virtuous cycle of economic growth if a city does not have the space in which to grow.

The standard definition of a skyscraper is a building of at least 100m. By that measure, Dublin has none. Yet, throughout the world, there is a strong correlation between skyscrapers and the success of a city's financial sector. Take China and United Arab Emirates; Shanghai and Dubai's skyscrapers are the direct results of plans to make these places capitals of trade and finance. While London's skyline is not as tall as these cities, it had a 300-year head start. Other cities the world over are eager to get into the financial services game and are building to accommodate the new, anticipated trade.

So what can be done? If Dublin wants to present itself as a viable alternative to London, then it needs to undertake a series of reforms in its property market. Dublin should create a special economic and business industrial property zone, where developers will have the freedom to build skyscrapers based on the economic demand. The skyscrapers will become icons that announce to the world that Ireland means business.

We should also consider implementing a land tax that penalises landowners, including public ones, for having undeveloped or underutilised sites. The land tax is also a good way for transport infrastructure to pay for itself.

More broadly, the city should consider relaxing maximum height restrictions. Building regulations can be implemented, as is common in many US cities, that allow developers to build taller, if they make their structures less bulky. This increases building density, but also preserves access to sunlight on the street.

While Dublin needs more and taller buildings, it lacks the domestic high-rise construction industry to realise this need; Brexit offers an opportunity for construction, architectural, and engineering companies to expand into the local market, thus helping to develop Ireland's construction industry.

If Dublin wants to take advantage of the economic opportunity created by Brexit, it must develop a plan to build its field of financial dreams.

Jason M Barr is a professor of economics at Rutgers University in New Jersey and author of 'Building the Skyline: The Birth and Growth of Manhattan's Skyscrapers'. Ronan Lyons is an assistant professor of economics at Trinity College Dublin and author of the daft.ie reports on the Irish housing market

Sunday Independent

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