Some councils lack transparent processes for buying houses for use as social homes, and there seems to be a lack of oversight of their spending, said a report by housing researchers published last week.
In one case the authors examined, the council paid a higher price for some three-bed homes under Part V, than the developer sold others in the same scheme for on the open market.
In another, a local authority agreed to pay €10.7 million to a developer for 54 apartments but didn’t have any contract in place for the deal, says a report commissioned by Clúid Housing, a housing charity, or approved housing body (AHB).
The report is titled “Planning Gain and Obligations: Promise and Performance of Part V”. Under Part V of the Planning and Development Act, developers generally sell on some of the homes they build to councils or AHBs, for use as social or affordable housing.
Generally, when councils bought homes through this process they got good value, says the report, which examined deals done between 2016 and 2019, but there was a lack of transparency and standardised procedures.
That approach to Part V deals is in direct contrast with the bureaucratic four-stage approval process that councils have to go through to directly build homes, says architect and housing commentator Mel Reynolds, one of the authors of the report.
Direct-build is the most cost-effective way of procuring social and affordable housing, says Reynolds, but the Department of Housing “appears to be micromanaging the process so it can take up to three years to get approvals and in some instances longer”.
“But when it comes to Part V purchases – and possibly other purchases – it appears that there is little oversight,” Reynolds said.
The Department of Housing hasn’t responded to queries sent Monday about oversight of Part V, and whether it would be better if all local authorities used a standard template agreement when calculating costs and profits.
The Part V Calculations
Often landowners get “windfall gains” when land is rezoned, says the report.
The state often pays for public transport, roads, sewerage and other infrastructure so the idea behind the Part V rules is to capture some of the gains a private developer makes off all this for the public good, says the report.
When a developer puts in a planning application it has options for how to satisfy the Part V requirement.
One of those is to sell the council some of the land it is planning to develop at a discount from the market rate known as the “existing use value”.
The term “existing use value” refers to what land is worth in its current form, assuming it will only be used for the existing use for the foreseeable future.
For agricultural or industrial land that is set to be rezoned so homes can be built on it, the upcoming rezoning is ignored and the price the council pays is the agricultural or industrial value of the land.
Another option, if the developer chooses not to sell the council land at the existing use value, is that it can build homes and charge the council that price for the land – plus the “development costs”.
The development costs include all the real construction costs of the homes and can also include finance costs, design costs, legal costs and profits.
The Part V guidelines say the builder’s profit margin on these sales to the council should be in line with what the council would spend if it hired a builder directly.
But there is no formula for calculating the profit margin allowed, says Reynolds. Even within certain councils, this percentage differs from one Part V deal to another.
“I think a standardised cost template would work really well,” he says.
Developers said it would be simpler and fairer if the profit margin was standardised and then they could figure it into their costs, Reynolds says. “An unlevel playing field doesn’t suit anyone.”
Says the report: “The methodology and basis for calculating profit appears to lack legal certainty and consequently, methodologies are inconsistent and are not presented in accordance with Department [of Housing] circulars.”
“This gives rise to situations where payment of substantial public monies are negotiated outside the public procurement process and systems of oversight for items, including substantial profit payments that cannot be evidenced or audited,” it says.
Furthermore, some councils allowed developers to charge them a proportion of their marketing costs. But the council is buying the homes as part of the planning process so the developer doesn’t have to market them.
The Department of Housing didn’t respond in time for publication to queries about these issues.
More than Market Rate?
The report discusses specific Part V deals councils have done, but the housing developments are anonymised and the councils are not named.
The Department of Housing didn’t respond in time for publications to queries about the deal in which a council paid more for some three-bed homes than the developer sold others for in the same scheme on the open market.
But Reynolds says that example isn’t as odd as it sounds. It may have been in an area of low land cost, where the discount on the land was a small enough factor in the overall deal, so the council would only have been entitled to a relatively small discount.
Part V deals work really well for the state on greenfield sites where low-value land is being converted to higher-value residential land. However, the process is not as successful in places like Dublin city centre, for example, where land prices are already high, he says.
The existing use value is based on the value of the land currently, before the new planning application is assessed, but “if you are dealing with a site in town that has had residential use for a long time, or a hotel, the existing use value is going to be quite high on it”, he says.
Perhaps councils need to accept that though and still buy the homes, says Reynolds.
“The whole purpose of it is mixed tenure and to have social housing in high-value locations,” he says.