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When it comes to bigger, private-sector schemes, just 19 percent of the homes that planning permission has been granted for in Dublin city are being built.
This has long been an issue. In the last five years, the peak was at the end of 2017, when 30 percent of the planning permissions in the city were being built out.
But build-out has hovered around 20 percent in the last year – and there are signs that the number of sites coming on stream is slowing, according to a report to Dublin city councillors last week.
Between March and June this year, work didn’t start on any new sites in Dublin city with planned developments of more than 10 homes, says the report, discussed by councillors on Dublin City Council’s planning committee recently.
Those working in real estate say today’s issues stem from rising construction costs and interest rates, which are making apartment schemes unviable, pushing costs of delivery higher than what any buyer would pay.
“In my profession, we are spending a lot of time trying to value-engineer projects to make them viable,” says Kevin James, president of the Society of Chartered Surveyors Ireland (SCSI). “The market is moving in the wrong direction.”
But other concerns around unbuilt planning permissions, long in play, haven’t disappeared either.
Among them, that developers struggle to get finance, that a speculative land market harms viability – and suspicions of developers drip-feeding homes slowly into the market, to ensure that prices don’t fall.
The Land Development Agency (LDA), the Housing Agency and Dublin City Council have all rolled out schemes that would see them finance, or part-finance, developers to build out unbuilt private planning permissions.
Sinn Féin TD and housing spokesperson Eoin Ó Broin says that turnkeys – which are homes that the state buys off the plans from private developers – are a good idea. But “subject to quality and price”.
Homes won’t be affordable if the LDA pays too much for them, though, Ó Broin said, and competition between the agency, councils and approved housing bodies (AHBs) for the same blocks could drive up prices.
For new households over the next six years, the Dublin City Council area needs 10,200 social homes, 7,900 affordable homes, 4,100 private rental homes, and 5,000 homes for owner-occupiers, according to a council Housing Needs Demand Assessment.
At a meeting of the council’s planning committee on 27 September, councillors wondered aloud at the figures showing a slowdown in building on private construction sites, and the reasons why.
Dublin City Council head of planning Richard Shakespeare couldn’t shed much light on that, he said. “We don’t capture that information in a formal way so it would be inappropriate to speculate and to comment.”
Peter Garrigan, head of development land and consultancy with CBRE, a commercial real estate services and investment firm, said there has been exponential growth in build costs.
“Which will make some schemes that were previously commercially viable, not commercially viable,” he said.
Interest rates are also increasing at the moment and that is a major issue for developers who have to borrow to build, he says.
James, the president of the SCSI, says that plans for around 44,000 homes are approved nationally each year.
“With the commercial constraints that the industry are under at the moment, how many of those are actually going to get constructed?” he said.
The government recently announced a 10 percent tax on concrete, a levy to help cover remediation schemes for households incurring costs due to defective concrete blocks.
James says that new levy, together with inflation and the risk profile of some schemes, could tip some projects over the edge. “They are all moving the commercial rationale in the wrong direction.”
A Long-Standing Issue
Even before the current slowdown, the percentage of private homes with planning permission in the city that were actually being built hovered between 20 and 30 percent in recent years.
Gavin Lawlor, a director with Tom Phillips and Associates, a planning consultancy, says he doesn’t know that there is a major problem. Most will be built out in time, he said.
Each developer likes to have their next project lined up, he says. “To have somewhere in their back pocket to go to.”
If each developer currently building has one spare site, that would account for many of the unactivated planning permissions, he says.
Also, developers only commission detailed designs after they are granted planning permission, because it is expensive, Lawlor says. So there will always be a lag between planning being granted and a developer starting to build.
Joseph Kilroy, head of policy and public affairs at the Chartered Institute of Building, says there are a cluster of reasons why a given site might not be built out yet. “It’s not black and white.”
As well as the more recent cost rises, there could be problems getting finance, he said. Some developers spend loads buying the land and then struggle to get the funding to build the homes, he says. “We have a dysfunctional land market that is grossly inflated.”
There can also be delays with infrastructure and utilities connections, he said.
Also, not all of the investors who buy land and apply for planning permission intend to develop, says Kilroy. “They may be a hedge fund, they may be a pension fund.”
They buy the land as an investment because the price of land in Dublin is rising, he says. “They don’t have the means or incentive to develop these pieces of land but their asset is going up in value every year by quite a large amount.”
Data in the United Kingdom has demonstrated that this type of speculation happens, but we don’t have access to any information to track this in Ireland, he said.
Kilroy says that in the United Kingdom, an independent review into the issue, the Letwin Review, found that developers were drip-feeding homes onto the market so they could maintain a high price for that type of home.
“Developers are not going to release huge amounts of housing onto the market at the same time,” he says. “They are going to maintain a certain price point.”
Garrigan, at CBRE, says he doesn’t see land hoarding as a major issue. “I don’t agree with the sentiment that people here are sitting on the sites and not moving them on.”
The main barrier is viability issues, including getting the finance, he says.
What’s to Be Done?
One line of thought is that the kind of housing being encouraged by the government needs to change.
A recent report by the developer Glenveigh suggests that high-rise apartment complexes aren’t viable even in areas of high demand, says architect and housing commentator Mel Reynolds.
“The question is why are policy leaders continuing to promote apartment schemes to the exclusion of all other types of housing, when clearly there is a viability issue?” he says.
High-density living can still be achieved in low- to medium-rise developments where everyone has their own front door, says Reynolds.
These homes would be more desirable and more affordable, he says, pointing to an award-winning housing scheme in Goldsmith Street, in Norwich in the United Kingdom,which achieved a density of more than 82 homes per hectare.
Kilroy, of the Chartered Institute of Building, says that measures to control land prices would help to solve a lot of problems. “The tax treatment of land as an asset in Ireland is negligible and that makes it really appealing to investors.”
James, the president of the SCSI, said the vacant sites levy – which is a tax on sites suitable for homes that are left vacant for more than a year – should reduce deliberate land hoarding if that is an issue.
Buying Them Up
Approved housing bodies and councils have been buying homes for social housing off plans, and reducing risk and financing challenges for developers, for years. But the state seems to be ramping that up.
Earlier this year, the Land Development Agency said that it would step in and forward-purchase apartments with planning permission granted, under Project Tosaigh, “in order to unlock and accelerate delivery”.
It has said it planned to use the homes for affordable rentals.
The Housing Agency is also stepping in to part-fund private developments of homes for sale to homeowners, through a scheme called Croí Cónaithe.
Ó Broin, the Sinn Féin housing spokesperson, says that a developer in Dublin can now sell to investors, councils, the LDA, an AHB or do a deal with the Housing Agency.
All public bodies are under pressure to meet their housing targets and with so many players buying homes off plans they could end up competing with each other and driving up prices, he says.
“There should only be one state agency buying turnkeys,” says Ó Broin.
Buying up plans for expensive apartments isn’t a good way to deliver cost-rental homes though, says Ó Broin. Because then the homes won’t be affordable.
Cost-rental homes are those where the rents are set to cover the cost of financing and maintaining the homes.
“Cost rental shouldn’t be buying units from private developers because in that is land speculation, profit and a whole load of other costs,” he says. In general, it is better to build cost-rental housing directly on public land, he said.
That said, if opportunities arise for the state to buy a private housing development off plans, that offer good quality at a low price, then it should do that, he says.
Dublin City Council has also set up a scheme to partner with developers to build out planning permissions in the city, to use those homes for social and affordable.
A spokesperson for Dublin City Council said that it was disappointed with the reaction it has had, with 44 expressions of interest and one final submission.
The spokesman said the council wouldn’t be in competition with the LDA though. “Dublin City Council would regularly engage with our key government partners in advance of launching any new housing opportunities to the sector to ensure no repetition.”
“There were key differences with Dublin City Council’s proposal such as the funding mechanism, type of site or development being sought and assessment of same,” they said.
Lawlor, the director with Tom Phillips and Associates, says that the major factor causing delays is finance. “Banking in Ireland has reduced. We are left with two key pillar banks and neither has a great track record in funding property development.”
That means if we want dense urban development, which is required for the 15-minute living city, then the LDA forward-funding housing projects is a brilliant idea, said Lawlor.
Kilroy says that there is a genuine financing gap, particularly for smaller builders.
“I think there is a lot of merit in having a national investment bank for SME builders,” he says. “Then the state could have a say in what the type of housing would end up being built.”
If the state forward-funds sites with existing planning permission that would be an expensive way of providing public homes, but it could help to increase supply, he says.
Another approach would be to introduce a value land uplift tax, he says, to tackle land hoarding.
The government has committed to introduce a new tax on residential-zoned land, he says, however that needs to be linked to land price inflation or it won’t work.