Is the Government at Risk of Overpaying for Social Housing?

Someone on the social-housing waiting list is going to hit the jackpot.

Dublin City Council has agreed to pay €480,000 to developer Cairns for a super-sized luxury two-bed apartment in the “luxury” Marianella apartments in Rathgar, to be used for social housing, according to a council spokesperson.

Facilities include a gym, a concierge, and private cinema, according to the brochure. The development is also attached to a park.

The homes have high ceilings, bespoke wardrobes and large balconies, as well as custom-designed kitchens with “satin finish” sockets and light switches.

While this is all great news for the family that gets it, buying it might not be the best use of the council’s resources in a housing crisis, says architect Mel Reynolds.

Developers of projects with ten or more units are obliged under legislation to set aside 10 percent of homes for social housing. It’s the provision that housing wonks refer to as “Part V”.

The only catch is that the local authority has pay for it – and some are wondering whether it’s the best use of funds.

How We Got Here

The rules that say developers have to sell some of their units for social housing are set out in the Planning and Development Act 2000.

The idea was that the government wouldn’t build “council estates” and “corporation flats” as they were called. Instead, each new private housing development would contain social and affordable housing, thus creating a “social mix”.

But some criticised the scheme, as it let developers buy their way out of their “Part V” obligations by handing over money instead of selling apartments to the council – and the money councils got often wasn’t ring-fenced to be used for housing, says Reynolds.

“The perception is that a lot of developers bought their way out of this … the cash went into the pot and it was never seen again,” he says.

In 2015, that Part V rule was amended so that developers have to provide 10 percent of the development as social housing and can no longer “buy their way out” – although they can offer housing elsewhere, says Reynolds.

The Costs

It looks like Marianella is more the exception than the rule for now.

Figures from the four local authorities in the Dublin region show the average cost of a two-bed home bought under Part V is between €196,000 and €270,000.

A spokesperson for Dublin City Council said that so far this year the council has agreed to purchase 224 social-housing units from developers under Part V, and the average cost of a two-bed home was €270,000.

“There is a myth out there that Part V is some freebie the developer gives us, but they are rocketing again,” says Sinn Féin Councillor Daithí Doolan who heads up the housing committee at Dublin City Council.

Direct procurement would always be cheaper than buying from developers, he says.  But “you can’t win; it’s all locked in to support the developers”, he says.

A spokesperson for South Dublin County Council, meanwhile, says it has agreed to purchase 81 units under Part V in the first half of 2017.

The two-bed units cost €224,493.99 on average, and the most expensive two-bed that it has agreed to was in Rathfarnham for €294,638.45, they said.

In the first half of 2017, Dún Laoghaire-Rathdown County Council entered into formal Part V agreements with developers on six projects, which will deliver 22 social housing units, said a spokesperson.

“Of those agreements signed, the average cost of a two-bedroom unit ranged between €196,000 and €274,250,” she said.

The average cost of a two-bed unit under Part V in Fingal is €197,000, said a spokesperson for Fingal County Council. The council there has agreed 18 units so far this year.

The spokesperson refused to confirm the cost of their most expensive purchase, saying it was commercially sensitive.

Over the Odds?

In order to get planning permission, a developer has to negotiate their Part V obligations with the local authority. This usually ends up in a row about costs, says Doolan.

The developer has to give the local authority a discount on the land under Part V, says Reynolds.

It is transferred to the local authority at the “existing use value” rather than “development value”, he says. So it should always be cheaper than its market value.

But in the Dún Laoghaire-Rathdown County Council area, Green Party Councillor Ossian Smyth says he is worried that the local authority may pay over the odds for apartments from one developer in the large site in Cherrywood where roughly 8,000 homes are planned eventually.

That could set a precedent within the development, and then for the entire local-authority area, said Smyth.

The first planning application on the site has come from William Neville & Sons. At the moment, they are looking for €354,000 for their Part V units, according to figures submitted to the council as part of the planning application.

The costs set out so far are the opening sally in the negotiations process, says Reynolds. He has costed it out himself, and says the apartments should be €227,584.

Reynolds agrees with the figures for construction costs, and legal and professional fees, but queries other costs in the proposal.

Those include estimates for “abnormal works” of €14,000, and a separate contingency sum of €7,831. They are allowing almost €20,000 per unit for something that hasn’t even happened, he says.

As Reynolds sees it, the €15,000 for infrastructure development works should be crossed out, too. “In a normal contract that wouldn’t be in there,” he says.

On top of that, preliminaries are estimated at €26,000, which Reynolds says is “completely out of line”.

Preliminaries “are basically site enclosure, hoarding, insurance and security guard if you need one”, says Reynolds. “They are always less than 3 percent of your build cost and a lot of builders don’t even charge it because it’s so small.”

William Neville & Sons didn’t respond to two emails and two phone calls, asking if the company would go through the costings with us.

Smyth of the Green Party says that this first agreement is key. “Really it’s important that this particular case doesn’t get through and end up setting a precedent for other development,” he said. “If they get €350 [thousand] approved, then every other developer will put that.”

The local authority is planning to build 500 units at Shanganagh, says Smyth and the estimated costs are around €200,000 per unit.

“How would it be right to pay an extra €110,000 on top of what it would cost us to build them ourselves?” he asks.

The problem is that the developer can’t start building until the issue of Part V is settled, and often local authorities are under more pressure to get building started than developers, particularly when land prices are going up.

“If you are a wealthy builder you can take the approach, ‘Well, we are not building them unless we get the right deal on the Part V’,” says Smyth.

Simple Things

“The simplest thing would just be to say the builder, ‘You can have the same amount that it would cost us to build it,’” says Smyth.

Dún Laoghaire-Rathdown County Council indirectly owns 20 acres in Cherrywood already, and perhaps it should consider developing the land itself if that would save money, he says.

According to figures cited by Fine Gael Housing Minister Eoghan Murphy, when local authorities build social housing themselves, it costs on average €190,456 for a two-bed home.

Reynolds says he would like to see Part V scrapped in favour of a 10 percent levy on the sale of land, ring-fenced to be used by local authorities to build social housing.

“This solution not only captures part of the windfall profits from speculators, but would be cost-neutral on the state balance sheet,” he says.

The Department of Housing didn’t respond to queries about whether the Part V provision is good value for the taxpayer.