Building blocks for a housing recovery

Building blocks for a housing recovery

The State has to lay off the vanity construction projects, target areas of absolute priority, and really get to grips with a housing model dogged by dysfunction, argues Kyran Fitzgerald

There is a wearying familiarity to much of the current discussion around house prices and availability.

Five years ago, as our economy began to lift off, it was clear that demand for living space in and around our larger cities would grow, starting with the capital city.

A lot of time has been frittered away as those in positions of authority have sought to get to grips with the issue of housing provision.

While the economy may have recovered, we are still living with the consequences of the financial crash and it is in our currently dysfunctional housing market where the post-crash effects are being felt in particular.

Funding for development is not available in sufficient quantities or at the right price. Banks are reluctant to trust other than a few select builders-developers. Projects are completed in dribs and drabs.

Many experienced builders are out of the game or only active in a small way. This has led to a competition deficit in the industry.

The planning system remains dysfunctional, though with signs of improvement as a result of recent changes including more hiring of planners and the introduction of fast-tracking planning for large housing projects.

The services of professionals such as architects are availed of too late in the process due to a reluctance to incur up- front costs. This has increased the risk of snags occurring in the planning process as projects are seen to lack the necessary forethought, adding yet more delays.

Looming over all of this is the prospect of a skills shortage. In the latest Central Bank quarterly report, senior economist Tom Conefrey poses the question — where are Ireland’s construction workers?

In 2010, 70,000 were out of work. Most have since disappeared, either into other occupations, into retirement, or overseas. Filling this emerging skills gap will present huge challenges and Mr Conefrey, for one, believes that we will once more have to look overseas to source the necessary personnel.

The Department of Housing has just published a timely and detailed review outlining measures aimed at speeding up the delivery of affordable homes by the private sector. There is plenty of meat on the bones

contained

in this report.

Between 1997 and 2002, 40% of construction activity was residential. The department is seeking a return to this level of home construction.

In the old days, God provided. More recently, we came to rely on the market, but the private sector continues to come up short in this area.

We need more in the way of State intervention, the report’s authors say.

Cranes are everywhere, but they are building offices, hotels, student accommodation — easier pickings in these areas for the developers and their financiers. Residential projects are viewed as more risky by funders than commercial projects — ironic

this

, given that it was the huge losses on commercial loans which did so much to precipitate the collapse of our banking system a decade ago.

The funding tap is gradually being turned on, with more non-bank lenders entering the market, but loans come at high rates of interest boosting overall project costs.

According to the Society of Chartered Surveyors, just 45% of residential delivery costs are attributable to construction costs. The remainder is accounted for by taxes, levies, land prices and a ‘development margin’ of 10%-15%

Many question the efficacy of a 13.5% Vat rate on home builders, but the department rejects calls to scrap it.

It points to EU rules

on the charging of Vat

which restrict the scope for reduced rates of Vat. It also contends that lower Vat could lead to higher land prices.

Both these arguments are shaky.

Could Brussels not be persuaded to relax its rule in the case of what is a national emergency? Or could the Government opt instead to remove the reduced rate for the hospitality sector, perhaps with an offsetting reduction in commercial rates? This would make space for a reduction or removal of Vat on house building. Time surely for policymakers to think laterally?

The ‘higher land price’ argument of the department is also dubious. Accelerating the introduction of a tax on unused development land would take the heat out of that end of the market. The proceeds could then be used for the construction of social housing, or for the funding of badly needed infrastructure.

The department correctly recognised the key role that could be played by professionals in designing estates that are functional, pleasing and financially viable. It favours the construction of buildings of six storeys and, in certain cases, seven to 10 storeys, but warns against embarking on tower block building.

Beyond a certain height, building becomes more, not less expensive.

Dublin has plenty of high-density terraced housing, much of which is viewed as increasingly attractive by buyers. The trend is away from the car-dependent estates favoured by a less than imaginative builder community.

Interestingly, the report warns that affordable apartment developments face huge challenges when it comes to viability.

Their preference is for terraces and duplex units, allowing for much greater sharing of expensive services.

Greater efforts to reduce the amount of space wasted in circulation, internal and external, are required.

Already one can see how much savings a good architect or engineer can secure, but local planning officials and rules also need to display more flexibility. There can on occasions be too much box ticking and fusspot interference by officials lacking in good old-fashioned common sense. We can all point to examples of such behaviour.

But car-bound consumers also have to become more realistic. Basement parking is viewed as too costly, while developers are warned against seeking to include too much green space.

Would-be house buyers would be well advised to accept such counsels of caution. If they are intent on realising a suburban dream, then they have to accept that it comes at a cost. Irish homes are expensive. They are also among the most spacious and land greedy in Europe.

The report suggests that we should build more one- to two-bed dwellings, acknowledging the demographic trends towards smaller households, but is such counsel going to lead us in the direction of constructing yet more pokey places?

of the type that firms like Zoe Developments specialised in for so long

Our funding model certainly needs shaking up and here a greater role for the State is envisaged. The department suggests that greater use be made of the Government’s €7bn plus strategic investment fund as a means of boosting development activity.

Unfortunately, political reality dictates that such funding tends to be scattered around rather than targeted into areas of absolute priority.

In recent weeks, we have witnessed a host of new projects from sports stadia to exhibition halls and cultural venues, either being enthusiastically touted or being allocated funds from the public purse.

Perhaps it is time to lay off on the vanity projects and really get to grips with a crisis which now affects most Irish families in some manner and which threatens to stymie our national competitiveness.

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