Everything has its cost. The resurgence in business activity across the capital may be more than welcome, but it is being accompanied by a surge in property prices and rental costs as surplus space is absorbed.
Policymakers are scratching their heads as they try to come up with ways to ramp up housing activity in the Greater Dublin area and in other large population centres, primarily Cork and Galway.
In Greater London, a boom in prices has brought large headaches for the disproportionate part of the workforce aged in their 20s. The British capital, however, is a leading global centre. It will continue to attract a huge range of talent, regardless of cost.
Dublin must compete with many similar-sized centres across Europe for talented young people. There are real grounds for concern that we could begin to price ourselves out of key skilled labour markets if rental and other property costs keep on soaring. Rents are rising at close to 10% per annum, according to a recent survey published by the ESRI in association with the residential tenancies board.
The average monthly rental cost in the city is now almost €1,250, almost twice the level outside the capital.
Rents may still be low compared to London, but they are now quite high when viewed in relation to UK provincial cities — now also targeting skilled labour and mobile capital.
And the scale of the challenge?
It is estimated that around 8,000 houses a year will be needed in Dublin over the next five to 10 years. In 2013, around 1,300 were completed. We should mind about this particular gap. House price inflation in the city is now running at over 20%, according to some estimates, raising fears that a bubble is forming.
Cork, at least, is better placed, here. It could benefit from an increase in cost competitiveness, assuming that the city authorities can find a means to supply growing accommodation needs.
The Society of Chartered Surveyors (SCSI) has produced some interesting reports on the housing gap, and the best means of addressing it. It has released a 10-point ‘housing strategy plan’ .
It concludes that around 80,000 units will be required over the next five years. This, if anything, appears a modest enough goal. It is certainly attainable, given that over 90,000 units were built in just one year, 2006.
The key is ensuring that this time round, the homes are built in the right places, to the right standard and of appropriate size. In the past, our builders have opted to churn out houses built of concrete, set out in rows, geared to a very particular family market.
More recently, the planners pressed for the construction of apartments en masse, too often of the shoe box variety — indeed, in the 1980s and 1990s, rules on tax relief meant that strict limits on size were the norm.
Today, there is a face-off between builders represented by the Construction Industry Federation, who seek the revision of previous planning permissions to allow for the construction of houses in place of apartments for which permission has been granted, and the planners who insist that high-density home provision is the only longer-term solution if further unsustainable sprawl is to be avoided.
The chartered surveyor group correctly identify local development levies and high levels of Vat as key obstacles in the way of a recovery in construction.
They are seeking a temporary reduction in Vat on new homes from 13.5% to 5%, citing the success achieved with the cut in Vat on tourism services to 9%
Reductions in developer contributions — a surviving feature of the Celtic Tiger years — are also sought as a matter of urgency.
This, too, makes a lot of sense: you simply cannot get blood out of a stone. After all, the local authorities will gain from new housing development, generated as a result, in the form of added property tax revenues.
The Government windfall tax is identified as another source of blockage: at a penal 80%, it has held back land transactions. Taxation at this scale is mere gesture politics, and almost always self-defeating. The SCSI wants this reduced to 35%, in line with the general capital gains tax rate. As a temporary move aimed at jump-starting activity, this idea is acceptable.
A big problem, in the past, is the way developers and builders have captured the windfall benefits from investments by local authorities in water and sewerage infrastructure. There is clearly a shortage of serviced land which is holding back some developments. This has to be financed.
Britain has put in place a series of revolving local infrastructure development funds. Key infrastructure is provided up front, with payback coming when monies are generated either from the sale of land, or the sale of completed housing units. The taxpayer is not out of pocket. The availability of finance for developers has been cited as another key area of blockage.
The Government has succeeded in attracting investors from overseas such as US-based group, Kennedy Wilson. This has generated considerable funds from sales for Nama.
However, the Kennedy Wilsons of this world prefer to take over existing projects rather than develop new ones. As things stand, sale values remain at well below the cost of constructing new units.
The surveyors believe that the builders could be doing more to rein in construction costs which have fallen by relatively little from the levels at the peak of the boom.
As building costs and values come into line, the way is opened to larger-scale development. By removing tax and developer contribution obstacles, this day will be brought much closer. The Government has sought, with little success to date, to persuade the banks to fund developers of homes.
As a result, projects are small and being built on a piecemeal basis. While the banks are still deleveraging, Irish pension funds are flush with cash. Housing would appear to represent a perfect longer-term investmentopportunity for the funds, particularly working in association with specialist developers.
The State needs to cut a deal with the pensions industry, by dangling a carrot in the form of a removal or reduction in the hated levy on pension funds in return for a real commitment to investment in Irish infrastructure, including housing.
Soaring rents are pushing more and more onto the burgeoning public housing waiting list at a time when local government has all but withdrawn from the provision of new public housing.
The problem has been compounded by the financial difficulties faced by many traditional landlords and by the imposition of stringent new requirements on landlords in relation to the provision of amenities for their tenants.
The result is that many landlords have withdrawn from the market, either leaving vacant properties, or selling on multi-unit homes for single family use.
Other landlords are opting, in large numbers, to refuse to offer accommodation to people in receipt of rental supplement.
Rightly or wrongly, they are concerned at the prospect of dealing with ‘dysfunctional tenants’.
While holding landlords to account remains vital, it must not be done in such a way as to force them from the market altogether, leaving an even more skewed supply/demand situation than previously.
The result is that more and more people are being forced into the arms of the State, forced to rear young families in bedsits. In growing numbers of cases, they are being forced on to the streets, presenting new challenges for the authorities.
Housing markets are like cartons of toothpaste. Squeeze too much and you get messy spillage. Politicians may press for regulation and for rent control, but in practice, if this results in contraction in supply, the whole process becomes self-defeating.
The shortage of homes in our cities has been a feature of Irish urban life since time immemorial.
Increasingly, the State and local government have withdrawn from direct provision in favour of the private sector and non-profit providers of social housing.
The State must now seek to lever private finance while removing fiscal gaps and ensuring that infrastructure is made available where it is most needed.
Central planning, yes.
Centralised, state provision no — at least, for the foreseeable future.