Extraordinary times call for extraordinary measures, says CIF Director of Housing and Planning Conor O’Connell. He considers housing delivery within the current matrix of circumstances constraining supply
Housing supply and how to achieve greater numbers of units is one of the greatest challenges for our country. The issue has become highly politicised and it can be difficult and boring to talk about the details of the technical, regulatory and skills of actually building homes.
It is important from a builders’ perspective to stress that the housebuilding sector has utterly changed in every way from the period up to 2013. Funding models have changed, the building regulations have utterly changed and those that have survived are generally builders who have a long history of delivering good homes.
The house itself is completely different and built to some of the highest specifications in Europe. The mistakes of the past cannot be repeated and the industry is now far more professional and regulated than it ever was.
The apartment defects and practices that led to poor compliance by some builders cannot be repeated and those left working in the housebuilding sector will never advocate for policy measures that would lead to poor workmanship or unviable or unsustainable building practices.
There is a considerable amount of tax generated from residential construction activity and we believe that increased output in residential construction activity will yield the tax income needed to pay for the remediation required.
Uncertainty around land zoning
Almost everyone accepts we need to build more homes, yet the difficulties are growing and changing all the time due to a sequence of extraordinary factors that are impacting on the cost and supply of land, services, planning, labour, finance and of course materials.
Throughout the year these extraordinary factors just seemed to amplify and grow. Brexit, Covid and the war in Ukraine has caused construction materials to increase at rates never seen before.
Ireland is a relatively small market for construction materials and in many instances, we are at the end of long supply chains. In recent times the increase in interest rates and material costs has resulted in many projects becoming simply unviable as the cost to the purchaser of a home and the cost of funding and building that home simply become too expensive.
There has also been uncertainty and a change in land zoning policies, which has resulted in some lands in areas of high demand being de-zoned for residential purposes.
A recent motion from Meath County Council on this matter illustrates the frustration with these changes to land zoning policies. In our opinion constraining land supply for residential purposes, however well-intentioned, will only increase the uncertainty and increase cost.
The proposed introduction of the concrete levy and the residential zoned land tax levy will also increase the cost to build a home.
These cost increases are ultimately borne by the purchaser of a new home.
In addition to these exceptional cost increases has been the exceptional performance of the economy resulting in some of the largest increases in population in Western Europe.
As an example, Dublin City and County grew by 258,000 from 2006 to 2022 and Cork City and County grew by 100,000 people in the same period. This is the equivalent of a small European City springing up on the outskirts of these two metropolitan areas alone.
Extreme pressure and planning delays
The pressure on the existing infrastructure, including housing, is extreme. All this growth and pressure on housing occurred at a time when banking and housebuilding were and are still recovering from the last recession.
The delays in the planning system now are truly extraordinary with approximately 70,000 planning applications for residential units delayed at Judicial Review or in An Bord Pleanála.
Depending on how to quantify annual housing demand of either 33,500, according to Housing for All, or 50,000 as many commentators contend, there is well over a year’s worth of supply of units now delayed.
While some may argue there are existing planning permissions granted, most of these are for apartments that are currently unviable or for units that are held up due to infrastructural deficits such as water, waste, electricity or transport.
Some planning grants are simply not available to housebuilders. In 2016 we constructed nearly 10,000 units but by 2019 this had increased to over 21,000 and in 2022 nearly 30,000 units were completed, an increase of nearly 50 per cent year on year.
This was an extraordinary performance by housebuilders in the face of many challenges including material cost inflation, supply chain disruptions and a changing regulatory environment.
Most of this was achieved on lands that were zoned, serviced and had planning in place. Unfortunately, we are now entering a much more difficult phase of housing development as costs increase and the supply of land, services, plannings and funding becomes more difficult and costly.
A builder secures finance for a project by illustrating to a funder that they can build at a profit. Without illustrating this the home won’t get built.
After the exceptional cost increases of the last few years, margins have been reduced, or in some cases eliminated. Most people want to own their own home and the only way this can be provided is through the private sector building for sale.
There is no other realistic economic mechanism in a free market economy. Seventy per cent of Irish households are owned outright or have a mortgage. Home ownership is the model that is desired by most and must be facilitated. Some of the policy enablers in the past included the first-time buyers grant (similar to Help to Buy) and the incremental purchase scheme for social houses to name but a few.
These schemes benefitted previous generations of homeowners significantly and helped achieve the ‘social contract’.
The locked out generation
The current generation of young people trying to get on the property market are frustrated by not being able to buy their own home. There have been several recent initiatives that should help including the First Home Scheme (shared equity) and the Help to Buy Scheme.
The frustration felt by those trying to purchase their own home is that they find it difficult to secure the finance at the price point that the builder must achieve to fund the project.
Our macro prudential rules limit what the purchaser can pay for a new home and limit what a builder can charge. There is a large segment of the market, the so-called ‘locked out’ generation that builders can’t or have difficulty catering for.
This is what’s called the ‘viability’ challenge for both the new home buyer and the builder. There has been a significant number of initiatives aimed at the potential buyer including the First Home Scheme, the Help to Buy scheme and more schemes such as Project Tosaigh, Croí Cónaithe and the Living City Initiative are being developed and initiated.
All these schemes are helpful and very welcome for house buyers. Some are in their infancy and will hopefully yield more in 2023.
More homes for more people
We are though in exceptional times, and we must consider exceptional supply measures targeting the supply of more zoned land by reviewing the NPF, the servicing of that land by rolling out largescale water and wastewater schemes, the planning consents on land zoned for residential purposes by reforming our planning system and reducing the tax and regulatory costs associated with constructing the necessary supply of more homes for more people.
Most of these reforms are underway and it is difficult to be critical of anyone trying to deliver with the current matrix of circumstances constraining supply, but extraordinary times call for extraordinary measures.
As for output later in 2023 and 2024 the truth is that it is simply impossible to predict. Who could have predicted Brexit, Covid, the war in Ukraine, the number of refugees, interest rate rises and the energy crisis?
There are a number of very significant changes in the regulatory environment including the upcoming Residential Zoned Land Tax, changes to Part B of the Building Regulations, the review of the Design and Density Guidelines and the review of the National Planning Framework.
This will require a significant amount of input and engagement from housebuilders and the IHBA.
However, housebuilders are needed now more than ever as market conditions remain buoyant and there remains significant demand for housing of all types after years of under supply.
Conor O’Connell is Director of Housing and Planning with the CIF