When County Dublin's land prices rocketed 530% in 9 years
After four decades of independence and grim economic torpor, a new Irish economic policy coupled with strong growth across Europe and in the US (8.5% real growth in 1965), brought delayed good fortune to Ireland's economy and owners of serviced land in County Dublin. With no capital gains tax, the average price rocketed by 530% in 1963-1971 compared with a rise in consumer prices of 64% in the period.
Rising land prices account for most of the rise in housing costs in developed countries and owning land near significant urban centres remains the easiest road to riches in Ireland. Land has become an investment asset and the purchase of almost 90% of NAMA's sold property assets by so-called US-based vulture funds together with trends in international investment in urban centres such as London, Vancouver and Sydney, suggest that future surging land prices in the Dublin area could make the aspiration of home ownership an even bigger struggle.
Since the general election last February there have been various proposals put forward on tackling the housing crisis. Baby steps include appointing a minister with sole responsibility for housing but the key issue of land has been mainly ignored.
The escalating cost of land in urban areas is a common problem in many countries and in Britain house prices have gone up 5-fold since 1955. But the inflation-adjusted price of development land has increased 15-fold over the same period.
According to research by German-based economists on house price trends since 1870 in 14 developed economies including, the US, UK, Germany and France, inflation-adjusted house prices have tripled since the start of the last century but most of the rise has occurred since 1950. The economists say that about 80% of the increase in house prices in 1950-2012 was due to land prices. The transport revolution has been a factor as have artificial restrictions on the supply of development land.
Last November Jason Furman, President Obama's chief economic adviser, in a speech cited zoning restrictions that add as much as 50% to the cost of a house. Paul Krugman, the New York Times columnist, has said that “this is an issue on which you don’t have to be a conservative to believe that we have too much regulation.”
Also last year the Economist wrote that analysis by academics at the London School of Economics (LSE) estimates that land-use regulations in the West End of London inflate the price of office space by about 800%; in Milan and Paris the rules push up prices by around 300%.
The Economist noted in 2014:
Over the past decade farmland prices have grown at twice the rate of prime London property prices, with good agricultural land increasing 270% in value compared with a 135% rise for London houses during that time, according to Savills, a land agent. This makes it three times the price of farmland in America and 15 times the cost of such land in Australia.
Ireland has the lowest population density on habitable land in the European Union while about a quarter of the population live in the Dublin area.
There is no official Irish data on development land or agricultural land prices (the Central Statistics Office ceased publishing estimates of the latter a decade ago) but we do know that because of very low annual sales, in recent decades Irish agricultural land has become the most expensive in the world and four times the level in France!
During the property boom site costs in Dublin jumped from a range of 10% to 2O% of the cost of apartments in the city up to the mid 1990s to over 40% later. Also in 2004, Brian Cowen, then finance minister, disclosed that 28% of the cost of a new house comprised Value Added Tax (VAT) and other public charges.
According to Paul Cheshire of the London School of Economics (LSE) less than 10% of England is built up but gardens cover nearly half that area. This suggests that we have no shortage of land for development in Ireland.
In 1973 an official report from a committee chaired by Mr Justice John Kenny of the High Court said that in the period 1963-1971 the average price of serviced land in County Dublin increased by 530% while the consumer price index rose by 64% in the period — Ireland had no capital gains tax until the mid-1970s. The committee recommended that the price of development land should be based on the agricultural use value plus 25%.
In 2000 Bertie Ahern, then taoiseach, asked the All-Party Oireachtas Committee on the Constitution to assess whether the Constitution blocked legislation which would control or regulate the price of building land.
It reported in 2004 that it was “very likely that the major elements of the Kenny Report recommendations...would not be found to be unconstitutional”— no action was taken.
In 2001 the Government surrendered to land price demands of the Irish Farmers Association (IFA) and in 2006 the National Roads Authority disclosed that land acquisition costs accounted for 23% of the national road-building budget of €18.5bn, but the equivalent ratio was 12% in England, 10% in Denmark, 9.4% in Greece and 1% in Iceland.
The Irish State spent €30m on goodwill payments to landowners for not obstructing agricultural land sales for road projects between 2007 and 2011 — in effect being paid for not breaking the law of the land during a period of austerity!
In recent times land has become an investment product and in the October 2014 budget, Michael Noonan, finance minister, cut the windfall profits tax of 80% on rezoned land that had been introduced in 2009 to 33% to encourage the supply of development land — for a politician, this type of measure is an easy thing to do while lacking the courage to confront vested interests.
It's time for bold action in the public interest not more band-aid measures.
Farmers and investors in land should not have the right to impose a huge stealth tax on the public while Not-In-My-Backyard (NIMBY) activists who misuse the social disaster of the 1960s Ballymun project, should not have a veto on well-planned high-rise developments. There should also be planning management of available lots rather than responding on an ad hoc basis to development applications (see below).
Development land for sale South County Dublin via Daft.ie
A report last year from the National Economic & Social Council said:
While there is sufficient land available in the Dublin region for housing development, a considerable proportion of this stock is highly fragmented into small lots that would require some form of aggregation to facilitate increased housing supply.[ ] First, local authorities withdrew from intervention in the land market. In the 1970s, they owned around 30% of zoned building land and sold land during upturns and bought it during downturns. But in June 2006, only 9% of zoned residential land was owned by local authorities. Second, land developers filled the gap left by local authorities, and this shifted market power from builders to developers. Third, ownership of large amounts of building land in some areas was very concentrated, and these landowners cooperated rather than competed, contributing to poor land market performance.
These are extracts from the 1973 Kenny Report on building land:
In County Dublin the average price per acre of serviced land was £1,100 in 1960 and £7,000 in 1971 and the average price per acre of potential building land was £300 in 1960 and was £2,500 in 1971. The cases we have examined corroborate these conclusions. These disproportionate increases arc not confined to the County of Dublin: similar ones have occurred in the other counties which contain cities and large towns.
In 1938, a farm of land containing 128 acres with a substantial residence on it in Clondalkin, County Dublin was purchased for £3,600 when it had no value as building land. The land have not yet been provided with services but in 1971 the Corporation of Dublin decided to acquire them for their building programme. They negotiated an agreed purchase price of £192,075 with the owners. This was reasonable having regard to prices which were being paid for similar land near Dublin. There was no element of speculation whatever. This an increase in price of over 5,000% between 1938 and 1971.
In October, 1964, 60 acres of land in Castleknock, County Dublin were sold for £67,000. In March, 1965, the purchase sold them to a finance company for £160,000 and so made a profit of about 140% in a few months. Planning permission to develop the lands was granted to the finance company on the 6th September, 1968.
Pic on top: http://homes.mitula.ie/
McKinsey Global Institute: Tackling the world’s affordable housing challenge