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News : Property Last Updated: May 15, 2014 - 1:36 PM

Irish Government set to publish construction/ housing plan ahead of elections
By Michael Hennigan, Finfacts founder and editor
May 14, 2014 - 7:24 AM

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What was termed 'property porn' during the bubble has returned with the two of the biggest national daily newspapers (see also below) giving fawning editorial on a 'football legend's property sale. 

The Irish Government is set to publish a construction/ housing plan today -- just over a week ahead of the local and European elections.

Despite an economic crash that followed the bursting of an out-of-control property bubble, construction and housing incentives remain inextricably interwoven with land and politics in Ireland.

An official leak on Monday revealed that in response to mortgage drawdown levels at a 42-year low, the State is prepared to partially guarantee mortgages for first-time buyers, up to 95% of loan-to-value (LTV).

In the crazy boom year of 2016 Ulster Bank launched 100% LTV mortgages as an impotent regulator looked on from the side lines. Meanwhile, AIB Bank was selling part of its headquarters to keep the raging fire fuelled. Seán Dunne, one of Ireland's overstretched developers, was the buyer.

We are back in housing crisis terrority again with average annual prices in Dublin rising 14% in the year to March.

Michael Noonan, finance minister, recently suggested with an eye to upcoming European Central Bank bank stress tests, that a further price rise wouldn't be a problem.

Despite the establishment of NAMA (National Asset Management Agency), which became one of the world's biggest property managers when it acquired toxic property loans from the Irish banks, there is a housing crisis in Dublin.

It is very difficult to envisage a young couple having more than 10% of the price of a house as a deposit and at present they are being required to come up with something like 20%.

So we are examining it. It would be only for new houses, not for the second hand market,” Noonan said on Tuesday.

This suggests prices are too high or wages too low or both.

Irish home mortgages paid in Q1 2014 at lowest since 1972 - -  the claimed surge from Q1 2013 is phony.

Irish Government leaks new bank guarantee plan; Promises 95% LTV mortgages

Last month the Housing Agency said in a report that almost 80,000 housing units will need to be built over the next five years to meet demand from a growing population.   

29,000 additional jobs would be created in Ireland’s construction sector if the numbers employed could be brought in-line with EU levels, according to property consultants Savills Ireland. Speaking in advance of the publication of the Government’s construction strategy, Dr John McCartney, economist and director of Research at Savills, said that a return of construction employment to EU norms should be the main goal;

“From a high of almost 13% in 2006, the proportion of Ireland’s workers employed in building is now 5.4pc, which is more than one-fifth below the EU average. The 29,000 additional jobs that this shortfall represents are not only essential for Ireland’s construction sector, but also for the economy as a whole”.

Savills say that a strategy focused on bringing down the cost of building would help kick-start activity in the sector which, in-turn, would create employment.

Measures they would like to see introduced include:

Reducing VAT on New Homes: McCartney said, “Many people are unaware that builders have to pass 13.5% of every new home sale back to the Government in VAT. If this was reduced to 9%, as has been done in the tourism and hospitality sector, many housing schemes which cannot be profitably undertaken at current construction costs would immediately become viable”.

Reducing Local Authority Development Levies – All of Dublin’s local authorities have reduced development contributions since 2013. However, the reductions have not kept pace with the 50% decline in Dublin’s house prices. Therefore, today’s developers are being forfeit a higher proportion of the sales price of each unit in the form of levies. Further reducing levies and freezing them for a set period into the future would make schemes viable and incentivise builders to break ground on new developments.

Reducing Density Requirements Due to demographic factors – not least the 23% collapse in the number of 20-somethings in Dublin since 2009 – housing demand is currently focused on family homes. However, while some local authorities have taken note of this and begun to relax their density requirements, others are still insisting on very high density apartment developments. Given the costs associated with building apartments (e.g. the cost of providing underground parking), and the fact that the strongest demand in many areas is for housing, this inflexibility is currently making development unviable in locations.

Besides the State guarantee for mortgages, the Irish Independent says the construction plan provides for:

Financing: NAMA will provide a further €2bn in finance for developers to build 4,500 new houses and apartments in Dublin alone.

Investment fund: The new Irish Strategic Investment Fund will provide equity and loans on commercial terms to developers who cannot access finance.

Social housing: Developers will build and manage additional social housing and be guaranteed an income through rents under the Housing Assistance Payment. Part 5: The requirement on developers to set aside up to 20% of new developments of five or more houses for social or affordable housing, known as Part 5, will be halved.

Development levies: The charges imposed on property development will be substantially reduced as councils have additional income from the property tax.

Vacant site tax: Sites and land zoned for development but not built upon will be taxed to stop developers sitting on land because they are waiting for the market to improve.

Water: To speed up the development of water and sewage projects, the amount of funding will be increased through borrowing by Irish Water.

Infrastructure projects:
A review of all major infrastructure projects is being undertaken to any blockages in funding or delays in advancing the project, such as PPP projects.

Planning: Along with building regulations to improve housing quality, there will be more centralised monitoring of zoned land, housing, offices and infrastructure.

The Housing Agency report [pdf] avoids any mention of the taboo subjects of rezoning and development land.

Chambers Ireland has today called on Government to reduce the 80% windfall tax on rezoned land in order to support the construction of affordable housing and sustainable job creation in the building sector. The call comes in advance of a new strategy on the construction sector soon to be released by Government.

Speaking this morning, Chambers Ireland deputy chief executive Seán Murphy said “Current legislation provides that all changes in land zoning will result in this land being liable for an 80% windfall tax rate when sold. That means that land currently zoned for industrial use will incur an 80% Capital Gains Tax if it’s rezoned for residential use. This provision impedes the redevelopment of land, especially brownfield land, to new more appropriate uses demanded by the market such as housing.”

The legislation for NAMA (National Asset Management Agency) the State toxic property loans agency in 2009, included new rules in relation to the disposal of land that has been rezoned. The legislation introduced an 80% capital-gains tax rate, which applies on the disposal of land after October 30, 2009, where the value of the land has been increased by rezoning on, or after, this date.

A 2012 report by Taisce said: “In 2008, at the onset of the economic collapse, Ireland had enough zoned land to almost double the national population to 8 million, with some 42,000 hectares having residential zoning, almost all of it greenfield land. This does not take account of the thousands of hectares of land zoned for mixed-use, industrial, retail, commercial and other uses. Zoning vastly inflated the value of land turning green fields into ‘fields of gold’, providing an easy conduit to cheap credit and facilitating property speculation. This fed the financial crisis and the creation of NAMA. The simple act of a local council changing the colours on a development plan map could result in a multi-million euro land deal overnight”.

The Housing Agency forecasts a minimum required supply of 79,660 residential units in urban areas to support the population between 2014 and 2018, an average equivalent of 15,932. The per annum requirement across the country ranges from 9,526 units in 2014 to 20,853 units in 2018.

47% (37,581 units) of total supply over the 5-year period is required across the Dublin Region, averaging 7,500 units per year. The figures show there is an immediate supply requirement of 5,663 units in 2014, which rises to a per annum requirement of 8,970 units in 2018.

There is a marked requirement for units in areas such as Swords (1,448 units between 2014-2018) and Balbriggan (925 units between 2014-2015).

Outside of Dublin, the study identifies varying requirements across the other cities. In Cork City and  suburbs rising to a per annum requirement of 1,469 units by 2018. "There are close parallels in identified requirements in Galway and Limerick. Both cities will experience a shortfall in housing requirements in 2015 and require a total of 2,316 and 2,635 units respectively over the subsequent 4 years to 2018," the agency says.

Estimated Urban Land Area: Selected Nations

Nation Urban Land Area/Total Land Area Urban Areas Over 1,000,000 Land Area/Total Land Area Share of Urban Land in Urban Areas Over 1,000,000 Share of Urban Population in Urban Areas Over 1,000,000
Australia 0.25% 0.11% 41% 59%
Canada All 0.27% 0.05% 17% 43%
.... Agricultural Belt 3.29% 0.55% 17% 43%
France 12.38% 0.98% 8% 30%
Germany 27.53% 2.09% 8% 29%
Great Britain 5.94% 1.53% 26% 30%
. . England & Wales 7.91% 2.08% 26% 31%
. . Scotland 2.14% 0.47% 22% 27%
Ireland 4.06% 0.53% 13% 48%
Italy 20.09% 1.18% 6% 27%
Japan 14.29% 5.66% 40% 65%
Netherlands 28.28% 2.52% 9% 23%
New Zealand 1.42% 0.20% 14% 32%
Spain 9.25% 0.40% 4% 32%
Switzerland 17.54% 0.00% 0% 0%
United States 2.62% 0.95% 36% 53%
USA, France, Australia, Canada, Great Britain from national statistical authorities.      
Other nations based upon Demographia World Urban Area estimates (www.demographia.com/db-worldua.pdf) and University of Avignon data adjusted to account for smaller urban areas not covered in estimates.      
Where insufficient smaller urban area data is available, the international threshold of 400 per square kilometer is used for the remainder.

Employment in construction

There were 8,300 new house completions in 2013 while according to the CSO there were 95,600 employed in construction in Q4 2013.

Direct construction employment peaked at 282,000 in late 2006 and DKM Economic Consultants estimated that 416,000 were employed  in property-related activities in Q2 2007 -- 19% of the workforce.

In 1994, 1995, 1996 and 1997, a period when FDI (foreign direct investment) inflows were strong, resulting in demand for commercial property, while public funded civil engineering projects were relatively stable compared with rising GNP, new house completions rose from 27,000 in 1994 to 39,000 in 1997.

House completions peaked at 93,000 in 2006.

In 1994, 1995, 1996, 1997, direct employment in construction was at 91,500, 96,600, 100,800, and 110,400.

The level of employment of 95,600 at end 2013 looks high for the level of activity.

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