Property Matters, 10th March 2020: Modular housing, offsite construction and a billionaire's housing solution

Tune into Property Matters weekly on Dublin South FM from 6-7pm every Tuesday (or catch up via podcast on Spotify, iTunes etc via www.iPropertyRadio.com) for more planning, construction, property and proptech chat.

Listen back here: https://anchor.fm/ipropertyradio/episodes/Property-Matters-March-10th-2020-Right-to-housing–Offsite-construction-and-MMC-ebedao

On Property Matters this week, host Carol Tallon is joined on location in Dublin city centre by Deborah Smyth, Country Partner at Temphousing UK & Ireland and Ger Fahey, Managing Director of Horizon Offsite.

Deborah Smyth, Country Partner at Temphousing UK & Ireland, was first to join Carol on Property Matters. Deborah begins her interview by telling us about Tempohousing, the company’s record of housing innovation internationally and about her role as Country Partner for the UK and Ireland. She announces the company’s first Irish project (full details to follow), the importance of collaboration and plans to improve the delivery of social housing through innovation and a whole range of Modern Methods of Construction (MMC). She closes out her interview by giving Carol a run through of 17-year history of Tempohousing working with industry to improve standards and provide high quality apartments while tackling the challenges of climate change.

Also joining us on Property Matters this week was Ger Fahey, Managing Director of Horizon Offsite. Ger joined us shortly after presenting at a construction technologies event on ‘The Use of Structural Cold Formed Steel Systems in Low and Mid-Rise Residential Units’. Horizon Offsite has experienced huge success and growth since being established in 2017. Ger spoke about the growth of the company but also the growth of the offsite construction sector generally and he identified the industry trends driving this. We also touched on a familiar topic for this show: construction procurement issues (public and private) and particularly an over-emphasis on price over quality

Finally, much to everyone’s surprise, earlier this week one of Ireland’s favourite billionaires, Dermot Desmond, published a bold opinion piece in The Irish Times entitled:

Everyone has a right to a home. Here is how it can be done

We talked through some of the solutions outlined in the article here …

He starts by pointing out that homes have been allowed to become a globally traded financial asset, which in turn inflates the price of those homes, the profits of developers, and the value of the underlying land. Which is all true.
He describes himself as “one of the lucky ones” having bought his first home in Cork back in 1972 when he was a 22 year old bank clerk. He described it as a three-bed semi, painted one room at a time. It cost about €6,000 at a time when he was earning €900 per year, with a FTB grant of €500 as his deposit and a bank employee mortgage rate of 9% – which sounds shocking today!
This was effectively six times his annual salary – the same house today would require 8 times annual salary and the equivalent in Dublin would more than 11 times annual salary which is completely unaffordable for someone starting out.
He points out that under any analysis Ireland is much wealthier now than it was in 1972. Many more people are at work, real incomes are higher and interest rates are at historic lows. Yet, we take it for granted that most households will require two incomes to meet the mortgage payments and even then, double income households on the average wage cannot afford a starter home in Dublin. At a societal level that is unacceptable. The State needs to pro- actively intervene.
He asks – Why has our housing become unaffordable?

He points to the complete failure of our housing policies. – Under any reasonable assessment our housing crisis is not being effectively dealt with

5 percent of apartments built in 2019 were available for purchase; 95 per cent were sold to institutions.

Dublin is the most expensive city in the European Union in which to rent an apartment. – Despite the housing crisis in some new apartment buildings in prime locations less than half the apartments are occupied.

Dublin City Council, under ministerial pressure, approved a deal which effectively gifted more than 10 acres of land in Dublin city worth more than €50m to a developer. (O’Devaney Gardens)

Dún Laoghaire Rathdown County Council (DRCC) entered into a 25-year lease for social housing in Dundrum at twice the cost of building on State land, effectively borrowing money for rented housing at an effective cost of 5 per cent when the State could have borrowed to build it at almost nil cost. Following a better strategy, the DRCC could have housed four times as many families for the same outlay.

Forcing people into inflated rental accommodation, whether subsidised or not, is permanently destroying the savings of those people

All of this is being done at a time when the State is sitting on enormous land banks, where well master-planned affordable homes could be built for less than €250,000 each. In contrast, the average price in Dublin that the authorities are paying for such homes is about €450,000 and in the case of the Herbert Hill, Dundrum deal are paying an average of over €550,000 per home in rent and will not even own the apartments at the end of their lease.

The introduction of Strategic Housing Development legislation (SHD) together with ministerial guidelines on planning policy favouring investors and the abolition from the end of 2014 of the windfall tax have coupled to generate massive gains for the developers and in turn put upward pressure on land prices.

The SHD has created benefits for the developers by effectively eliminating the requirement of the Part V obligation to include social housing, the mandating of smaller housing units and encouraging additional height and density.

The windfall tax provisions, which were removed by government in 2014, applied an 80 per cent rate of tax to certain profits or gains from land disposals or land development where those gains were attributable to a relevant planning decision. Surely that is precisely the type of tax the State should be imposing where it is gifting enhanced profits to private sector developers and landowners through reducing standards, eliminating social obligations and increasing densities.

Currently the State is paying double the necessary price for housing because of poor policy and poor management. In addition, it is locking itself into perpetual rental supports of about €1,000 million each year to private sector landlords without improving its own stock of housing. The clear implications of these two examples is that if the State is serious about efficiently dealing with the housing crisis then central government and local councils should be taking a leading role in the master-planning of new communities, together with their financing and construction on publicly owned lands.

The State is the largest property hoarder. One expert has estimated that the combined property holdings of Dublin local authorities are about 420 hectares of vacant residential land with a capacity for more than 30,000 dwellings aside from other public land owned by semi-state bodies. The State also has the powers to rezone other more significant land banks currently in their ownership as required.

Families on average wages should be able to afford at least a starter home in a properly serviced community with schools and adequate transport

Solutions – Our objective as a nation should be to ensure that everyone who wants a permanent home should have one. Housing is a social right and Ireland has been criticised by the United Nations for not delivering on this right.

1. Make housing affordable – remove the rent to interest arbitrage
2. The State should direct and control policies for affordable housing.
3. Accelerate the use of existing space and avoid hoarding for expected higher future prices.
1. Make housing affordable – remove the rent to interest arbitrage

– Charge a withholding tax of 50 per cent on all apartment rental income above €500,000 and eliminate the tax deductibility of interest where the rent exceeds this level.
– Reinstate the 80 per cent windfall tax so that the State captures a substantial portion of the gift that the State is currently giving to land-owners and developers.
– State/planning authorities should restrict the number of apartments in any one building which an investor/institution can acquire.

2. The State should direct and control policies for affordable housing.

The LDA could be an important intervention though arguably not sufficiently ambitious in terms of social objective. Equally the Rebuilding Ireland loans and the affordable purchase schemes go some way to alleviate problems.

The Government can borrow long-term money at an interest rate of 00.10 per cent.
The Government should make an additional €4 billion available through the LDA to fund local authority housing needs. Nama – the National Asset Management Agency – alone is likely to generate an unexpected €4 billion for the Government.
Rather than buying homes from private-sector developers, at institutionally determined prices, the State as the largest landowner should:

a. Build about 1,000 homes per month. These houses should be designed as 1,000/1,250 sq ft with a maximum cost of €250,000, including a €50,000 payment to the local authority for the site value

i. The relevant authority, be it State or local, should masterplan the site and ensure proper infrastructure including community infrastructure, transport and schools.

ii. The relevant authority should then control directly the construction of the houses – potentially, providing competition among small builders who are prepared to tender for small lots. Competition creates value and promotes entrepreneurship.

3. Accelerate the use of existing space and avoid hoarding for expected higher future prices

a. To incentivise the use of vacant urban spaces, particularly over shops etc, all new rented accommodation provided in designated buildings should attract a zero tax on that rent up to an aggregate of €50,000 per annum for the first five years. (It is estimated that there are about 4,000 empty spaces above shops in the Dublin area.)
b. All empty apartments should be deemed to be rented out at 50 percent of the asking rent and tax should be chargeable based on that deemed income. This would provide a strong incentive to adjust rents to market clearing levels rather than speculative hoarding.

c. To stop land hoarding by developers all sites should be deemed to be vacant for tax purposes if not completed and substantially occupied within four years of the initial grant of planning.
***In short – Proper State intervention and targeted taxation, including the re-introduction of the windfall tax, can be utilised to drive property and land prices down and to increase the supply of accommodation available.

The State is the largest landowner and the Land Development Agency should be required to get directly involved in providing via the local authorities or otherwise about 1,000 starter houses per month on State-owned land at a price-point of €250,000. At that level most families will be able to afford the repayments and the State, at no effective cost, should be able to fund any deposit shortfall by means of a second mortgage.

Plenty to think about there..

Tune into Property Matters weekly on Dublin South FM from 6-7pm every Tuesday (or catch up via podcast www.iPropertyRadio.com) for more planning, construction, property and proptech chat.