Break down the barriers for builders – SCSI Opinion Piece

Break down the barriers for buildersSCSIHousingStrategyDoc3 (8)

A new SCSI report has found that there is capacity to supply approximately 100,000 units in Dublin over the next 5 years but there is a shortfall in planning permissions to meet required demand.

There is a serious shortage of supply of residential property in many parts of Dublin at present which is leading to house price inflation at unsustainable levels. According to the latest Central Statistics Office (CSO) Residential Property Price Index, property prices in Dublin increased on average by approximately 25 per cent over the past year.

The pace of property price increases is concerning and is largely being caused by a shortage of property supply, and family homes in particular, in Dublin. There are simply not enough homes being built in Dublin to cater for current and projected demand. The situation is being compounded by the fact that very few houses were built over the past 5 years – just 8,301 nationally in 2013.

A report published this week by theSociety of Chartered Surveyors Ireland (SCSI), ‘Housing Supply Capacity in Dublin’s Urban Settlements 2014-18’ has found that there is a minimum housing requirement of 35,433 units in Dublin between 2014 – 2018, which equates to approximately 7,000 per year. It should be remembered that these figures are only based on minimum requirements.

The SCSI report, which is the first to map actual planning permissions and residential zoned land in Dublin, also found that there is a serious shortfall in the number of planning permissions required to meet the minimum number of required units over the next five years. There is only a total of granted (extant) planning permissions for 26,580 units, resulting in a shortfall of a minimum of 8,853 units. This means that even if all of the existing units for which planning permissions exist are built out over the next 5 years, there will still be a 25% shortfall of planning permissions to meet minimum unit requirements in Dublin.

As the current housing supply requirements are unlikely to be met by the second-hand home market, the new homes market, which has been practically non-existent in recent years, will play an increasing role in the medium term in meeting the supply shortage in the capital.

The housing capacity report, produced by Future Analytics Consulting on behalf of the SCSI, also found that there is actually enough residential zoned land to potentially meet future requirements. There is 2,233 hectares of land zoned for residential development in the four main local authority areas in Dublin. This zoned land can potentially deliver approximately 102,500 additional housing units and provide housing for approximately 269,000 additional people over the next 5 years.

It is imperative that action is taken to ensure that some of this residential zoned land in Dublin is developed in order to improve supply levels where the requirement exists.

There are, however, several barriers to development including challenges for builders accessing development finance to buy land and build units, requirements to fund infrastructure upfront and construction costs which are impacting the viability of developing sites.

The SCSI has made a series of recommendations to support the delivery of more homes.

The SCSI recommended the introduction of a Builders Finance Fund (BFF) to provide finance for SME builders seeking to access development finance. Earlier this year, Government introduced a €500m Strategic Banking Corporation fund for SME’s supported by the European Investment Bank (EIB). A similar fund could be set up to support SME builders who wish to secure finance for the construction of new homes.

Another option to bridge the financing gap would be for landowners such as NAMA to licence builders to build on viable sites. When the completed houses are sold, NAMA or the landowner would then receive payment. This model, which effectively means the builder doesn’t have to secure upfront finance for both the site and development costs, worked very successfully in Dublin during the 1970’s and 1980’s.

The financial viability of the construction of new developments is a key challenge. The SCSI has recommended that some of the construction costs and development levies could be temporarily reduced. For example, the VAT rate on new homes, currently set at 13.5%, could be reduced to 5% for a period of 2 years.

Difficulties accessing finance to fund infrastructure is also an issue. A Revolving Infrastructure Fund (RIF) could be established to fund infrastructure in advance of a development being completed.  RIF’s, which are used in the UK, are not grants or subsidies but a smart way of providing financing for development.

There is no single solution to resolving the housing supply shortage in Dublin and unfortunately any new construction will take at least 18 months from planning to completion.

We believe that the measures we areproposing would help address issues in the new housing market but clearly there are a wide range of issues affecting the market as a whole which also need to be addressed.

The implementation of the Government’s Construction 2020 strategy and the forthcoming budget, however, offer an opportunity to put in place structures to increase the required supply of housing which could moderate the pace of property price and rental price inflation, create jobs and put the sector on a sustainable footing for the future.

Conor O’Donovan is Director of Policy & Communications of the Society of Chartered Surveyors Ireland (SCSI). The SCSI has also launched a new Online Viewer for planners, developers and home buyers which visualises where zoned land and planning permissions are in Dublin. For more information see www.scsi.ie/housing

This article appeared in the Sunday Business Post on 28/09/14