Bringing down the building barriers
Tom Parlon explains that builders want to tackle the housing supply shortage but the conditions must be right.
The latest ESRI report has said that we need 90,000 new homes to meet the demands of our growing population. 60,000 of those will be needed in Dublin and its commuter belt. Yet this year will see a maximum of 10,000 units completed nationally with only 2,000 of those in the Dublin area.
The number of completions this year is at least a slight increase following three years of record lows. These lows have resulted in the supply shortages now being experienced in Dublin, leading to double digit price rises in Dublin and corresponding rises in rental costs in the capital.
The supply shortage has wide-ranging effects across the community from students deciding whether or not they can accept a hard-won university place to families wishing to trade up to a home that meets their needs.
We simply are not building enough at present.
In order to get construction activity moving again, the barriers to building need to be urgently reviewed. Funding for construction is one of the major barriers when it comes to any construction project. Currently, it is only possible to borrow a maximum of 60 per cent of any project cost. Therefore the shortfall of up to 40 per cent must be found from a construction company’s own resources. Following the economic crisis of the last few years, few companies have these kinds of reserves available.
From the purchaser’s point of view, we know that the banks have started lending again. However, mortgage approvals generally only last six months. Given the timeline from purchase to completion of new homes can be anything up to 12 months, banks need to extend the life of mortgage approval to reflect that fact if we want to finance more housing at pre-construction stage.
Planning is a particular stumbling block and can have a significant time and cost impact on a project. While somewhere in the region of 30,000 planning permissions exist currently in the greater Dublin region, many of these are for apartments for which the appetite has decreased. Apartment living is really only attractive to buyers within the canals.
The Irish consumer is now looking for somewhere they can call home for a longer period. The industry has to look at what is required by the customer and meet that need. There needs to be a mechanism whereby the existing planning permissions can be changed sensitively to reflect current demands as this would bring a lot more sites quickly into use.
Development levies are also a problem. Some local authorities are still pegging their levies at boom-time rates. These need to be brought down to reflect the current economic realities. Part V – the social housing levy – also needs to be carefully looked at. By levying a cost on new homes, the cost of these homes automatically rises and is ultimately passed on to the end-buyer.
Essentially this is a tax on all new homes. A fairer method would be to have a smaller levy on all house sales with the tax ringfenced to provide social housing in each of the areas in which it is collected. Ultimately builders want to build but unless the right environment exists to allow them to do so, the current supply shortage will continue.
Tom Parlon is Director General of the Construction Industry Federation.
