The Sunday Independent reported yesterday that deals struck with developers at the height of the housing boom could bankrupt county councils. The example they give is of Dun Laoghaire-Rathdown who signed up for 63 ‘affordable’ units and 80 ‘social’ units on the old Dun Laoghaire Golf Club site for a cost of €35.6m. The Council already has €27.5m of affordable and social units purchased at the height of the boom. Assuming that the social housing will get used for that purpose, rather than being sold-on, it seems as if the council is the owner of c.€25-30m of ‘affordable’ property that it is presently unable to sell-on because its purchase/sale price is more than its present value. Clearly potential purchasers do not see the properties as either affordable or a sound investment given present market conditions. The piece suggests that this issue exists across the country, and clearly it poses a significant problem for DLR. At the minute it seems that they have only a limited set of options – sell on at a significant loss but reduce their debt, use the affordable housing as social housing using rent received to try and cover debt payments, rent the properties privately, or sit on them and hope the market value and demand rises. Whichever option is chosen, it seems that properties are going to be costly problem in the short term. It would be interesting to find out the extent to which this might be a problem across the country and what kinds of solutions councils are using to tackle it (and might be transferable across the system). The last thing needed right now is local authorities, already under enormous fiscal pressure, having to divert resources from local services to facilitate housing related debt, thus mirroring what’s happening at the national level with bank recapitalisation and NAMA.
Rob Kitchin
Ireland after NAMA 
April 26, 2010 at 9:50 pm
I had a meeting with the city manager and assistant city manager in 2008. I was trying to prevent Dublin City Council from going ahead with their suicidal and totally unnecessary and ill advised High Rise developments. At that meeting I warned Mr. Tierney that the Council would go bankrupt if they continued with the policies they favoured for revenue generation. They became addicted to revenues from construction and could not see that these revenues streams were totally unsustainable.
Thank God the boom ended because it has prevented the City Council from destroying what was left of our architectural heritage. Now, if only we could get them to carry out their own enforcement orders on cowboy speculators and on themselves the city would become a much better place to live.
Originally, the 20% of units that developers had to yield up to the Council seemed like manna from heaven. Just grab 20% of the action and everything will be honky dory they thought. Eventually, of course the only units that builders could get rid of were these unit which the Council had to take off their hands. The council strategy of grabbing has gone full circle and of course nobody wants to live miles outside the city in an apartment block or slum neighbourhood so they are well and truly stuck with them.
The new “strategy” is to get going with some new stealth taxes, charge for water, charge for the roof over peoples heads and that will bring in a new revenue stream.
These Councils should be declared bankrupt and administrators should be appointed. They have proved themselves incapable of running their financial affairs and are about to become a massive burden on the tax payer. They are incompetent.
The council have already crucified business in the city centre with their penal car parking rates and commercial rates. They have caused massive unemployemnt and continue to cause businesses to close down every single day.
April 27, 2010 at 7:17 am
€35.6m divided by 143 dwellings (80+63) = €249k! The problem goes well beyond councils though – individuals contracted for units off-plan are now slowly winding up before the courts who appear to be granting enforcement orders. So individuals are being forced to buy dwellings for €500k, now worth at best €300k and in some cases bankruptcy is looming.
Such is the usual fall-out from asset bubbles.
I have been working on a study of international impaired asset schemes and will revisit to see how such issues were confronted but I don’t think there are any easy answers (apart from re-inflating the property market). Very good point made by Prof Kitchin regarding a nationally co-ordinated response to local council’s plight in this area.
May 20, 2010 at 6:36 am
Is Irelandafternama aware of the initiative launched yesterday which, according to the Independent article below, will see the txpayer parting with €25m this year for loans obtained by councils to buy development land?
http://www.independent.ie/national-news/mininama-to-bail-out-councils-that-cant-pay-land-loans-2186617.html
I will be investigating the mission-creep at NAMA aspect of the story but on the face of it this is scandalous.
May 20, 2010 at 9:55 am
[…] is called the Land Aggregation Scheme which appears not to be publicly available at this time. As analysed elsewhere, local councils are likely to have serious problems with resolving their purchases of property […]