NIRSA Op Ed in Sunday Business Post

Housing in Ireland is in crisis.  House prices have fallen on average 35%.  Development land has plummeted in value by 75-90%.  Farmland is down 50% or more.  A quarter of a million households are in negative equity and over 32,000 households are more than 90 days in mortgage arrears.  Housing oversupply is in excess of 120,000 units and there are 620 ghost estates where over half the properties are empty or under-construction.  The National Assets Management Agency (NAMA) has been created to supposedly save the banks and Irish taxpayers by transferring €88 billion worth of ‘toxic’ and poorly performing property assets and rolled-up interest to the state.

These disastrous facts demand two questions.  What went wrong?  What needs to change to make sure it never happens again?

In our report, A Haunted Landscape, we deal extensively with the former.  Our principal argument is that both levers used to control development – fiscal and planning policy – failed.  Banks were poorly regulated and lent too much money, and tax incentives fuelled the boom.  Planning did not act as the counter-balance to the excesses of the building frenzy, zoning too much land and giving out too many planning permissions.  The result was oversupply of houses across the whole country, with some counties particularly badly hit.

What needs to done?  First, we urgently need an independent inquiry that provides a systemic review of the planning system.  This does not need to be a tribunal-style blame game that will last for years.  Rather it should take the form of the recent Honohan, and Regling & Watson reports on banking and financial regulation that were completed in a matter of months. The final report would provide a synoptic overview of the entire system of planning and development, focusing on how planning policy is produced and implemented, and the organisation, operation and regulation of planning within Ireland.

The government has said that such an inquiry is not needed because it is already undertaking reviews of planning decisions in six local authorities and that the new Planning and Development (Amendment) Act addresses the major problems that led to poor planning decisions.  These reviews are focused on specific cases and are not designed to provide a broad analysis of how the entire system worked, or failed to work.  And whilst we welcome the new Act it should be seen as the first step to reform, but it should not be the only step.  An inquiry would provide strong evidence for the next steps.

On a practical note we need to get to grips with ghost estates.  There are thousands of families who are living with the stress of negative equity and few neighbours, in many cases in estates that are unfinished and abandoned.  Estates may be lacking in basic infrastructure and public facilities and amenities, and residents may have to negotiate serious issues of health and safety.

We need an action plan to address the hardships of those people trapped on such estates – to finish out the development, demolishing units if needed.  At the moment, residents are unsure who to turn to for help – developers, banks, local authorities, government departments or NAMA – and nobody seems prepared to take responsibility.  Our view would be that local authorities be given the task, along with sufficient resources to do so.

We also need a plan to cover the maintenance of properties while they lie idle.  Once damp and cold enter a house the infrastructure starts to decay and very soon it becomes unliveable.  Failing to look after stock will mean the loss of perfectly good houses that might be needed in the future.

The government has established the Social Housing Leasing Initiative, which will use some ghost estates for social housing.  However, we need to consider alternative uses for other estates.  Those in remote rural locations are simply not suitable for social housing given the lack of public transport, social amenities or access to employment, but perhaps they might be useful for small businesses or cultural activities.

There are a number of specific issues that should be addressed in the short term with regards to the planning system.  Planning permissions and regulations need to be rigorously overseen and enforced.  The evidence base used in the planning system needs to be radically improved.  There needs to be a proper house price register and all housing data to be generated and released at a local level.

The process of land zoning should be evidence-based and zonings time delimited.  Housing and patterns of development should be based on local need, not greed, and guided by the National Spatial Strategy and not localism and zero-sum comparisons.  Future tax incentive schemes should be evidence-informed, fully debated and have set targets.  They should have defined end goals and points, and annual evaluations.  All those involved in the planning process should receive mandatory training in planning issues and policy, and the principles of local and regional development.

There should be a commitment that all future local planning be community and plan-led, not developer and speculator-led.

With respect to NAMA, the public need to be reassured that the agency will succeed in its aims.  NAMA is soon to be the largest controller of property in the state.  It is purchasing assets, supposedly on behalf of tax payers, yet there is a worrying lack of transparency about the organization.

We would be concerned as to whether NAMA can succeed given the sums being paid by the state to the banks for their assets, and the make-up and geography of the portfolio.  Irish developers and speculators seemingly forgot the well worn mantra of ‘location, location, location’, and much of the land and property heading into NAMA is in marginal locations with weak and falling demand.

Unless valuations are taking into account existing levels of oversupply and evidence-informed, long-term projections of an area’s demography and labour market then NAMA is potentially overpaying for assets.  Further, if land is purchased by the state on the basis of existing zoning then any future dezoning, as proposed by government, will deflate its value and lead to a loss on the investment.

Ultimately, to recover the state investment, NAMA requires the property market to be re-inflated back to higher levels, which have already proved unsustainable.  The uncertainties concerning NAMA will only be dispelled through full transparency in the agency’s workings and the assets it is managing.

As a nation we need to learn the lessons of the Celtic Tiger years.  We have to go back and review what went wrong, fix the system that created the mess we are in, and make sure that it does not happen again.  NAMA and the Planning and Development (Amendment) Act are not the only answers.  And we have to make sure they do not make the situation worse.

We are three years into the housing slump and yet we still haven’t got to grips with addressing the various problems we face.  We need a plan of action and we need to implement this plan.  And we need to do it sooner rather than later.

Rob Kitchin