Ireland after NAMA

An Bord Pleanala have just released their 2009 Annual Report.  In the accompanying press release they argue that ‘the present hiatus in development activity gives us a chance to review the way our planning system works so that it will be fit for purpose when development is restored to a sustainable level in the future’.  However, the second paragraph argues that the planning systen did not contribute to the present crisis of excess supply and ghost estates:

“Under the legislation it is not the role of the planning system to control the overall level of development or to restrict competition, rather to ensure that whatever level of development the market demanded takes place in an orderly manner in accordance with good planning principles and practice. Thus, while bad local decision making in planning contributed to some of the current problems, such as ghost estates in certain areas, the overall provision of excess capacity over a wide range of property types cannot be put down to a failure on the part of the planning system.”

This seems to me to be a very narrow and limited definition of the role of planning in the state.  Planning and planners take an active role in the visioning, production and implementation of local and county development plans, their role is not simply confined to making decisions on applications and undertaking enforcement.  A number of principles and guidelines relate to sustainable development in line with demographics and environmental considerations and so on (indeed, later in the press release it is stated: ‘The planning system will have a crucial role in this by directing where development should be located and the kind of development that is sustainable’).  If planning was to oversee ‘whatever level of development the market demanded’ then clearly there is a major issue, because way more housing units, retail units, offices and hotels were produced than there was demand for.  How can planning have ‘a crucial role in this by directing where development should be located’ but then have no responsibility for the location or level of poor sustainability of development?  And planning is meant to restrict competition around issues such as zoning of land.  Plus the main statement is somewhat contradictory.  If ‘bad local decision making in planning contributed to some of the current problems, such as ghost estates’ it is difficult to see how these ‘cannot be put down to a failure on the part of the planning system’.  The second half of the sentence does not logically follow the first part.   ‘Bad local decision making in planning’ – so it was bad planning then (perhaps not by planners, but certainly within the planning system).

If the planning system was not part of the problem then why have the government just introduced a new Planning and Development (Amendment) Act, that explicitly recognised that planning played a significant role in producing unsustainable development, even if it was mainly those parts of planning most influenced by politicians and politics, and a lack of coordination across boundaries and scales?  And if the planning system was not part of the problem why do An Bord Pleanala think that ‘The bursting of the property bubble raises questions about the role of the planning system in the property market.’  That we need to ‘learn very important lessons from recent experience’ including:

• ‘planning for each area must adhere to national policies and must be governed by the relevant regional and local context;
• all zoning must be very carefully considered on the basis of well established good planning principles;
• development must be strongly directed to locations where infrastructure – especially, transport, water services, education – exists or is proposed under the public capital programme’
• in planning the public good must be given greater priority over private interests;
• statutory development plans, when duly made, need to be respected across the board by all interests, and indeed by local authorities themselves, rather than being seen as something that can be changed or circumvented if enough pressure is applied?’

What the statement seems to be trying to argue is that the planning system as it was devised did not fail as it worked within its parameters.  The argument seems to run: the system might not have been fit for purpose, but we ran that system as it was designed; therefore planning did not fail, because we followed and upheld all of that system’s principles and guidelines. If that’s the case, then it’s somewhat of a specious argument.  All it is that means is that we had a poor and failing planning system, that was implemented as it should, thus leading to poor, but procedurally correct, planning decisions.  The system was nevertheless a failing system.

Planners clearly had a very difficult role during the boom.  They were under fierce pressure from politicians, developers, businesses and residents.  There was a presumption for development operating and the system did not always help them.  They were accused of blocking or slowing development and being a general hindrance and nuisance.  The vast majority were trying to do a good job, often trying to work back against the system, with the odds stacked against them.  I’m not then arguing that planners or organisations such as An Bord Pleanala were the problem.  Indeed, they did a sterling and valuable job of trying to counter some of the worst and inappropriate excesses.  The overall planning system in terms of planning for, and overseeing, development did however contribute to the problems we now face.  If that was because the system did not give planners a strong enough role or position or powers, then that is nonetheless a failure of the system as it was (though not necessarily of planners).

In my view, planners need to move from being defensive about both their role and the system. Rather than saying, ‘it wasn’t us or the system,’ they should be using the crisis – as noted by An Bord Pleanala – as an opportunity to point out the weak parts of, and flaws in, the system, highlighting what aspects of the way the system was configured contributed to levels of oversupply and ghost estates, and how it should be altered and their position strengthened.  Trying to argue that the planning system did not contribute to the problem, at the same time as calling for very important lessons to be learnt and the system to be altered is simply not credible – especially when what is being asked for relates to changes in how planning is performed and implementation.  If there were no failings within the system, then everything can surely be left alone?

The overall thrust of An Bord Pleanala’s statement is correct – the present crisis presents the best opportunity in generation for planners and their organisations such as the Irish Planning Institute and An Bord Pleanala to push for change in planning in Ireland at all scales.   However, rather than be reactive and defensive, now is the time to be proactive.  Now is the time to seize that opportunity.

Rob Kitchin

What’s been laughable recently is the claim that the only way to retain Ireland’s sovereignty is by slashing the budget, playing the game, not upsetting the ever-watchful credit ratings agencies, and just repaying the bondholders. This is supposed to be sovereignty: ‘You can do anything you want, so long as it’s this.’

The disabling effect this has on politics and on the sense of what’s possible is plain for all to see. Take the Labour Party. What can Labour really say other than that they’ll also slash the budget? Maybe they can say they’d slash it differently, but the backdrop to anything Labour proposes is what the credit ratings agencies will say, what the bondholders might do, etc. ‘Behave yourself, Ireland, because if you step out of line your cost of borrowing will rise and then the IMF will come in.’

The message is this: ‘There is no alternative’. And if that’s the case, then there is no sovereignty. Taking an alternative path – say, refusing to pay the bondholders, taking our chances with the credit ratings agencies, re-thinking all aspects of the economy we have versus the economy we need and deserve – isn’t possible. No wonder there’s a sense of powerlessness; a sense that nothing can be done. Apathy (I’m thinking of myself here as much as anyone else).

But yet there is a hunger for sovereignty in Ireland. Support does exist for a sort of ‘national heave’ against the political class that got us here and that aims to keep us here. Sure, if such a heave did get anywhere – and if it meant that we found and then practiced our sovereignty – then that would place us in what political theorist Slavoj Žižek calls an “‘objectively’ hopeless” position, just like the Morales government in Bolivia, the Chavez government in Venezuela, or the Maoist government in Nepal. Outcasts. We would be up against “the whole drift of history” – that endlessly dreary sense that there’s nothing for us to do but bow down to the market. But as Žižek asks about Bolivia, Venezuela, and Nepal’s (BVN) sovereign acts, “does this not give them a unique freedom?”  Maybe that’s what practising sovereignty means today. Maybe it’s about not playing the game.

Of course, it’s easy to look to BVN for inspiration. They’re far off lands. Exotic. So what about Europeans? Žižek again: “Today we do not know what we have to do, but we have to act now, because the consequence of non-action could be disastrous. We will be forced to live ‘as if we were free’.”

But to act is to “risk taking steps into the abyss, in totally inappropriate situations; we will have to reinvent aspects of the new, just to keep the machinery going and maintain what was good in the old—education, healthcare, basic social services.”

Indeed. Education, healthcare and basic social services. Not that we had these in much abundance or in such a fine state in the first place in Ireland, but whatever we have had is now getting cut back. And all because we’ve ‘no choice’ but to pay back the bondholders? In what sense is this sovereignty?

Alistair Fraser

It would be funny if it wasn’t so tragic.  Bertie Ahern advises the Poland on how to avoid a financial crisis. The mantra is a familiar one:

It wasn’t me; it wasn’t us; how were we to know?  How could I be responsible?  Yeah, sure, we knew that banks had failed elsewhere and fecked their countries, but sure, it’s not the government’s job to have an understanding about how the financial system on which a country depends works.  That’s what banks are for.  Sure, if they pay themselves mega-bucks they must know what they are doing.  That’s why I was earning a fortune and have a massive pension even though I’m still working.  A reward like for good service.  Anyway, it’s not the government’s job to actually be running the country and setting finance policy and making sure the banks don’t feck us.  But even if it were, that would be the Central Banks role, not mine, and sure, they’re a law unto themselves, told me nothing – nothing.  It wasn’t my job to ask, they should have told me.  What, I had my eyes closed and was muttering la-la-la-la-la so I couldn’t hear?  Ha, ha.  What were you saying?  I didn’t hear you.  Only codding you.  But sure, the Irish people love me.  They know I’m a great fella.  Sure, they want me back, that’s why I’m thinking of running for President.  No, that wasn’t a joke.  I’m a great fella all round.  And I have a good solid base of votes – everyone I put on a state board.  Sure, if it wasn’t me we wouldn’t have had a Celtic Tiger in the first place and all those whinging right now would be in London or New York or Sydney or somewhere.  I didn’t make people lose the run of themselves.  I made this country what it is, but I’m in no way responsible for its collapse.  Sure, the only reason we’re in trouble is because of the damn American’s letting Lehman Brother’s collapse.  We’re the victims here, okay.  It’s a global crisis after all.  It’s not homegrown in the slightest.  And I’m as much a victim as anyone.  Really.  I’m suffering as much as anyone; god knows I’ve got time on my hands since I do feck all in the dail any more.  That’s why the President’s job is so right for me.  I can keep giving to the nation.  And if I mess up some protocol or cause a diplomatic incident, sure that’ll be someone else’s fault in any case.  After all, the job was made as a retirement jolly for great fellas.

The housing units inspected by the DEHLG survey can be broken down into 5 different housing types: Detatched, Semi-Detatched, Terraced, Duplex and Apartments. This breakdown is based on all units (179,230) so also includes units that have been granted planning permissions but not yet commenced (58,025). The current summary data available through DEHLG will not allow a further breakdown of housing type by level of occupancy or construction status. Hopefully this will be available when the complete survey output becomes available.

The following two graphs detail the breakdown by unit types within each local authority. It’s clear that there is a really different pattern throughout the country with Dublin City, DLR and Fingal with an absolute glut of apartments within these unfinished estates. Cork County with the highest number of overall units (18,681) has a mix with a higher proportion of semi-ds and terraced units.

Unfinished Estates: Units by Type (percentage)

Unfinished Estates: Units by Type (absolute)

Justin Gleeson

One of the questions I’ve had from the media and also on a blog is why is there a difference between the NIRSA (and DKM/DEHLG) oversupply figure and the number of unsold units on unfinished estates as calculated by the DEHLG in their recent survey.  Essentially the difference is oversupply versus overhang, and the overhang consisting of more than unsold units in unfinished estates.  In the last few days there seems to be an attempt to shift focus to the overhang, and in my view that’s a big mistake.

Oversupply is the rate of vacancy above a base 6% vacancy rate once holiday homes have been accounted for.  It is concerned with the number of households with respect to the supply of housing units.  At a basic level, according to the DEHLG and CSO, in 2009 there were 1.96m units in the country and 1.63m households (the latter figure only released a couple of weeks ago), a difference of 330,000.  The NIRSA model estimated a difference of 338,031; DKM/DEHLG 301,682-326,685; and UCD 345,116 (so each study had pretty good alignment with the latest data – see our key housing statistics post, which also gives links to all data).  We need to take out holiday homes, as these properties are bought and serve a purpose.  We also need to take out the expected base vacancy rate – all housing markets have an expected rate of vacancy, in that not all homes are expected to be occupied.  Both NIRSA and DKM/DEHLG use a base vacancy rate of 6%.  On 1.96m units that would be 117,600 units one might expect to be vacant.  The difference between the overall vacancy minus holiday homes and the base vacancy rate is the oversupply.  These are effectively houses surplus to either holiday home use or household demand to live in them.  NIRSA estimates oversupply as of the end of 2009 as 120,248, and DKM/DEHLG estimate as 122,029-147,032. UCD estimate that it is 171,178 (using a 5% base rate)

Overhang on the other hand refers to the number of unsold units in the state, regardless of whether there is anybody to occupy them or use them.  The unfinished estates report details that there are 33,226 unsold units (23,250 complete, 9,976 nearly complete) and another 9,854 where construction has started.

So why is there a substantial gap between estimated oversupply (120K) and potential overhang (43K), and why does it matter?

Explaining the gap is not straightforward because we do not have any definitive data.  It seems likely, however, that the difference consists of three types of property:

1. Other unsold houses.  The unfinished estates survey had some parameters – an unfinished estate was defined as estate with 2 or more houses where development and services had not been completed and estates completed from 2007 onwards where 10% or more of units are vacant.  Therefore unsold houses in estates completed prior to 2007, for example in the second half of 2006 when the market was softening were not included.  Nor does it include unsold houses in estates with less than 10% vacancy.  Nor does it include new, unoccupied one-off housing.  Unfinished estates remember only refer to 6.1% of all units in the state.
2. Excess second hand vacant houses that have either come onto the market or which have not done so when one might have expected them to.  There are c50,000 second hand houses on the market, a proportion of which are vacant.  They might be the houses of recently deceased or those who have moved area or country.  Some of these won’t be on the market because the fall in house prices has led to the perception that the owners will not realise the full value of the property or because of issues of negative equity.
3. Vacant investor properties bought at the height of the boom with the aim of buying to flip or buying to rent.  In some cases these properties may have no mortgage (bought for cash) or a relatively small mortgage, and therefore there is no pressure to get tenants in. In other cases, the property may have been bought in marginal, rural locations where it is all but impossible to source new tenants given out-migration and competition.  At the height of the boom, a significant proportion of property was being bought as investments.  For example, 27% mortgage business in 2006 was investor mortgages according to data cited in Derek Brawn’s book, Ireland’s House Party.  The bottom line is that in many cases units were bought for which there was no immediate household demand.

So, why does the difference between overhang and oversupply matter?  Surely, if property is bought it is no longer a problem?  All we need to do is work off the overhang and we’re back in business. In fact, shouldn’t we start building again before the overhang is worked off to make sure we don’t end up with a shortage?

The difference matters because the rate of oversupply suggests there is a strong mismatch between the number of households and housing units.  The difference between overhang and oversupply effectively represents latent supply.  They are units where there is a strong possibility they will come onto the market when the conditions are right, especially once they come out of negative equity.  Even if they become rental properties, there’s presently not enough households to fill them given net out-migration and weak population growth through natural increase.

For the housing market to recover we need supply and demand to tighten right up so that there is active competition for property.  As prices rise, latent units will come onto the market, especially as negative equity thresholds are crossed.  And even if this additional supply is slow, an expected 6% base vacancy is very generous and this could be eaten into as the new build gets going again.  In most countries base vacancy is 3-5%, so there is some slack there.  There are also the c. 50,000 secondhand houses presently on the market, some of which are presently vacant.  Starting to build before we’ve fully aligned supply and demand could extend the problem and keep the market flat.

Of course, the market is going to remain flat whilst the economy is in the doldrums, access to credit is restricted, and unemployment and underemployment remain high.  The housing market will not be well served, however, by focusing solely on the overhang and ignoring the issue of oversupply.  Ultimately reducing both overhang and oversupply is reliant on a growth in, or redistribution of, households (the latter will, of course, leave vacant units elsewhere in its wake, as will moving from rental into new build).  Unless households grow in number, then the issue of oversupply will continue for quite some time.

Talk of there being only 18 months supply of housing units based purely on the overhang figures in unfinished estates needs to be treated with caution.  It takes no account of the latent supply implied by the rate of oversupply.  It was only a couple of months ago that a figure of 3-4 years supply was being talked about based on the oversupply figure.  Nothing has changed other than swapping from oversupply to overhang, which suits the government, construction industry and aligned interests such as estate agents because it makes the size of the problem appear much smaller.  Of course, all of this varies geographically, and some areas will align supply and demand more quickly than others, but 18 months seems very optimistic regardless of location given the present market and the fact that many estates need finishing off before new ones are started and few, if any, developers can access finance to fund existing, let alone new, estates.

Rob Kitchin

The latest DEHLG housing survey has revealed that there are 2,846 estates where part of the development remains unfinished or vacant. These estates consist of 78,196 dwellings that are completed and occupied, 23,250 dwellings that are complete and vacant, 9,976 dwellings that are near complete, and a further 9,854 dwellings that are at various stages of construction activity.

The survey has also revealed that there are an additional number of dwellings that have received planning permission for development, but where no initial construction has yet begun.  The total number of planned and approved additional units is approximately 58,025.  Thankfully, these did not proceed to development or the extent of the housing crisis would have been worse.  According to the DEHLG these permissions do not pose any immediate construction or site specific difficulties as they are unlikely to proceed given the present market and access to credit.

The counties with the largest number of undeveloped planning permissions in existing unfinished estates are Fingal (9,502), Cork County (6,516), Meath (3,456), Dublin City (3,263) (Figure 1). It would be interesting to know how many of there are apartments, 3 bed semi-ds, etc.  Given their proximity to Dublin and Cork, it is likely that as estates are finished off and occupied over time, these permissions may be taken up, though developers might push strongly for a redesignation of the permission – say trying to move from high density apartments to lower density 3/4 bed semi-detached.  Such redesignation may well cause issues where estates are near to key infrastructure, such as the luas and rail lines, which were designed to increase density and the numbers within walking distance of stations.

If we normalise the permissions with respect to the number of existing households (units per 1000 households in 2006) we see a different picture emerge with Fingal, Laois, Longord and Cavan having the highest levels of excess permissions (Figure 2). Fingal presently has 2,866 units either completed but vacant, near complete, or underconstruction.  Between 1996-2006 the number of households in Fingal grew by, on average, 3,280 per annum.  If households were still growing at that rate, the unfinished estate units would last 10.5 months.  Of course, there is other vacant stock in the local authority, although it is relatively small, and the growth in households is not increasing at the same rate as 96-06.  Therefore the stock should last at least 12-24 months before present excess planning permissions will start to be taken up.  As for Laois, Longford and Cavan, given the present levels of oversupply it is highly unlikely that such permissions will be taken up any time soon.

Figure 1: Uncommenced Units

Figure 2: Uncommenced Units per 1000 households

Unfinished Estates: Breakdown by Units (percentage)

Unfinished Estates: Breakdown by Units (absolute figures)

Justin Gleeson

An article in today’s Irish Times starts thus:

The government has rejected suggestions that tax breaks which encouraged residential development during the boom years fuelled the construction of more than 2,800 so-called “ghost estates”.

Minister of State for Housing Michael Finneran said: “This thing about tax breaks really needs to be put into perspective. If you look at the figures, less than 10 per cent of all of the developments, of all of the unfinished estates, are in the tax break areas.”

I have no idea why Michael Finneran is  in denial about the effects of property tax breaks in fuelling the boom years in Ireland.  The data show that they clearly did have a significant impact.  It is also simply not true that less than 10 per cent of all developments are in tax break areas.   To take just one such tax break area.  The Upper Shannon Rural Renewal Scheme (1999-2008) has 529 unfinished estates (Cavan 147, Longford 77, Leitrim 96, Roscommon 118, Sligo 91) – 18.6% of the 2,846 such estates in the country.  Those 529 estates are made up of 14,814 units – 12.2% of 121,248 national total.  In the 2006 census, these five counties had 5.9% of all households in the state.  As our post yesterday showed, when standardised against number of households in a county, the five rural renewal counties clearly have the highest number of estates vis-a-vis existing household numbers.

The effect of the rural renewal scheme is obvious when one looks at Figure 1, which shows housing completion rates (1970-2009) for the five counties. Housing growth explodes after the introduction of the scheme, far in excess of household growth.  Between the 1996 and 2006 censuses 30,695 houses were built in these counties, but household numbers only grew by 18,896.  Between 2002 and 2009, the five RRS counties increased their housing stock by 45,053 (49.8%), from 90,491 to 135,544 dwellings.  88% of tax relief in the RRS was for residential development, the vast majority for new build rather than renovation.

House completions in the five counties included in the Upper Shannon Rural Renewal Scheme (source: DEHLG)

It is perhaps unsurprising then that in 2006 Goodbody (in a report for the Dept of Finance) concluded that the RSS had had little impact on economic activity in rural areas; a large proportion of housing output was built speculatively and/or constituted ‘deadweight’; excessively large dwellings were built in many cases; it was poor value for money; and that it had produced an oversupply of dwellings.

The RRS was not the only tax incentive scheme operating.  Section 23 tax relief was also accessible through the Town Renewal Scheme (100 towns throughout the state), Living Over the Shop (LOTS) scheme and the Seaside Resort Scheme (15 towns covered).  A large percentage of the unfinished estates will fall within the 115 TRS and SRS areas.  In fact, it is likely that relatively few estates are outside the various tax incentive scheme areas, particularly outside of the principal cities.

Tax incentive schemes are meant to stimulate activity to then be turned off once activity has commenced and is up and running (a bit like a choke on a car – once the engine is warmed up it is usually turned off as it no longer needs extra stimulus).  In Ireland the schemes were allowed to run for far too long, well after the activity had been initially stimulated.  As a result, it is simply not credible to state that tax incentive schemes had little effect on residential development and the housing bubble.  They were a significant contributor to the unfinished estates phenomenon, with many estates the legacy of the last minute stampede to get in the schemes before they closed to new entrants.  To conclude they had little effect is to simply live in denial.  We need to get past the denial phase and move towards making sure we learn the lessons of excessive property tax incentives.

Rob Kitchin

The DEHLG have announced their unfinished estates survey in the last hour.  We’re presently looking over the data and preparing some maps which we’ll hopefully post later on.  In the meantime we thought it would be useful to detail some key statistics relating to the housing crisis in Ireland given that there has been much confusion to date with different data often being conflated.  In the absence of a census in the last year, all the figures, with the exception of the unfinished estates, are estimates using models.

1) Total housing stock – the total number of residential units in the country (which includes obsolete property, holiday homes and investment properties)

At end of 2009 – 1.96m units (DEHLG, estimate)

2) Total number of households – the total number of occupied units in the country

At end of 2009 – 1.63m (CSO, estimate)

3) Vacancy, including holiday homes – an estimate of the total number vacant units in the country, including holiday homes calculating using 2006 census data and projected household growth/new mortgage data

3 main estimates for up to 2009: DKM/DEHLG: 301,682-326,685;   NIRSA: 338,031;   UCD: 345,116

4) Vacancy, excluding holiday homes – an estimate of the total number of vacant units in the country, excluding holiday homes

3 main estimates for up to 2009: DKM/DEHLG: 228,206-253,209;   NIRSA: 252,029;   UCD: 280,596

5) Potential oversupply – the number of units above an expected base vacancy rate (a certain proportion of housing stock will always be empty in any housing market); the number of units in excess of this base vacancy rate are considered to be an oversupply in the present market

3 main estimates for up to 2009: DKM/DEHLG 122,029-147,032 (using a 6% base rate); NIRSA 120,248 (using a 6% base rate); UCD: 171,178 (using a 5% base rate)

6) Unsold houses – total number of unsold, brand new units in the country (this along with secondhand houses – c.50,000 – constitute the present the housing market)

2 main estimates: Construction Industry Federation (Nov 2009) 35,000 to 40,000; DEHLG: 33,226 (23,250 complete, 9,976 nearly complete; +9,854 where construction has started)

7) Unfinished estates – the number of unfinished estates in the country, where an unfinished estate is defined as an estate that has 2 or more houses where development and services have not been completed and estates completed from 2007 onwards where 10% or more of units are vacant

Number of estates as of mid-2010: 2,846 (DEHLG); 429 active

Number of units in these estates: 121,248

Number occupied: 78,195

Planning permission for an additional: 58,025

8 ) Ghost estates – a particular class of unfinished estate consisting of 10 or more units, where 50% or more of units are vacant or under-construction, built from 2005 onwards

Number of estates at end of 2009: 620 (NIRSA etimate)

Number of units in these estates at the end of 2009: 19,262 units (including 11,670 vacant; 3,823 under-construction)

Rob Kitchin and Justin Gleeson