Today the government announced a new Construction 2020 Straegy for Ireland – the full report can be found here.

The strategy is to be welcomed in that we’ve needed an overarching strategy re. construction, property and housing for some time.  It’s also good that it is wide in its remit, covering all the main areas.  It seems to me the strategy is about four things:

1.  creating a strong and sustainable construction sector
2.  producing new jobs and getting construction workers back to work – the plan is 60,000 by 2020
3.  Creating sustainable planning and communities
4.  dampening down the cyclical nature of property development

In other words the ‘Strategy aims to ensure that necessary and sensible development can take place, and that it is not held back by unnecessary obstacles.’  It sets out 75 action points, quite a few referring to initiatives that have already been announced previously, though the strategy does tie all the stuff together into a roughly coherent whole.

The question is whether these action points are going to address the various problems and issues.  At present, this is difficult to tell, because a lot of what the document sets out is a roadmap for finding solutions rather than providing solutions.  At one level this is good – we need well thought out solutions.  At another level it isn’t so great because we should have done the strategising a few years ago and now we’re trying to play catch-up whilst various forms of crises continue to play out around us – mortgage arrears, social housing waiting lists, rising prices, weak supply in some areas, oversupply in others, etc.  The report is full of proposed new committees, task forces, review groups, consultations.  Here’s a list of some:

  • will propose a new national planning framework
  • will publish a general scheme of a Planning Bill, along with a new Policy Statement on Planning, to implement the planning recommendations of the Mahon Tribunal and other planning concerns, and to establish an independent planning regulator.
  • will create a Housing Supply Coordination Task Force for Dublin
  • will produce a comprehensive strategy for Social Housing, setting out a vision for the sector.
  • will undertake a review of Part V of Planning and Development Act
  • will review Special Development Zones planning with the aim to streamline and speed up process
  • will explore mechanisms for private financing and greater use of Public Private Partnership models for infrastructure procurement
  • will engage with the banks, NAMA and other interested funding providers to ensure the availability of sufficient development finance
  • will create a High Level Working Group chaired by the Department of Finance will be established to explore the issue of sustainable bank financing for the construction sector.
  • will increase our engagement with the European Investment Banks (EIB) and European Investment Fund (EIF) in developing and implementing mechanisms designed to maximise the provision of financing to SMEs, including in the construction sector.

As it stands then, we have few concrete recommendations with respect to any of these things.  These need to be set up asap and to do their work quickly.  Ideally they will also be dealt with in some kind of a holistic way and not in isolation from each other.

There were a few concrete actions.

  • National Pensions Reserve Fund (NPRF) is to become the Ireland Strategic Investment Fund (ISIF) with a mandate to invest on a commercial basis to support economic activity and employment in Ireland.  Work with IDA and others to invest in offices/infrastructure.
  • A tenancy deposit protection scheme will be provided in law this year
  • Regional Planning Guidelines that co-ordinate local authority plans will be replaced by more broadly based Regional Spatial and Economic Strategies from 2016, with inputs from LAs, key infrastructure and economic development agencies

They are also proposing greater certainty and flexibility in planning:

  • flexibility around overall densities will be considered.
  • changes to existing planning permissions – though only after public consultation
  • streamlined planning process for certain types – ‘repeat’ or ‘change of house type’ applications – and also for appeals
  • enable local authorities to introduce a ‘use it or lose it’ provision with respect to land zoning to reduce land speculation
  • vacant site tax – examine the possibility for enabling a local authority, should it wish to do so, to adopt measures that incentivise the use and development of vacant sites
  • legislate for and introduce a registry of options on land for development purposes to ensure market transparency

Some issues seem to be in a holding pattern.

  • Homelessness – Mentions setting up of Homelessness Oversight Group and aim to eliminate homelessness by 2016 but gives no indication of how that will be achieved, esp. in light of rising homelessness levels.
  • Unfinished estates – no new policy just continue with Site Resolution Plans;

The strategy sets out then a roadmap for getting to actionable initiatives, rather than setting up many new initiatives.  It does not set out many concrete actions but rather proposes a roadmap for dealing with construction and property issues.  There are proposals for lots of task forces and reviews, some tinkering with existing legislation but no radical overhaul, but not a lot of new concrete, strongly cash-backed initiatives – schemes mentioned in the strategy are all relative small sums of money or restate existing public capital expenditure plans (which are a fraction of pre-crash levels).

What would have I liked to have seen?  I would have preferred something a bit more holistic, rather than trying to frame a whole bunch of stuff as a coodinated plan.  Personally, I would have started with a new NSS/NDP and worked down from there.  I think it would have been useful to be more proactive in setting out options re. financing.  How to get finance into initiating construction seems to be largely missing beyond saying the government will talk to and encourage NAMA, EIB, EIF, ISIF (Ireland Strategic Investment Fund) to make finance available and look at issues.  I would have liked the government to be a bit more proactive in terms of initiating and driving funding, seeking ways to increase public capital expenditure.  The strategy announced €200m of new investment into the various property related areas, but this is a tiny amount of funding vis-a-vis the issues that need to be addressed.  Hopefully when all these various task forces and committees report, suitable budgets and means of financing can be attached to the action points, otherwise they’ll remain just that – action points, rather than actioned items.

Rob Kitchin

 

Many of the posts on this blog have been critiques of the planning system, the construction sector/developers, the banking sector, and government policy or lack of.  A critique of the blog is that it doesn’t do enough to put forward solutions and a positive path forward, especially given widespread unemployment amongst former construction workers and development residing at the bottom of a deep slump rather than being a productive part of the economy.

In this context, a key challenge for Ireland is to re-grow the construction sector back to a normal, sustainable level as a productive part of the economy and to get construction workers back to work without exacerbating existing issues and problems with respect to property.  This is no easy task, but here is my suggested road map.

First, any attempt to resurrect construction activity in Ireland has to take place within a strategic approach to planning and property that strongly guides any development takes place.  The adoption of core strategies and revisions to the Planning Act are a step in the right direction, but are specific tactics, not strategic visions.

To this end, the government needs to put in place a strategic planning and development framework that combines spatial planning (what used to be the National Spatial Strategy, NSS) and sectoral planning (what used to be the National Development Plan, NDP).  The present NDP expires end of 2013; the NSS is hollow and in review.  The proposed Medium-Term Economic Strategy (MTES) 2014 to 2020 will focus on macroeconomic strategy and policy actions for achieving sustainable economic and employment growth, not planning and development.  The MTES needs to be complemented with a new NDP to run 2014-2020 to guide investment, underpinned by a NSS that will ensure coordination across sectors and locales.  In other words, it should consist of joined-up thinking.  The danger is that without a strategic approach, the development that does occur will be ad hoc, poorly linked, weakly leveraged and will slow recovery.

Both the new NDP and NSS need to be based on an evidence-informed analysis of the present state of property (housing, office, industrial, agricultural, etc), planning/zoning, and models of projected demand based on demographics, economic growth, labour market demand, etc.  This requires decent property data (we have some limited housing data; no independent commercial sector data) that have temporal and spatial resolution.

This strategic framework needs to be prepared to be selective.  Rather than trying to encourage growth everywhere, it should aim to grow selectively to create agglomerations and critical mass.  Agglomeration is important for growing jobs and the economy.  Employ a smart consolidation approach elsewhere (focus on quality of life and sustainability, rather than growth).  Limit further one-off housing: it is unsustainable in service terms (utility and service provision) and environmentally (water pollution, commuting, etc) and contra to popular belief evidence suggests weakens rural communities.

Part of the strategic framework should focus specifically on housing and produce a comprehensive housing strategy.  As well as planning for the future, this strategy needs to address all the issues affecting housing at present:

  • vacancy and oversupply in most of the country and pockets of undersupply in specific locales
  • large numbers of unfinished estates and poor build quality (issues of pyrite, etc.) that need to be retrofitted
  • huge numbers on the social housing waiting list, stalled regeneration schemes, collapsed PPPs
  • extensive mortgage arrears and negative equity
  • the lack of mortgage credit and a large proportion of cash buyers
  • the lack of finance for development and the lack of active developers
  • Supply of land.  Land has to be made available sensibly: land bank through NAMA, Site Value Tax/Kenny Report to get derelict/brownfield sites back into productive use, bring on strategic greenfield sites, and limit future land speculation.

Development needs to follow best practice planning principles and should be integrated in nature.  Residential development cannot be simply houses but also needs to be utilities, schools, creches, public transport, etc.  Piecemeal planning undermines formation of sustainable communities.  When housing construction occurs, all the other elements also need to occur at the same time (not several years later).

Second, the creation and delivery of any strategic plan needs to be properly resourced in terms of staffing and finance.

Proper planning requires administrative units capable of delivering: the Department of Environment is severely understaffed with respect to planning; regional planning authorities are shells; local planning authorities are emasculated; NAMA should be part of this coalition.

Development requires finance — there is a need to source investment capital given the Irish banks are not lending.  NAMA should fill the void where possible.  If there is true demand the market does not need stimulating and tax incentives/subsidies should be avoided.  The construction/development sector needs access to finance through loans not incentives.  Do not sacrifice measures such as Part V Social and Affordable Housing provisions of the Planning Act (we need social and affordable housing).

Third, we need new entrants into the sector to replace failed enterprises.

Encourage new developers through loans/grants — many of the older ones are bust, tied up in legal cases, or cannot access investment capital.  We need new entrepreneurs to enter the market who have fresh ideas and energy and do not have any of the bad habits and institutional memory of the old set.

Encourage new, large rental companies into the market and professionalize the rental sector.  The rental sector is under-regulated and is dominated by amateur landlords (70% own 1 or 2 properties).  Encourage cooperative and association housing and make finance available to them for new projects.

Specific ideas to re-grow the construction sector back to a normal, sustainable level and to get construction workers back to work

Invest in capital projects that will stimulate the economy beyond construction jobs (i.e. will provide the conditions that will attract inward investment and indigenous growth)  — public transport, utilities (electricity grid, water system, broadband), public infrastructure (e.g. school building — 1 in 3 schools still have prefabs and the number of children is growing; hospitals; universities, etc), selective road building, etc.

Proactively address the housing issues detailed above.  (1) complete viable unfinished estates and deconstruct the others; (2) address build quality and pyrite-infected homes; (3) restart regeneration projects and revive PPPs with new partners; (4) refurbish existing social housing.

Enable private housing in very select locations where there is a demonstrated demand/projected demand based on hard evidence.

Enable office development in very select locations where there is a demonstrated demand/projected demand based on hard evidence (remember >20% of office space in Dublin is vacant; in some parts >40%; similarly lots of empty retail/industrial space in Dublin and throughout the country).

Curtail speculative development of all kinds where there is no demonstrated need/demand. Under no circumstances create additional supply in areas where there is already oversupply as it will flat-line any recovery and extend related problems.

I am open to suggestions and debate with respect to this road map.  We need these kinds of conversations.  What I do not think is sensible is to have no strategy and plan and to simply try and muddle through and hope that inaction and the present lack of policies and direction will somehow solve our various issues.  They won’t; they are more likely to cause additional problems.

Rob Kitchin

I was a bit baffled by the news that housing charity Threshold had, in its pre-budget submission, added its voice to those campaigning for government stimulus for new housing construction.  As quoted in the Irish Times, Bob Jordan Threshold chief executive suggested that “Up to 30,000 new houses need to be constructed annually to meet the ongoing demand for new homes. However, since the recession, housing construction has virtually ceased, with only 8,500 new units built last year.”  The organisation argued that, if left unchecked, the “housing shortage” could become a “full-blown crisis”.

A closer look at their submission reveals that the proposal for the Minister for Finance to consider a stimulus for housing construction is part of a wider and much more targeted set of proposals, which in large part aim to address the current threats faced by tenants in the increasingly precarious private rental sector.  Included in these are proposals to provide a financial package for the purchase and construction of social housing and amendments to Residential Tenancies Act.  Threshold are keen to point out that the problems of undersupply are restricted to particular, primarily urban, areas.  In this context, it is odd if a little unsurprising that the point picked up by the media is the call for new construction.

Another story is today’s papers35Gogh_Old Man in Sorrow offers a more apt corollary to the issues that Threshold raise.  A report from Oxfam claims that austerity policies across Europe are benefiting the top tier of society while impoverishing many households on the lower end of the economic spectrum.  Likening current austerity policies to structural adjustment programmes imposed on poor countries by the IMF since the 1970s, the report (in which Ireland features prominently) warns that:

“The only people benefiting from austerity are the richest 10% who have seen their share of income rise whilst poorest have seen their share fall. The UK, Greece, Ireland, Italy, Portugal, Spain – countries that are most aggressively pursuing austerity measures – will soon rank amongst the most unequal in the world if their leaders don’t change course.”

It is this growth in levels of inequality and the knock on effects this has, rather than simply a lack of construction, which produce the suite of challenges for tenants that are now being flagged by Threshold.

Cian O’Callaghan

In the UK, the government are looking to radically reform building standards and introduce much greater self-regulation of the construction industry.  Here’s how The Guardian open their story about such measures:

Regulations covering building standards, including fire safety and wheelchair access, could be torn up in a government plan to cut costs for the construction industry and boost the economy.  Ministers have ordered a wide-ranging review covering all aspects of building regulations, also including standards on energy efficiency. The review, which controversially includes the option of giving the building industry more scope for self-regulation, is the latest in a series of government initiatives intended to stimulate activity in the economy and drive job creation through investment in homebuilding.  Its aim is to prune regulations “significantly”.

Apparently costs to property developers and the construction sector are worth more than people’s health and safety and also the effects on the environment of poor planning and build.  Of course, health and safety and the environment are unlikely to be in the cost-benefit model for vested interests.  And nor, no doubt, are the costs for addressing sub-standard build in the future.

Perhaps the group that is charged with reviewing standards and the regulation process should visit Ireland and have a look at what happens when you de-regulate and let the construction industry self-regulate and dictate government policy towards planning, development and construction.  Perhaps they might wander our 2,876 unfinished estates, many of which are build in unsuitable locations and are in various states of disrepair, or visit Priory Hall where residents have been forced to live in rented accommodation for over 12 months due to fire safety risks, or Gleann Riada where an apartment block was demolished and residents are living in houses prone to gas explosions, or the over 12,000 homes affected by pyrite most of which are going to need expensive restoration work.  Or the houses that have been built on floodplains.  The list could go on an on.

Planning policy and building standards and regulations were introduced for a reason.  They improve and assure the quality, safety and design of buildings and the sustainability of environments.  They do not depress construction if there is market demand for property.  Britain only has to look at its banks – the other half of the equation in property development – to know what deregulation generally means: profit before good practice.  And it only has to look at Ireland to see what happens when you deregulate and introduce laissez faire planning and self-regulation of construction (and combine that with deregulating finance).

Given that Ireland often seems to look to the UK for new policy initiatives this kind of change isn’t good news for those hoping for improved regulation, standards and enforcement with respect to development, planning and construction in Ireland.  The only people these kind of changes help are property developers and construction companies in making more profit.  It is highly unlikely that any savings from cutting corners on health and safety will be passed onto to buyers.  All the risk will be though.

Rob Kitchin

If there was trend that sums up the excesses of the Celtic Tiger bubble this is it: between 1991-2011, for every 1000 new households, 1,493 housing units were built; for every 1000 new people added to the population, 874 housing units were built.

According the Dept of Environment data between January 1991 and December 2010 there were 933,404 housing units built in Ireland.

As recorded in the Census 2011, between April 1991 and April 2011, households grew by 625,124; the population grew by 1,062,533 in the same period.

Growth in housing stock, households and population 1991-2011

Even accounting for obsolescence and replacement (approx 72,000 units based on the difference between housing stock change in the 91/11 censuses and total constructed units), we were building way in excess of demand, hence the high level of present oversupply.

Rob Kitchin

In his opinion piece on Tues, 3rd April in the Irish Times, Kieran McGowan of Property Industry Ireland makes the case that to attract FDI there needs to be investment in the commerical property sector: “Without the accommodation, we won’t get the FDI.”  His argument is that: “There is a view that there is an overhang of completed buildings across all parts of the property sector.  This is wrong, particularly in relation to buildings for firms entering the market in key urban centres throughout Ireland.”  He does not provide one piece of data to support this view, only assertion.  The reason for this is that the data available tells a different story.

Savills ‘Dublin Office Market in Minutes’, Q3 2011, report notes that 23% of Dublin office space is vacant.  In the prime locations of Dublin 2 and Dublin 4 the vacancy rate is 16.1% and 23.5%.  Moreover 18% of vacant offices are defined as Grade A.  To put this in context, the amount of empty office space in the city is equivalent to over 200 Liberty Halls (also see the Andrew MacLaran’s post on IAN on the Dublin office market).

The Society of Charted Surveyors Ireland recently reported that the office market had little to no activity with rents/yields falling.  The same was true of the industrial and retail sectors, both with large volumes of excess stock.  In fact, they report that the only part of the property market that is functioning near to normal is agricultural land. 

This is the industry’s own data and is reflective of patterns nationwide.

Whilst I agree that the strategic use of construction will help Ireland recover from the present crisis – particularly in relation to public infrastructure that will serve the general population and industry – we need to be careful not to misrepresent the true nature of the dire position of the Irish property market and the levels of oversupply within it across all sectors.  There is plenty of office stock to deal with most of the needs of FDI, with some minor strategic investment in upgrades or new build (we only need to build new stock for specialist facilities or where the investment is so large that there is no suitable existing empty office space – in both cases this will be for a handful of companies).

As with the housing market, there is a need to harmonize the supply and demand of commercial property in order to reduce oversupply and put a floor in the market.  Unnecessarily building new stock will work to keep the market either falling or flat.

Moreover, rather than overly relying on FDI to get us out of our present slump we urgently need to grow Ireland’s indigenous sector – the sector we should have been investing in when we were ploughing billions of euro into property speculation. They are our ideal tenants of the future.

Rob Kitchin

On Wednesday a single lot of 47 nearly complete apartments in Ballybofey, Donegal, went under the hammer.  The reserve price was €550,000.  The main build is complete and the apartments need to be fitted out.  The developer has gone bust and Ulster Bank called in the receivers to recoup whatever it could from the development.  The units, ranging from 63 sqm to 108 sqm were due to be sold at €200,000+ per unit.  At the sale of price of €11,700 per unit, the complex seems like a bargain.  And yet there was no bidder and the starting price was dropped to €300,000 (€6,300 an apartment).  The auctioneer is now seeking a private sale.

Ballybofey Apartments

Donegal has the sixth highest number of unfinished estates (133) in the country, and the lowest level of completed units occupied on those estates (47.5%), but prime reason as to why there was no bidder was due to a protest by c.100 workers from 20 subcontractors who claim to be owed c.€900,000 for their work on the site (and who also have equipment locked on the site which they can’t recover).  Quite rightly, they expect to be paid for their labour and expenses and to reclaim their equipment.  The bank simply want to salvage whatever money it can and pass on the finish-off and future of the estate to a third party.

The collapse in the construction sector is already making it difficult for many sub-contractors to stay afloat.  Not being paid only adds to the pressure.  And as businesses go to the wall, workers are being added to the Live Register, and family life suddenly changes as household income drops.  Income is taken out of the local economy and other businesses start to suffer.   14% of Donegal workers (8,124) were in the construction industry in 2006 (the national average was 11%).  The Live Register rate for the county has grown from 8,498 in Apr 2006 to 20,994 in Oct 2010 (147% increase) – in the Ballybofey Office it has risen from 705 to 2,580 (265% increase) – much of the growth taken up by out of work construction workers.

This story has been replicated across the country over the past couple of years, most recently with the collapse of Pierse and McNamara construction groups which has seen sub-contractors locked off of numerous sites, including those commissioned by the state.  Yesterday, more than 190 sub-contractors held a meeting to discuss the issue, calling for a change in the law concerning the arrangements and obligations between sub-contractors and those who they are working for.

One thing is clear, whilst the apartments in Ballybofey appear to be a bargain, whoever buys it will potentially be gaining enormously at the benefit of those sub-contractors owed money for their work (assuming that they will be able to sell them on to new owners).  Giving apartments away, however, has costs and consequences that’ll reverberate through the local community for some time to come.

Rob Kitchin and Justin Gleeson