Housing supply, principles, politics, compromises and pragmatics

Yesterday the Independent published an OpEd that discussed ways to try and start creating housing supply in areas that needed it – principally some urban centres, particularly Dublin.  It gave ideas grouped around land and sites, planning, costs, regulations, finance, and alternative solutions.  The piece was written by Karl Deeter, Ronan Lyons, Frank Quinn, Lorcan Sirr, Peter Stafford and myself, six regular media commentators on Irish housing.  The idea was try and see if six people who hold different views on housing and planning could reach a consensus position that provided practical solutions to creating supply.  The ‘rules’ were all the instruments suggested could be introduced quickly and with minimal or no legislative changes and it all had to be said in 900 words or less.

Inevitably, the list of solutions produced was a compromise and writing such a piece is an exercise in politics and principles.  No signatory on the piece is fully subscribed to each potential solution and all had to concede ground.  From my perspective, I have problems with removal or reform of Part V, I’m cautious about bringing aspects of Dublin planning regs in line with the rest of the country and the reduction of development contributions.  But I’m happy to see the use of the term housing sector not market, the advocacy of social housing and associated HFA financing and a reversal of the cuts to capital spending, and the ‘use it or lose it provisions’ on planning and land zoning.  I’m a little cheesed off that the Indo editors altered a couple of bits of the submitted piece, especially removing the phrase the “inventions should be time delimited”.

Some of the critique of the proposals on twitter and email has been that they overly favour market and developer interests.  There is, however, I think some degree of balance.  Ideas such as derelict/vacant site tax and a more aggressive use of the Derelict Sites Act are not in land owner/developer interests.  Moreover a range of interventions favoured by such interests were kept off the table: tax incentives, reduction of construction labour wages, radical laissez faire change to the planning system, alterations to build quality, radical changes to density targets, and state provision of housing.

What the piece hopefully does is move the discussion on from diagnosing the problem to practical solutions and towards action.  It provides a selection of options that can be debated and I would welcome counter-pieces.  If the piece does that, then it has done useful work.  At the same time, we also need to move towards action.  We have a real problem that has real consequences and is quickly getting worse, yet very little is being done to address the issue.  We therefore need that action soon, not in two or three years time.  If that requires compromise solutions, then I’m prepared to consider them.  And as this exercise proves, other interests are too.  What we can’t afford to do is nothing.

Rob Kitchin

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Why we need a housing strategy ASAP

The newspapers at present are full of talk of the resurrection of the housing market and the growth of house prices in Dublin.  It seems that housing market is finally stabilising and that the long waited for market correction is starting to take place.  Moreover, it is being suggested that we need to start building residential units again and to zone more land in Dublin (this is despite the fact that 2,575 hectares (6,400 acres) of serviced residential land is zoned in the four Dublin local authorities for 132,166 units).

The housing market in Ireland is nowhere near to functioning normally.  In fact, it is still largely dysfunctional for several reasons:

• 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
• oversupply in most of the country and pockets of undersupply in specific locales (particularly family homes in parts of Dublin)
• 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 and stalled regeneration schemes

The shortage of family homes in some parts of Dublin is just one aspect of a very unhealthy housing landscape.  What we really need right now is not a knee-jerk reaction but a proper housing strategy that guides addressing the various problems facing the Irish housing market and plans future housing provision.

This housing strategy needs to do a full assessment of the issues above, along with suggested solutions that include planning and finance, plus develop models of where new housing might need to be built given expected demand based on trends in demographics, economic conditions and labour market change.  Together, these assessments should be used to map out a plan of action as to getting the Irish housing back in to some kind of order.

This strategy does not need to be years in the making.  With some coordinated action it could probably be prepared in a few weeks using in situ expertise and resources.  What it does require, however, is some government action to spearhead such an initiative.  Without this, how the housing situation unfolds will be ad hoc, uncoordinated, and likely to reproduce and extend the present problems.

Rob Kitchin

 

Property market by sector and region for 2011

The Society of Chartered Surveyors Ireland and RICS have published their annual property report for 2011.  This report used to be a joint venture with IAVI (Irish Auctioneers and Valuers Institute) before it merger with The Society of Chartered Surveyors.  The report is based on a survey of 319 chartered surveyors who work in the commercial, industrial and residential property sectors.  It therefore reflects the opinions of members, as opposed to being drawn directly from sales/rental databases.  Nevertheless it does give us insight into what is happening in the market from the perspective of an informed group of actors.  The report provides both a sectoral and regional analysis, with year by year changes in prices for 2009, 2010 and 2011, but no detailed data on overall change since the peak of the market.

The report argues that the property market has now become geographically and sectorially specific in how it operates, with locales and types of property performing differently as the pressure of the crash has come to bear on it.  For example, they argue there is a notable urban/rural difference in rents and prices of residential properties, and whilst development land has plummeted by up to 95% in value, agricultural land has not fallen to the same degree and has risen in many areas last year.  They argue that the largest factors impacting on the property market have been the lack of mortgage credit for the residential market and the lack of capital finance for commercial purchases, along with fears over unemployment and pay cuts, and weak sentiment.  Notably there is little discussion of oversupply, negative equity, mortgage arrears, and immigration of household formation-aged population.

In terms of sectors, the report details:

Residential new houses – very low levels of activity characterised as ‘non-existant sales’; apartments falling in price more rapidly than houses; cash buyers dominate where sales are occuring (mainly in and around Dublin).

Residential secondhand houses – very low levels of activity; prices continue to fall, but influenced by location; falls generally in-excess of new homes; homes not coming onto the market unless absolutely necessary; very little trading up; some pick up in sales in Q3/Q4 but mainly for houses <175K; cash sales typically 60% from peak

Residential rental market – solid levels of activity; rental prices holding up with little fall in price over year; reports of no overhang of rental property and a shortage of family home stock in some areas, notably Dublin.

Offices – demand very low, weaker than 2010 and characterised generally as ‘no activity’ and rents/yields falling; city centre Dublin slightly better in activity but terms under pressure and rents falling; rents nationwide typically down 50% on peak.

Retail – sales ‘dead in the water’; rents down nationwide by 50-60% from peak; notable move to short leases.

Pubs and hotels – continued closure of pubs; no sales; banks won’t lend to the sector; Dublin faring slightly better than elsewhere; NAMA has unrealistic expectation re. hotel sales

Industrial property – sales almost non-existant; high levels of vacancy in small units; falling rents

Investment property – sales almost non-existant in commercial and residential property (except for limited cash sales)

Development land – prices down 95%; market not anticipated to pick up any time soon; NAMA set to dominate any activity

Agricultural land – described as the only functioning market, with prices rising in 2011; rents also rising

Price drops across sectors is generally much larger in Ulster/Connaught than Dublin, Leinster and Munster; and generally larger in rural areas than urban areas.

The report highlights that many chartered surveyors find dealing with NAMA very frustrating and that they anticipate NAMA will be a feature of the property landscape well into the medium term.  The forecast for 2012 – residential will remain weak, commercial to start to pick up in the second half of the year.

That analysis all seems pretty reasonable to me, though I’m not convinced that the commercial market will pick up to any great degree unless economic activity does likewise, especially a rise in employment that requires space. And there is a lot of vacant commercial space across the country that means that supply massively outstrips demand that will work to keep prices depressed for some time.  For office space in Dublin, vacancy is >20%, and in some parts of the city >40%.

What this report, and others from the property sector, highlight is the need for high quality, independent and public, commercial property and land data re. sales and rents.  The emphasis to now has been on establishing a house price register.  We need the same for the commercial sector, so that local authorities and government departments know what is happening across the property sector when undertaking planning decisions.  It would also aid NAMA in its work and form a backdrop that would help banks make sensible decisions re. lending for development.

Rob Kitchin

 

NAMA and Northern Ireland

NAMA have today revealed a bit more of a detailed breakdown of the NAMA loan book in Northern Ireland and its geography.  NAMA NI loans total £3.35bn (c. €4bn) and relate to 180 individuals and companies.  The loan book is 5% of NAMA’s portfolio.  Undeveloped land accounts for £2bn (60%), investment properties £1bn (29%), and land and property under development, £350m (10%).  Just 1% relates to residential development. With respect to Geography: 32% of the loan portfolio is located in Belfast, 21% in County Down, 19% in County Antrim, 8% in County Londonderry, 7% in County Tyrone, 7% in County Armagh, 4% in County Fermanagh and 2% in the city of Derry.

What is striking here is the amount of land in the portfolio.  I’m assuming that the £2bn figure is after the haircut is applied and using Nov 2009 prices.   Of course the market has fallen since Nov 2009 and £2bn in today’s market will buy an enormous amount of acreage, so one presumes the NAMA holding constitutes a very sizeable landbank.  Given the geographical spread of the loans, much of it has to be located in rural areas and around small towns and villages, and one presumes that it’s main commercial usage over the short term is agriculture.  It would be very interesting to get a further breakdown of the size of the landbanks, where they are, and how much was paid by NAMA for the loans on them, so as to get some idea as to how they view the long term use of the land – I’m working on the principle that much larger haircuts will have been applied to land that has limited development potential and is more suited to agriculture.

The size of the land holding in the portfolio is what troubles me.  It is the part of the portfolio that has fallen most in value and will be more difficult to sell on, unless an investor is prepared to sit on it for a while to let it appreciate in value.  Most developers seek to turn land over quickly because it’s a sunk cost with no working return.  Clearly NAMA has time to wait for the market to stabilise and recover before selling on, but even so that’s a lot of land to be managed, sold on or developed.

Clearly, one of the concerns for the Northern Ireland property market is for NAMA to destabilize it through firesales, and Ronnie Hanna, Head of Risk and Credit, who released the figures today, went on to try and reassure that this would not happen and that NAMA will act responsibly.  To quote him, he said that NAMA would:  “assist in the stabilisation of the property market in Northern Ireland, by providing liquidity to the market and by being able to take a longer-term approach where necessary”.   That’s all well and good, but what I would like to see is a more detailed business plan as to how NAMA intends to try and realise its assets over the long term in NI given the nature and geography of the portfolio.  This is likely to provide more reassurance to the property market there.  At the minute we’ll still at very broad brush generalities, though at least it’s a small step in the right direction.

Rob Kitchin

 

Dezoning disputes

The Irish Times reports today that a proposal to dezone land in Kerry was subject to a heated council debate yesterday.  The county manager and senior planners have proposed to dezone hundreds of acres in mid-Kerry, but were met with resistance from some councillors, with landowners and developers looking on from the gallery.  The chief worry was that by dezoning land those that had bought it would be bankrupted (though this is unlikely to happen to those who continued to own land that was zoned whilst in they were in possession of it). Danny Healy-Rae made the interesting observation that “the more land zoned for development, the better. It created competition and brought house prices down.”  Existing home owners in Kerry, already in negative equity, might not necessarily see this as a good outcome either, though this is a situation from which there are few winners.  There have been similar stories relating to Clare, Waterford and Dun Laoghaire-Rathdown in recent months.

As an article in the Irish Independent earlier this month makes clear, the zoning of land over the last number of years has ignored: good planning guidelines and regional and national objectives; sensible demographic profiling of potential demand; and the absence of essential services such as water and sewerage treatment plants, energy supply, public transport or roads.  Instead it has been driven by the demands of local developers and speculators, and ambitious, localised growth plans framed within a zero-sum game of potentially being left behind (if that town had growth or particular services, then this town had to have the same as well). It is extremely difficult to justify a situation in which there is presently enough land to accommodate an additional 1.1m units (as reported by the Irish Independent).  That said, we are where we are, and it seems likely we are going to go through the painful process of vested interests seeking to protect investments that were made in good faith as council officials seek to rezone and dezone land that is clearly surplus to requirements in both the short and long term.  And no doubt a number of cases will end up in the courts.  What seems vital, however, is that lessons of the present property crisis are learnt and the zoning and planning system changed to stop what John Gormley has called ‘unfettered and irresponsible rezonings’, so that a more sustainable situation arises with respect to the environment and land/housing market.

Rob Kitchin