Potential time bombs for home buyers/sellers?

I’ve been asked a few times two related questions: (1) what do I think are potential issues relating to residential property that might have been overlooked or skirted around by the media which might have long term consequences for the property market? (2) what issues would you keep an eye out for if you were buying a home?  Here’s five of those issues, which may be ticking time bombs that will not be revealed until owners try to sell.

1) Units that are poorly built and/or used poor materials.  From talking to people in the construction/planning sector I worry that Priory Hall is the tip of an iceberg.  A massive amount of property was built between 1995-2007.  It was put up quickly in a system that largely  self-certified.  The emphasis was often on speed and profit, not quality and standards.  Any system that pays people by quantity (think brickies per block) and does not have adequate oversight will lead to shortcuts and bodges. As the scandal around pyrite in homes has revealed, materials too were often sub-par.  It’s estimated that 20-60,000 units have problems of pyrite.  Without widescale, independent inspection it is difficult to know the scale of the quality and safety problem. I worry that the DECLG, local authorities, banks, construction insurers, and developers are not keen to undertake or commission such a systematic survey of new properties for fear of cost, disruption, legal wranglings, and political fallout.  A survey would reveal the scale of issues, provide confidence for all units meeting standards, and highlight what does need to be addressed.  That has to be better than burying our heads in the sand and hoping it’ll all be okay.  It’s clearly not okay.  Ask anyone in a pyrite house or Priory Hall or have other construction issues.

My advice for buyers: do as much research about the builder/developer/estate as you can and get the house thoroughly surveyed, especially if it is built in the last 15 years.

2) Housing built on flood plains.  Again, we know this has happened – they’ve flooded.  Just because a house has not yet flooded, does not mean it is safe from future flooding.  We do not know the full-scale of the issue.  It would be possible to calculate by plotting the location of all the houses in the state onto floodplain data.  Knowing what houses are at risk enables us to start to try and do something about it, like prepare flood defenses.  Flooding causes great damage and causes much distress.  We also need to prevent future development on flood plains – simply stated, local authorities should dezone floodplains and not zone there again in the future.

My advice for buyers: do some research on the likelihood of a property flooding.  Look at myplan.ie and the OPW floodplain data and talk to local residents who have lived in the area for a while.

3) Housing that lacks building regulation certification.  As noted above, in a system that requires self-certification, corners can be cut.  For relatively small jobs, that are being undertaken by small building firms that do not have company engineers/architects or are being carried out by the owner themselves, one of the corners that can be cut is getting the building quality and standards certified.  A lot of people seem to think that they only need to comply with planning legislation for their extension or garages/outbuildings.  Not so.  There are a whole suite of building regulations that have to be complied with.  It is impossible to get a full compliance certification retrospectively as there is no way of testing the foundations, etc.  The best one can get is partial compliance based on an inspection of what is visible.  My sense is that many extensions built during the bubble do not have full certification.  This can cause a major problem to prospective sellers/ buyers as mortgage companies are reluctant to lend money on such property at this time (they didn’t care so much during the bubble as captial appreciation offset the problem caused by the extension).  They might only lend money to the value of the house minus the extension, or ask that the price of the property be dropped to that minus the extension.  They might also ask for the extension to be knocked down as it is a liability on the prospects of selling the property in the future.

My advice for buyers: even if you are buying with cash, make sure that the property has building regulation compliance certs – not having them will affect your future ability to sell.

4) Housing that lacks or fails to comply with planning permission.  We do not know how many houses were built/extended in the bubble without planning permission, though we know it did happen.  It could be calculated by cross-referencing properties built over the past decade or so (using geodirectory) with local authority planning files.  Unlike building regulations certs, planning permission can be regularised after seven years through retention.  The question that lurks at the back of my mind is, if the person who built the property deliberately did not comply with the planning system, what other corners have they cut with regards to build quality, standards and compliance?

My advice to buyers: make sure the property, including garages, etc, comply with planning permission.  If they do not comply and the property is over seven years old, then make the present residents get compliance before completing the sale.  If the property is less than seven years old, then seriously consider your position (the mortgage lender might well make the decision for you).  Make sure that no other corners, as per above, have been cut.

5) The location vis-a-vis public services.  This issue has no legal consequences, but is important for quality of life and future prospects of sale.  Most development in the bubble preceded public services such as schools, doctors, playgrounds, creches, public transport, etc.  In many cases the crash occurred before they could be put in place.  Given the perilious state of the Irish economy, there are questions as to when they are going to materialize any time soon.  Some people will little care about these things, but if you have children local services might be an important consideration.  If these services are missing, it may well make the property more difficult to sell in the future.

My advice to buyers: do a thorough scoping of the local area and the services you think you’ll need to use.  Take a look at local area plans (see myplan.ie) and take a look at local newspapers to get a sense of what is likely to happen in an area.

Another issue to consider, which has been extensively covered in the media is levels of oversupply.  It is clear that some parts of the country has more oversupply than others.  The alignment of supply and demand is a fundamental aspect of prices.  Oversupply might mean that as a buyer you can get a great price for a property.  It might also mean it’ll be more difficult to sell that property in the future.  Again, it would be useful to research this issue to get a sense of the future trajectory of property locally.  Our AIRO mapping tools, such as VacantIreland, might be useful for that.

Buying a home is the most expensive single purchase you’ll ever make. There are a number of issues that are coming to light after the bubble and bust that home buyers need to be aware of and to take into consideration when evaluating potential purchases.  It is worth taking the time to research thoroughly what and where you are buying and it pays to hire professionals to give you advice.  Their expertise might be an additional cost, but they could save you an absolute fortune and the misery of living with the consequences of the issues detailed above.

Rob Kitchin

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Why centralisation of planning decision-making may not be the answer

A recent post on this blog asks whether local authorities should be temporarily relieved of their decision-making powers. In response a number of critical questions can and should be asked:

1. Would centralised decision-making be any less subject to the influences of misplaced political judgement?

2. How would centralisation deal with the apparent legal issues arising in relation to dezoning?

The question of overzoning and overdevelopment does need to be dealt with but centralised control may not be the best answer. Indeed effective strategic planning at the local and regional levels is currently impeded by the neccessity to follow a common set of population porojections, produced at national level and sanctioned by the DoEHLG which are recognised by regional planners to be wildly out of line with realistic expectations of future growth given current levels of unemployment and emmigration.

Experience in Northern Ireland would suggest that a centralised system of planning can lead to beuracratic decision-making where planning decisions are made according to a tightly prescribed policy that is blind to questions of spatial context. It is also possible that centralised decision-making would open the door for a system based on tradable development rights and permits,  favoured by some infleuential environmental policy experts both in Ireland and elsewhere. Relieving local authorities of their planning powers would serve to seriously undermine the authority and legitimacy of local government at a time when a renewal of democratic principles of accountablity and civic responsibility is required.

Cormac Walsh

 

Should local planning be temporarily relieved of its decision making power?

On Monday the Irish Independent reported that local authorities approved 43,000 apartments and homes in housing estates in 2009 and 2010 (not including one-off houses), despite the well known problems of oversupply and overhang in the housing market (see our key housing statistics).  A few months ago, the Indo also reported (also see here) on the land zoning bonanza that has occurred over the past couple years, deep into the recession, as local authorities sought to zone land ahead of the introduction of the Planning and Development (Amendment) Act 2010.  It seems that local authorities have been facilitating developers and banks who wanted to protect or inflate the value of their property and land assets ahead of valuations by NAMA or to sneak it under the guillotine of the new Act.  The Act and the quotas in the Regional Planning Guidelines will help rein back future zonings and permissions, but there is a question mark over existing permissions and zonings.  It could be a case that any attempt to rescind permissions and dezone may lead to cases around injurious affection (compensation for the loss of value by actions of the state).  The new windfall/betterment tax of 80% on trading profits and capital gains arising from disposals of land, where it has increased in value due to a status in its zoning status post October 2009, may head some of these off, though its not clear to me about pre-Oct 2009 cases.

One really has to wonder what is going on here?  Why are local authorities/councillors helping landowners, property developers and speculators to zone unneeded land and give unneeded permissions at the expense of the state, state agencies and tax payers?  The only interests it serves is that of landowners, property developers and speculators.   The new Act is going to help, but no doubt vested interests will be at work trying to find ways around it and the local authorities/councillors seem primed to help them.  What is needed seems to be a fundamental change in planning culture away from a laissez faire presumption for development to a more measured, regulated system free of cronyism and clientelism.  The question is – can local authorities transform and deliver that?  Or are local authorities incapable of getting their houses in order to act in the public good, in which case is there now a case for all planning decisions (and not just plans) to be taken from them?  Perhaps we’re now at the stage where we need to consider this as a serious proposition, if only on a temporary basis until we have a system fit for purpose.

Rob Kitchin

 

Unfinished Estates (UEs) – Uncommenced units with planning permission

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

 

Planning Permissions, Q2 2010

The CSO has released the Q2 2010 data on planning permissions (see here).  The data confirms the present downward trend for the awarding of planning permission by local authorities, unsurprising given the significant slow down in the property sector.

The headline figures are that in Q2 2010 there were:

• 4,675 planning permissions granted (compared with 6,756 in Q2 2009 [a decrease of 30.8%] ) – 1,513 for new dwellings, 772 new other, 1,996 extensions, 394 conversions/alterations (see Figure 1).
• of the 1,513 planning permissions for new dwellings these related to a total of 5,378 units (as opposed to 12,831 units for the same period in 2009 [a decrease of 58.1%] and 23,988 in Q2 2007 [a decrease of 77.6%]).
• of these 5,378 units, 3,043 were for houses (as opposed to 7,739 in Q2 2009 [a decrease of 60.7%]) and 2,335 for apartments (as opposed to 5,092 in Q2 2009 [a decrease of 54.1%]). (see Figure 2)
• 86.1% of all new dwelling applications were for one-off houses (1,300) though these constituted only 24.2% of all new dwelling units granted planning permission.

The following two graphs present the data for all kinds of planning permission (Figure 1) and for total number of units being given permission (Figure 2) over the past few years.

Figure 1: Quarterly totals for planning permissions by type (Q1 2001-Q2 2010)

Figure 2: No. of permissions/units for houses and apartments (Q1 2006-Q2 2010)

Rob Kitchin