Construction 2020 Strategy for Ireland

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

 

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A road map for planning, development, construction and related job creation in Ireland

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

 

Do we need to start building houses again?

All over the Christmas period and into the new year there have been rumblings about the property market in Ireland stabilising and the need to start building houses again, especially in Dublin and the other cities.  It’s been in the news again today due to the publication of reports by daft.ie and myhome.ie.  So, after nearly six years of consistent decline in property prices do we need to start building residential property again?

The only reason to start building again is if demand outstrips supply.

That does seem to happening in some parts of Dublin.  The tentative evidence is that: housing vacancy is less than 5% in the city according to the Census 2011; prices seem to have stabilised for family homes (though they are still fluctuating a little – according to the CSO they fell 3% Nov 2011-Nov 2012); and according to Daft.ie, two thirds of properties selling within 4 months in Dublin.

It is not the case for all types of property.  Apartment vacancy is 17-19% in Dublin and apartment prices are still falling (they fell 13% last year).  In other words, there is still a large oversupply of apartments.

There is little evidence that prices have stabilised in the other principal cities, and elsewhere they are still going down, albeit more slowly than before.  There is certainly no need to build anything in rural areas as a large oversupply exists there.

That all seems straightforward.  However, there are three factors that need to be understood in relation to the argument being made.  The first is geographic, the second is demographic, the third is wider economic/property context.

All the way through the boom there was a shortage of family housing in Dublin, especially in inner suburbs such as Drumcondra, Ranelagh, Rathmines, Clontarf and Sandymount.  In these places there are only so many houses and so people compete for them, and land to build new houses on is very small (some old industrial and vacant sites).  The predominant places available for new build are around the edges of the city, not in these areas.  Houses in the outer suburbs and the commuter belt are not selling like hot cakes due to demand.  In this context there seems little immediate reason to build new houses in the Dublin region until the wider oversupply is mopped up.

With respect to demographics, the situation is not quite as some property analysts would have it.  They predict we need 30,000 houses a year based on population growth and household fragmentation.  This prediction is based on the 8% growth in population between 2006-2011 revealed by the Census.  However, the growth in that 5 year period was nearly all in 2006-2007.  Population since then has grown very marginally (c.13K per year, nearly all through new births and babies will not be buying anything anytime soon).  Moreover, the demographic of household formation is presently relatively small (for example, there are 38% less 20 year olds than 30 year olds in the state – 62,000 as opposed 83,000) and these are the group principally emigrating, have high unemployment, and have poor access to credit.  It is true, however, that population growth will be stronger in Dublin than elsewhere as that is where the jobs are principally located.  The evidence at the moment though is that there is hardly an exodus to the city.

Thirdly, there are a whole bunch of extraneous factors that will continue to dampen market activity – negative equity, mortgage arrears, unemployment, access to mortgage credit, unfinished estates, property tax uncertainties, wider economic paralysis, and lack of confidence/caution, so on.  The market might well be starting to stabilise in Dublin, but even there it will be affected by all these factors.

The call accompanying the argument being made by the property sector is that the government needs to do something to get house building going again.  This seems quite rich to me.  For years the property sector have been campaigning for market liberalisation of property and for the state to stay out of building property.  They want a free market when it suits and state-support when they mess it up.  But following their own logic, if the case for new build is compelling then private financing will surely step in to enjoy the profits/yield from development?  Yes, accessing finance is difficult, but if property really is on the rebound surely an entrepreneurial capitalist would look to invest?

Indeed, there is nothing to stop builders/developers building to capitalise on the supposed latent demand apart from finance.  All local authorities have development plans that are framed with regional planning guidelines and the national spatial strategy and there is sufficient zoned land for development.  Moreover, there are a large amount of planning permissions outstanding on unfinished estates and developers can apply for more.

One thing is certain, the State is bankrupt and does not have the finance to underwrite homebuilding.

I agree that over the mid to long term new properties will be needed in and around Dublin, though demand elsewhere will be low.  What we need is a cautious, planned approach to housing underpinned by strong evidence rather than hyperbole (we certainly need a robust demographic and planning model for the Dublin region), that ensures that oversupply is mopped up in the same process otherwise supply will outstrip demand and work to keep the market depressed.

Rob Kitchin

 

Online television programmes and videos about the Crisis in Ireland

We thought it might be useful to share a timeline of online television programmes and videos about the crisis in Ireland which we’ve assembled for a third year undergraduate module we co-teach, Geographies of the Crisis.  We have tried to use official channels where possible, otherwise the links are to uploaded YouTube videos that have been created by others.  Most of the videos relate to the crisis in general and banking, property and migration issues in particular, as well social movements and protest.  They all concern Ireland rather than the wider European and global financial crisis.  Over time we’ll keep adding to the resource.

Documenting and Explaining the Crisis

Prime Time debate.  What an earth is happening to house prices?  David McWilliams versus Austin Hughes, 16 October 2003, Part 1 , Part 2

Futureshock – Property Crash RTE programme on future of housing market, 16th April 2007

Prime Time on property bubble: soft landing or crash?  Morgan Kelly, UCD, and Jim Power, Friends First, debate the state of the property market in April 2007

Bertie Ahern tells naysayers to commit suicide, July 3, 2007

Primetime Investigates – “The Pressure Zone“, Planning and land zoning, November 26th 2007

Prime Time on Bank Guarantee, Discussion by Brendan Keenan, Morgan Kelly, Kevin McConnell, 30 Sept 2008

Prime Time, Pat Neary, The Financial Regulator, 18th October 2008

Al Jazeera, Immigrants hit by Irish downturn, 26th November 2008

Primetime Special, RTE.  Banking crisis, 12th February 2009

RTE, How We Blew the Boom, documentary, March 2009 (YouTube version)

ABC Australia, Ireland feels full impact of global financial crisis, 4th March 2009

Prime Time Investigates, RTE. After the Goldrush.  The impact of the recession on ordinary families. 25th May 2009

Prime Time, NAMA 30th April 2009, 13th Aug 2009, 17th Sept 2009 and 3rd November 2009

Joseph Stiglitz on Nama, Nobel Prize winning economist Joe Stiglitz gives damning indictment of NAMA on RTE’s Prime Time, October 7^th, 2009.

Prime Time Special, Emigration, 12th November 2009

RTE Primetime Investigates on the banking system: Meet the Bankers, 21st December 2009 (on YouTube, Part 1, Part 2, Part 3, Part 4, Part 5, Part 6)

Primetime, RTE on debt and mortgage arrears, 2nd February 2010 (on YouTube, Part 1 , Part 2)

France 24 report, Leaving home: young Irish find the grass is greener 24th March 2010

Al Jazeera, Irish economy in sharp contraction, 26 Mar 09

RTE, Aftershock, week-long series of programmes seeking to capture the transformation over the previous 18 months, to take stock, and to try to identify ways to recover.

RTE, Ghostland documentary (part of Aftershock), 9th May 2010 (on YouTube, Part 1, Part 2, Part 3, Part 4, Part 5)

BBC News, ghost estate reports, May 2010 (report 1, report 2)

Prime Time, RTE, The property trap.  15th July 2010

Prime Time, RTE, A haunted landscape, 29th July 2010,

Reuters, ghost estates report, 30th July 2010

Prime Time, RTE, Second anniversary retrospective on bank guarantee scheme, 28th September 2010

Prime Time, RTE, Fiscal Flatline.  19th October 2010

TV3 News, Ghost Estates – Riverside Portarlington, Nov 2010

AFP, Ghost estates haunt Irish landscape, 26th November 2010

CNN report, Ireland haunted by ghost estates, 30th Sept 2010

Prime Time, RTE, Troika arrive The European Central Bank, the European Commission and the International Monetary Fund have arrived in Dublin, 18 November 2010

Journeyman Pictures, Let Them Eat Cheese, November 2010

BBC News, World Have Your Say, Ireland economic special, 19th November 2010 (Part 1, Part 2, Part 3)

Prime Time, RTE, EU/IMF and Anglo Look at the fine print in the EU/IMF deal and how Anglo Irish Bank brought a country to the brink, 30th November 2010

France 24, Irish crisis: the spectre of emigration, 30th November 2010

ABC Australia, Journeyman Pictures, Irish Despair, 6th December 2010

Fintan O Toole, Fintan O’Toole on Ireland – SpunOut.ie Interviews 13^th December, 2010,

Euronews, Ireland’s ghost estates, 10th December 2010

Prime Time Investigates.  Carry on Regardless, 21 Dec 2010.  How developers lives have been affected or not by the crash. (YouTube, Part 1, Part 2)

BBC Panorama, How to blow a fortune (Ireland’s real estate bust), 21st February 2011

ABC Australia, Journeyman Pictures, Goodbye My Ireland, 28th February 2011

Geophiles report, Ghost towns, 30th March 2011

Prime Time, RTE, Home Truths on negative equity, 5th April 2011

Prime Time, RTE, Bank Rupture, Nyberg Report, 19th April 2011

Prime Time, RTE, Regeneration, May 3^rd 2011

Prime Time, RTE, Quinn versus Anglo, 14th June 2011

Prime Time, RTE, Namaland.  6th September 2011 (on YouTube)

PressTV, On the Edge, Irish economic crisis, 23rd September 2011

Immanuel Wallerstein, Capitalism Collapse? ‘Cash grab system cannot survive storm’, 9^th October 2011

US Debt Crisis – Perfectly Explained, 

Prime Time, RTE, What lies beneath.  Priory Hall, 18th October 2011

AFP, Ireland considers new law to reposess ghost estates, 24th October 2011

Joseph Stiglitz, Lessons from Iceland’s Economic Crisis, 26^th October, 2011

RTWEthepeople, Decisions that Shaped the Irish Economy with Conor McCabe, 30th October 2011

INET Economics, Stephen Kinsella – Irish Crisis Demands New Economic Thinking, 29th November 2011

Prime Time Special, One year on the bailout, 28th November 2011

Joseph Stiglitz on Ireland, Stiglitz on Ireland, 6^th December 2011

Prime Time, RTE, Troika Time, January 19th 2012

Al Jazeera, Collapse of the Celtic Tiger,  January 19th 2012

Punk Economics, David McWilliams series, January-July 2012 (Lesson 1: Crisis in Ireland and Europe; Lesson 2: ECB’s massive cash for trash scheme; Lesson 3: Playing games with liquidity; Lesson 4: Irish Referendum Preview; Lesson 5: China Panics, US ‘Recovers’ and Germany Flinches

Prime Time, RTE, New Departures on emigration, March 15th 2012

Prime Time, RTE, The Mahon Report – The Tribunal, March 2012 (on YouTube in general, re. Bertie Ahern)

Robert Skidelsky, The Impact of the Global Economic Crisis on the Future of International Relations, April 2012

IIEA, Karl Whelan on Ireland’s Bank Debt and What Can be Done About It? – 29 June 2012

Tom Healy, Nevin Economic Research Institute, Claiming Our Future Launch Plan B, 25^th June 2012

Longford Leader, First NAMA property demolished, 24th July 2012

Social movement/protest

BBC report on protests, February 21st 2009:

The March – Documenting the march against the IMF bailout, 2^nd December, 2010,

PRI: Ireland’s woes through the lens of art, 7th Dec 2010

Pretty Vacant, PrettyvacanT, Permission to Land, Unused and Unloved, Shoot the Tiger, April 2011-July 2012

Darragh Byrne Videography, Occupy Dame Street, 22nd October 2011;

Spectacle of Defiance and Hope in Dublin, 3rd December 2011,

Naomi Klein, Fake “Debt Crisis/Bankruptcy”: We are NOT Bankrupt! Tax the Rich! 7^th October 2011,

RTWEthepeople, Audit NAMA, 23rd Nov 2011

Irishtimes.com, €1.4bn house is a work of art, 24th January 2012

Irish Times.com ‘Occupy Dame Street’ protesters removed, 8th March 2012

Romantic Ireland, Romantic Ireland from the Streets, 17th March 2012

Dole TV, Unlock NAMA, 4th April 2012

Mandate: Vote No to the Austerity Treaty, 21 May 2012

Irishtimes.com, Claiming our Future, Plan B, 26th June 2012

TASC: Fr Peter McVerry: New economic model must involve a more just sharing of power as well as wealth, June 2012

Rap Nuacht na hEireann, Episode 1, 24th July 2012

Radio Documentaries

BBC Radio 4, Olivia O´Leary on economic crisis and post-crash identity, June 12, 2009 (Part 1, Part 2, Part 3)

BBC Radio 4, Dan O’Brien, Bailout Boys go to Dublin, 24th April 2011

Newstalk, Deserted village.  Documentary by Jane Ruffino.  24th March 2012

If you have any suggestions for other programmes/clips to include please put in a link in the comments box.

Rob Kitchin and Rory Hearne

 

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 properties database

The Journal.ie yesterday picked up on a Dail question asked by Sandra McLellan, T.D. to the Minister for Finance, Michael Noonan, T.D.   Noonan responded by saying that NAMA will release shortly a database of NAMA properties.   The Journal.ie suggests that NAMA will ‘publish a comprehensive list of all the properties under its control.’  I interpret the Dail statement differently – that it will not be publishing a comprehensive list of all the properties in its portfolio but that it will only publish properties that are in ‘control of receivers appointed to enforce against NAMA debtors (appointed either directly by NAMA or by participating institutions working on its behalf)’.  In other words, they are only putting up the properties they are seeking to offload (effectively advertising them).  If the properties are not in receivership they will not be included in the database.  Whilst it would be preferential to have a list of all NAMA properties this is at least a start. Hopefully, more data will follow in due course.  Another Dail question in this regard might be a useful one.

Here is the Dail question and answer, with the latter part of the answer confirming that NAMA will give first option on receiver properties to public bodies, thus fulfilling some social and economic objectives.

53.  Deputy Sandra McLellan  asked the Minister for Finance  if he will engage with the National Asset Management Agency to identify buildings and properties in its portfolio which might be suitable for local sports pitches and facilities; and if he will make a statement on the matter. [13705/11]

Minister for Finance (Deputy Michael Noonan): NAMA has, in the first instance, acquired loans and it advises me that property or other assets securing these loans remain in the possession of debtors unless it takes enforcement action against them. I am informed that, under an initiative currently in preparation, NAMA will shortly include on its website a database of properties which are under the control of receivers appointed to enforce against NAMA debtors (appointed either directly by NAMA or by participating institutions working on its behalf). This will provide a single source of information on NAMA assets which are for sale and it will be updated on a very regular basis. It is expected to be up-and-running within a matter of weeks.

Within the context of its commercial remit, NAMA has made it known that it is open to considering proposals aimed at contributing to broader social and economic objectives, including facilitating public bodies and it has committed to giving first option to such bodies on the purchase of property which is within its control and which may be suitable for their purposes. In these circumstances, NAMA is available to meet with public bodies to discuss any specific proposals that they may have regarding local facilities.

Rob Kitchin

 

The Spanish property soap opera

The print version of the property section in The Guardian carried a piece by Grahan Norword on the property bust in Spain (I can’t find an online version, so apologies for no link).  The headline was: ‘Building bust after the boom casts a shadow over property in the sun.’  The tagline: ‘Unhappy buyers, corrupt councillors, illegal homes – all part of the storline in a new Spanish soap opera.’  It provides some interesting figures regarding the Spanish property sector, and the story being told is not wildly dissimilar to Ireland – falling prices, negative equity, a glut of unsold new property – though there are some differences, particularly with respect to some developments being deemed illegal and being knocked, and politicians being jailed for taking bungs from developers.

The piece reports that there are approximately 600,000 new unsold homes (Ireland c. 23,000) and 200,000 part-complete unsold homes (Ireland c. 20,000). If you scale the Irish population (4.5m) to Spain (46m), then it’s clear the unsold, brand new property overhang is significantly worse in Spain (by a factor of 3); the part-complete units though are broadly comparable.  The article does not discuss the phenomenon of unfinished estates, but one presumes that a large number of households are living on either under-construction estates and/or estates with high vacancy.   The official house price fall is 17% (Ireland is c. 40% – see here for latest roundup of estimates), though estate agents are reporting 20-50% depending on area.  Holiday homes are down c. 40%.  There has been a 43% collapse in the value of Spanish construction industry and drop in land values of c. 50% (Ireland c. 70-95% depending on location).  On top of the unsold units, Spanish banks are apparently sat on a glut of repossessed homes, which they are obliged to release to the market after two years (meaning they will start to flood onto the market from later on this year).  In addition, the issue of illegal build rumbles on.  For example, 12,697 homes were recently declared illegal in the Almanzora Valley in south-east Spain, 920 of which are earmarked for demolition, leaving owners in a precarious position.

What the article makes clear is that both Ireland and Spain share some broadly similar issues with regards our respective housing markets, which perhaps isn’t a surprise when you look at the rate both countries were building properties at the peak of the boom.

Housing unit completions per 1000 population for Europe in 2007

Rob Kitchin

 

When is a property a new property?

Here’s another normative question as per the land banking post last week.  When is a new property a new property?  The question arises because cash-strapped developers have been renting out the properties they have been unable to sell (see here for more details).  As far as the Revenue Commissioners are concerned this means that the property now becomes ‘second-hand’ and therefore liable for stamp duty except for first-time buyers.  It seems that the stamp duty exemption only applies if the property is sold immediately after construction or are not lived in prior to sale.  The CIF and the developers it represents wants a change so that the properties are considered ‘new’ up until the first time they are sold.  Their argument is that it penalises developers for trying to find a cashflow and make ends meet by making the units less attractive to buyers (who have to pay the duty).  And by default, it penalises buyers who previously wouldn’t have been liable for the duty.  The flip side is that the property is clearly not ‘new’ in the sense that people have been living in it and, at a time when the state needs all the revenue it can generate, any change in the rules will deny a source of duty.   So, the question is – at what point does an unsold property stop being a new property?  When it is first lived in or when it is first sold?

Rob Kitchin