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

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

There was an article in Tuesday’s Irish Times concerning the land aggregation scheme run by the Department of Environment. To date, 47 sites with a loan book of €110 million has been transferred to the Housing and Sustainable Communities Agency, which has responsibility for the management and maintenance of the land.  There have been 115 sites submitted, with loan debts of €260 million and interest accruing.  The local authorities can only redeem the loans if they have fallen due for repayment, and local authorities have housing loans totalling €499.5 million which could possibly all transfer at when the loans mature.  Nearly all loans are for more than was originally paid due to interest payments.  For example, Fingal County Council owed c.€26.5 million for a 24-hectare plot near Balbriggan, originally bought in 2000 for c.€19 million (one wonders why it didn’t manage to use it between 2000-2007 given it was gaining interest every year, they had a very rapidly growing population, and there was a pressing need for affordable and social housing).

This land, and the land in NAMA, represents the best opportunity the State has had, probably in its history, to create a national land bank.  Such a land bank would enable the state to control at a reasonable cost the provision of land for key developments such as social and affordable housing, schools, hospitals, play areas, community facilities, transport routes and so on.  Because there has been no carry forward costs to holding land (such as property tax), and the recommendations of the Kenny Report were never implemented, the state has been held to ransom by land speculators for development.  As a result, land costs have been a significant percentage of overall cost in state-led development, for example, in road building programmes.

And because the land is only in the hands of two agencies, it should be relatively straightforward to consolidate and coordinate.  The Irish Times piece suggests that this might be occurring to a certain extent: “The agency [HSCA] will consult the National Asset Management Agency to determine the best use of all land banks controlled or owned by the State. In some cases, Nama may advise that lands originally bought by private developers could be combined with adjacent lands bought by local authorities, for better returns. It is also possible that some of the land will be used for social housing in the future, the department has said.”  I have three concerns, however, with present arrangements and practices.

The first is that I do not believe that either HSCA or NAMA have either the mandate or requiste staff with the required skill set to determine the best use for land banks.  Long term spatial planning is not in the remit of either agency and yet they are being asked to manage a key component necessary for it.  How exactly are they making decisions about ‘best use’ of land banks?  How is this evaluated?  Against what criteria?  In consultation with whom?  NAMA has one full-time planner and a planning committee that includes three planners.  All very experienced, but this task requires an interagency team of experts with regional/national spatial planning knowledge working on it in a concerted fashion inconjunction with the regional and local authorities.  HSCA similarly does not have the in-house expertise.

Second, long term landbanking requires long term planning.  In the Netherlands, who have built up a considerable land bank and use it to good effect, they have long term spatial masterplans that detail anticipated development over the next 30-40 years.  They have worked out in principal where they want to concentrate population, build transport infrastructure, place industry, retail, utilities, schools, hospitals, services, etc under different demographic scenarios and organised land accordingly.  We have no such masterplan.  We have a broad spatial strategy that has no specifics and 400 generally uncoordinated local and county development plans administered by 88 planning authorities.  Making long-term land banking decisions means have a good sense of what development land the various parts of the state are going to require well into the future.

Third, that the need for a return in the short-term in order to reduce state overhead will mean that the land will be sold back to private developers at a massively discounted price (75-98%) of its value in 2007 or the amount it cost the state.  In the future we will need to buy this land back at market prices which will be much more than it is now.  The result will be speculators making a fast buck at the taxpayer expense, and in the absence of proper property tax will have little overhead for doing so.  This will be a disaster for the tax payer, especially given the opportunity we presently have.

In my view, NAMA and HSCA should produce (1) a public strategy document on how it proposes to manage the land bank it presently has, (2) should then put in place the structures needed to implement this strategy which is properly resourced and staffed.  To make decisions about land banking in the absence of such a strategy, with no public oversight or public knowledge as to what is planned (or rather not planned) is shortsighted and foolish and will lead to costly mistakes being made.  We have a unique opportunity to make long term gains through land banking, let’s not waste that opportunity by not managing it properly and frittering it away.

Rob Kitchin