Ireland still has a housing crisis, a decade lost is near impossible to regain, there remains an enormous shortage of supply. Demand is mainly in the Dublin region due to the skewed nature of investment in the capital, 42% of Irish GDP is accounted for by Dublin in comparison London accounts for 20% of the UK’s. The demand in Dublin is only going to increase as foreign financial service companies and others look to Dublin as a market for their new headquarters now that article 50 has been triggered and Brexit becomes a reality.
The Governments “Building on Recovery: Infrastructure and Capital Investment 2016 – 2021” plan sets out a framework for infrastructure investment of €42billion in Ireland between 2016 & 2021, the figures are staggering but the detail on deliverables are light. On the 29th of September 2015, the then Minister for Public Expenditure and Reform Mr. Brendan Howlin announced this plan to great fanfare, not much was delivered of this plan in 2016. The plan was reiterated in Budget 2017 and progress has still to be made, in addition the “Action Plan for Housing and Homelessness” launched in July 2016 by Minister Simon Coveney includes 47,000 new social houses to be delivered by 2021, it is ambitious but is it achievable.
The construction industry is fully behind both plans, the capacity and the skillset is there to deliver so what is the hold up? Why has this plan not kick started construction into a higher gear? Where is the sense of urgency? I think the plan lacks political will to make tough policy changes such as changing planning conditions, fast tracking of larger projects, stopping all in sundry to object to An Bord Pleanála and many more obstacles that slow projects down to a snail’s pace. While Minister Coveney is to be applauded for his action plan aimed at boosting the supply of housing he is up against a historic regime that can’t or won’t change.
Housing crisis and lack of political will is not the only issue facing the Government, the other broken sector is banking. The mortgage market is controlled by three banks, AIB, Bank of Ireland and Ulster Bank, these three banks according to Davy’s control 79% of the market, with KBC & Permanent TSB picking up the balance. The top three also provide the majority of loans for new and existing developments. There is vested interest in maintaining control over the level of loans issued, it allows for a level of supply which preserves higher house prices which in turn sustains healthy banking balance sheets. As I write this article the State’s competition watchdog has launched a probe into the mortgage market and is questioning the low level of competition in property lending.
The Government and banks are not the only sector which should be held accountable, the County and City Councils have to take a level of responsibility, within the council’s communication is fragmented and causing completion delays for developers. There are three separate sections involved, the section that grants planning and under what conditions, the taken in charge team and now Irish Water are thrown into the mix but with no joint oversight.
Where permission is granted for development, the planning authority may attach a condition requiring the lodgement of a cash sum or an insurance company bond, bonds are a guarantee on behalf of a property developer (including house builders) that they will complete the roads and sewers to the required standard to enable them to be adopted by the appropriate authority. The bond sum usually represents the authority’s assessment of the cost of constructing the roads and sewers which will be called upon to carry out any works required in the event of a developer failing to complete the development to the required standard.
“It is the policy of the council to ensure that all bonds remain in place until the development is completed to the satisfaction of the planning authority or Until Taken in Charge as per the condition of planning”.
The taking in charge process is lengthy and is encumbered with legislative provisions, the planning authority must ensure that any development being taken into charge is completed to a satisfactory standard. In addition, as an estate is private property, in the ownership of a developer, the Planning Authority cannot simply take an estate into public charge without complying with the relevant legislative provisions. If the planning authority has a request for taking in charge of an estate they are generally waiting on the developer to revert back with confirmation that the outstanding remedial works have been completed. In the absence of such confirmation from the developer the taking in charge of the estate lies in abeyance.
The taking in charge process generally is the problem, what is the definition of satisfaction and when do developments get taken in charge, the answer is rarely or at the very best many years after completion. So how does this impact on the surety (bond) market, when a development bond is issued under the provision “Until Taken in Charge” that is deemed open ended or into perpetuity. The impact of multiple developer failures during the recession saw many of these bonds being called upon and many waiting to be called upon. Historically a developer would purchase a bond at the beginning of construction and pay a yearly premium to the insurer, when the developer became insolvent and stopped paying the premium it still left the insurer on the hook for large sums of money.
During the recession, many of the well-known surety providers moved to reduce their exposure or exited the Irish market altogether, there are new entrants to the market but not to provide development bonds. The banks will step into that breach for the right client and on a full cash collateral basis, other than the banks there is little or no solution for a developer apart from lodging a cash deposit to the County / City Council. The cash lodged to the councils is difficult to have returned for multiple reasons when it could be better utilised as working capital.
On the basis that the current requirement for development bonds: “Which shall be kept in force until such time as the roads, open spaces, car parks, sewers, watermains, drains, and other public services required in connection with the development are provided, completed and maintained to the taking in charge” the sureties have refused to re-enter the market to provide a solution, and as this article goes to print the only company who were willing to provide these bonds, subject to a fixed expiry, has now withdrawn their capacity.
The frustrating element of this is that the Department of Housing, Planning, Community and Local Government are well aware of the situation, after writing initially to Minister Phil Hogan in June 2014 and followed up to both newly appointed Ministers Alan Kelly and Paudie Coffey September 2014 with no reply from either Minister or the Department. The situation could and should have been remedied before any upturn started to take hold.
The Government wants the private sector to fix all its housing woes and is even willing to provide funding to do so but unless they tackle the core issues outlined the momentum required to catch up on a lost decade is going to fall far short of what is required to complete 25,000 -30,000 homes a year.