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Cliff Taylor: Will the new housing plan work and will it lower prices?

Having argued for incentives, builders must now deliver

What has the Government done to try to get more new homes built?

Its latest package is designed to change the incentives facing developers and thus increase building levels. This is to be done, first, by abolishing development contributions for the next year. These are cash payments which developers pay to local authorities when they build houses or commercial properties, based on the size of the building. The council uses the money to fund local infrastructure – roads, water treatment, public transport and so on. The contributions come to around €12,650 on average on all houses and apartments – but a lot more on new houses in Dublin, typically €25,000 or more. Charges for water connections are also to go.

The package also includes increased grants to encourage the building of cost rental apartments and a more generous grants regime for people redeveloping vacant and derelict properties. Full details of all these new schemes have still to be outlined. Soaring inflation has, developers say, made it uneconomic to build houses and particularly apartments and this is an attempt to address that.

Will it work?

It will certainly lead to more houses and apartments being built. How many, is impossible to guess. The risk for the Government is that some of the additional incentives will be eaten up by higher inflation and go to subsidising developers’ profit margins without leading to a big increases in building. Certainly there is a case for seeing what impact removing development contributions will have, for a period at least.

Right now, the exchequer can meet the cost of this due to the strong budget surplus. But in the longer-term, were this to continue, it would raise questions about local authority funding, with politicians loath to increase the local property tax, which is a way of charging all homeowners for local infrastructure, rather than just the new ones who pay development levies.

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In terms of the new grants scheme for cost rental properties, the Government is hoping this will kick-start development of projects currently stalled, leading to additional supply of these properties, Grants here will be substantial - up to €150,000 per apartment. The Government is hoping the scheme can lead to 4,000 to 6,000 additional apartments. However it has still to work out exactly how the scheme will work and whether it will involve the State taking an equity stake in return for the grant.

Will it lower new home prices?

This is debatable. In some cases there will certainly be a case for developers to pass on lower costs to to new homebuyers. In others, developers will argue that they need the extra room for manoeuvre to make projects viable, particularly apartments, at current sale price levels. As there are always a variety of factors affecting house prices, it will be hard to tell the impact on prices.

The Government says that the main goal of the measures is to increase house completions and get many of the projects with planning permission under way. It points out that housing starts in the first quarter have been at record levels, despite fears of a drop-off.

Is this likely to happen?

One problem facing the Government is that the construction sector is already operating at something close to full capacity. Construction unemployment, like general unemployment, is at a particularly low level. This increases the risk of additional incentives leading to higher inflation and not having the desired result. Having argued for these kinds of incentives, builders and developers must now show that they can deliver.

And house building all takes time anyway?

Yes. Too much time. Another key problem is that the whole planning and regulation around building has led to huge delays. The Government has brought forward proposals to overhaul the planning system, though these have faced some criticism from planners. Getting this right will be crucial, as will reforming the decision-making process on local authority building and getting a properly-resourced Bord Pleanála up and running. Builders complain that a huge backlog of planning decisions is greatly delaying progress.

What about criticisms of the new plan?

The Opposition, led by Sinn Féin, are saying that this is too little, too late and that the Government is now panicking. The Sinn Féin housing spokesman, Eoin Ó Broin tweeted that it was “last-minute, back of the envelope stuff.” He has a point on the lack of detail in the immediate aftermath of the announcement. Sinn Féin are arguing that rather than rely on private developers, the Government should give more cash to local authorities and approved housing bodies to build houses.

The Government argues that it is already ramping up this area and need to encourage private building too. Either way, any convincing answer to the housing crisis is going to require both the public and private sector working together in various ways. Whoever is in government, it seems vast public resources are going to go into housing – but ensuring this delivers the required result will remain a formidable challenge.