Despite urgent calls for the construction of new homes in the capital to address accommodation shortages and soaring rental costs, latest figures reveal that planning permissions have fallen dramatically for new homes schemes.
Permissions were granted for just 13 residential schemes of 25 units or more in the Dublin region in the third quarter of 2015. Amounting to 852 units, it marks a 59 per cent drop on the 2,062 units approved for development in the second quarter of 2015. The findings of the quarterly Housing Development Monitor compiled by the Society of Chartered Surveyors Ireland (SCSI) and Future Analytics Consulting raise serious concerns about the pipeline of new homes coming on stream.
“The drop off in planning applications since the start of the year will place greater pressure on Dublin’s dysfunctional housing market which is crippled by lack of supply,” says Andrew Nugent, president of the SCSI.
Both the ESRI and the Government agree that about 25,000 units per year need to be built nationally, and about 7,000 new units are required annually in the capital to meet existing and anticipated demand. The number of commencements – new houses or apartments under construction – so far this year of schemes of more than 25 units is just 2,735 units, considerably short of the accepted annual target.
Uncertainty
According to the Department of the Environment, it bases its analysis on
Central Statistics Office
(CSO) figures, and it is still awaiting planning permission figures for the third quarter.
Responding to the SCSI findings a department spokesman said: “It is possible that recent speculation about the Government’s line on housing, re rent certainty, apartment standards etc, may have had some part in holding back developers making applications.”
Michael Cleary, a surveyor with the SCSI’s planning and development professional group agrees: “Developers are holding off applications in Dublin and surrounding areas pending adoption of the new Dublin City Council development plan for period 2016-2022. It’s anticipated that the council will concede some of the current development standards to allow increased numbers of studio apartments and higher densities in lager city centre projects.”
Alan Kelly has written to all local authorities asking them to review these standards, so developers may be awaiting the new standards before submitting revised applications.
Peter Stafford, director of Ibec group, Property Industry Ireland, adds: “Ongoing uncertainty around social housing requirements is not helping, as planners await a guidance note on how to implement proposals to reduce the social housing quota in new homes schemes from 20 per cent to 10 per cent.” There is a likelihood that the guidelines will require planners to work with developers on a “case by case basis” which may be adding to uncertainty.
The recent bumper asset disposal of land by banks and receivers (including the Project Clear portfolio, probably the single biggest land sell-off since the downturn) may be contributing to a lag in planning applications for new schemes as ownership changes hands and funding for new projects is sought.
One large scale developer says that Ireland’s recent property experience means that the large throughput of planning permissions in recent years has been more of an administrative exercise that doesn’t translate into new building anyway.
“A difficult dynamic of recent years is that very little land in Ireland is owned by developers, instead it’s owned by international funds, receivers, and private equity. Most of the multi-unit planning permissions of recent times have been run through by receivers and banks simply trying to add value to assets they already held, with no intention of ever building houses. Project Clear and Nama among others have been a big driver of planning permission applications and renewals and this is now moving towards a natural end. Very few of those entities will ever build – Nama is doing its bit – but ultimately this land has to get into the hands of capitalised builders before houses will be built.”
Funding issues
Cleary agrees that funding remains a major challenge. Traditional builders are holding out for affordable development finance, he says, because the cost of financing away from traditional banks is simply prohibitive. Meanwhile, on the demand side, there is no guarantee that potential buyers can afford to buy on foot of more stringent mortgage finance rules introduced this year.
“A consistent message from the industry is the lack of affordable construction project finance. There is a case to be made for a development fund bank that could provide industry appropriate lending at competitive rates. Either that, or the two main banks should come under more pressure to lend to industry,” Cleary says.
A spokeswoman for the Construction Industry Federation blames the "lengthy and dysfunctional" planning system for the fall off because developers are simply unable to plan a timeline for project completions.
"Infrastructural issues, such as connection to Irish Water, also remain a costly burden. At the other end of the scale, the Central Bank macro prudential lending rules for first-time buyers make it extremely difficult for sales of new houses to take place. All these impediments collectively make the construction of new units unviable for many builders at present."
Delays
Nugent believes a lack of resources within local authorities to handle demand for planning services is a growing concern.
“Dublin’s planning authorities do not have the necessary resources and this is resulting in lengthy delays. They have been decimated over the past eight years, losing valuable experience and corporate memory. So we have a major bottleneck on our hands and this will exacerbate the supply situation in the capital.”
This week's announcement of up to 4,000 residential units and a new town centre at Cherrywood is a welcome development, but Nugent adds that work on building the first residential units is at least a year away and the entire project will take eight years before completion. The SCSI is calling on the Minster for the Environment, Alan Kelly, and Minister for Finance Michael Noonan to push ahead with proposals that will allow a targeted rebate of development contributions for housing valued at under €300,000 in Dublin, and the fast tracking of Strategic Development Zone (SDZ) schemes. It believes this rebate will accelerate the delivery of starter homes in Dublin where development levies can cost up to €10,000 on a single three-bed semi-detached unit. For single houses, and developments outside of urban areas, the costs are far greater.
Builders are deciding to hold off rather than take the risk of incurring these costs now without clarity on whether they will be refunded retrospectively when the rebate is introduced.
