Active land management can help solve volatility and housing crux

Why are Irish housing cycles so volatile? Why do we live in the lowest density cities in Europe, resulting in long commutes and congested roads? Why are land prices so high in comparison to other countries?

Questions such as these can be at least partly answered by looking at Ireland’s policies towards land over the past 50 years. The failure to implement a coherent strategy for land use, value capture and density has been one of the costliest policy failures for Ireland.

With the population set to increase at a faster pace than any other European country over the coming decades and housing demand to grow as a result, the current batch of policymakers must ensure that we do not continue to make these mistakes in the coming years.

The National Regeneration and Development Agency, which has been discussed at Cabinet and is due to be launched in the autumn, has the potential to address some of these policy failures by institutionalising active land management in Ireland.

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This includes master-planning of strategic sites, better management of housing density and capturing value for the taxpayer from increases in land values triggered by zoning decisions or transport infrastructure projects. These are among the laudable goals of the National Regeneration and Development Agency, which was first mooted in the Ireland Project 2040 plan that sets out a long-term policy and planning framework for the country.

Calculations

Under the current system private bidders for land assess future potential sales values, estimate delivery costs and ascertain an appropriate rate of return based on the assumed risk. The price that is bid for the land is thus a residual in these calculations and is highly uncertain, with the land going to either the most optimistic or most efficient bidder.

When the required sales price is not achieved, development stalls, construction employment drops, tax revenues dry up and loans are left unpaid. The system as it is currently set up is thus inherently unstable, with periodic booms and busts having seriously detrimental effects on the country overall, something seen very vividly post-2007 in Ireland.

Effective land management can go some way to dampening this volatility. As a starting point, a new agency can bring about a strategic approach to the management of public lands. The State is, after all, the biggest landowner in the country. It controls lands such as bus depots, train stations and army barracks, some of which are located in areas that would be appropriate for high-density housing development. They are also very valuable assets of the State.

Recommendations for active land management are nothing new in Ireland

Active land management can also ensure that value uplifts from infrastructure projects funded by the taxpayer accrue to the taxpayer, and not a few lucky landowners who happen to be adjacent to the routes. As a model for how this might work, one only has to look to Transport for London. It has calculated that the potential uplift in residential values could be up to 50 per cent in properties adjacent to the new Jubilee Line extension, for example.

New model

To get a share for the taxpayer in the increased value of land in these circumstances it has introduced a new model in which the public authority takes responsibility for the master-planning of an area. As part of this it invites private sector participation through what is called the Development Rights Auction Model, which allows a split of the enhanced land values between the public authority and the landowners.

With €15 billion set to be spent on transport infrastructure projects such as Metro Link and the Dart Expansion in the next decade, there are huge opportunities for active land management to capture some of the expected value uplifts and ensure most efficient land use.

Recommendations for active land management are nothing new in Ireland. They formed a key part of the recommendations of the Committee on the Price of Building Land, chaired by Justice John Kenny, in 1973. The recommendations of that report were ignored by successive governments, but key elements have been resurrected once again by the National Economic and Social Council in its most recent report on land use presented to the Government.

What sort of powers should an agency such as the National Regeneration and Development Agency have to prevent it becoming nothing more than just another quango?

First, it must be given far-reaching powers to co-ordinate and direct the many different players in the development process.

Second, it must be given powers of compulsory purchase to prevent individual landowners holding projects hostage. It is often the case that the threat of compulsory purchase is enough to mobilise these types of landowners.

Third, it must be able to compete for skills in the labour market so its pay structure must lie outside public pay scales, such as has been done in the National Treasury Management Agency.

Fourth, there must be accountability for its actions, with strong corporate governance.

Property ownership

There is a myriad of reasons why the recommendations of the Kenny report have been ignored, including powerful vested interests and the threat of constitutional challenge around property ownership.

Perhaps another reason is that the benefits of implementing such a policy will not accrue to the Minister that chooses to implement it given the length of time such a policy takes for the results to be seen.

Ministers are normally in need of quick fixes for problems. In housing there are very few of these. Minister Eoghan Murphy will not be the one to see the benefits, but he has the opportunity to start a process that will contribute to a less volatile market for land and ultimately more affordable housing.

It’s in everyone’s interest that he is up to this challenge.

Dermot O’Leary is chief economist with Goodbody