The year 2023 was disappointing for development land sales across the board, especially so when viewed through the lens of a housing crisis. A lot of the factors that were instrumental in creating nervousness, and in turn a pause in activity in the market, were outside of our control – interest rate and construction cost increases. However, more worryingly, a lot of the problems were created here at home – planning delays, proposed land taxes such as the residential zoned land tax (RZLT) and the land value sharing (LVS) contribution. In order to create a steady supply of end product, be it housing, offices or anything else, developers and funders need to know the rules of engagement. Huge damage has been done in this regard to the level of supply for the coming years by the actions of the Government this year in relation to the aforementioned taxes.
The Housing Commission estimates that we need between 50,000 and 60,000 new homes annually until 2050 to accommodate Ireland’s projected population growth and changing household sizes. This year we will provide about 32,000 units. This follows on from 30,000 units in 2022 and 20,500 units in 2021. The raw material to produce much-needed homes is the land and the market will trade in the region of €300 million in development land this year. This represents approximately one-third of what traditionally trades annually. Given this shortfall, it is highly likely that the problem of insufficient housing delivery is going to get significantly worse over the next few years. Also, the majority of sites trading this year will have a value of below €10 million. Sites of this size don’t provide for large-scale development.
With new home sales remaining strong, there is still an excellent demand for sites with planning permission as evidenced by the sale of apartment sites in Glasnevin Hill, Dublin 9, with planning for 100 units and Blackhorse Avenue, Dublin 7, with planning for 68 units which both made over €50,000 per apartment site. The planning in situ must be appropriately designed to make it viable to construct, either houses or apartments. The problem from a supply perspective is that there are very few sites with appropriate planning making their way to the market. Much of what achieved planning in the last five years is of too high a density and isn’t viable to develop. That is not what end-buyers want.
[ More than 700 social and cost-rental homes planned for Cherry OrchardOpens in new window ]
For supply to increase over the coming years, we need developers and funders to be comfortable that a properly designed scheme that meets all the planning criteria can achieve planning within a reasonable timeframe. At present this is not the case and so we are seeing greater caution from funders for zoned land without planning in place. Purchasers of such land are factoring in three-four years of a wait to obtain planning and, with the prevailing double-digit cost of funds, this is having a significant impact on the cost of delivery. Initial soundings are that the new large-scale residential (LRD) planning system is producing results but it has yet to be tested with a large volume of applications. Consequently, it is imperative that a solution be found to reach a determination on the applications for the 50,000 potential new homes that are caught in the now-defunct strategic housing development (SHD) system.
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With the significant interest rate increases over the past 12 months, there is a limit to what a new-home buyer can afford to pay and it is therefore key that we make the delivery of new homes as efficient as possible. With construction costs at an all-time high, it makes the Government’s proposal for a 3 per cent tax under the RZLT and a 30 per cent contribution under the LVS scheme even more baffling. While the Government have got it wrong on these taxes, they do however have some very good initiatives such as the development-levy waiver (which needs to be extended after April 2024) and the Croi Conaithe scheme.
The local authorities have been significant players in terms of land acquisition over the past 12 months with Fingal County Council’s acquisition of 62 acres of residential land in Swords and Wexford County Council’s purchase of 54 acres in Wexford town representing some of the biggest trades of the year.
[ Bray 16-acre site zoned for residential development seeking €5mOpens in new window ]
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There remains a very strong demand for good-quality hotel and student accommodations sites in Dublin, but again planning permission and the perceived “over-concentration” of a particular use in an area by the planners is a concern for purchasers. In recent months office developers are again looking at opportunities which is positive. Many are looking at older-generation buildings with a few years of income remaining which will allow for redevelopment/refurbishment in time.
If there is one wish I have for 2024, it is that we get our planning system in order so that site buyers can have confidence that the road is ahead is navigable.
Evan Lonergan specialises in the area of development land and is a director of Knight Frank
