The Government was elected only six months ago but is already running out of time to address the housing crisis within the lifetime of this parliament. That housing was and remains a crucial voter issue is not in doubt. Nor are the concerns of developers and investors who stand ready to assist the Government’s ambition for residential delivery targets. The next three months will be critical to answering these concerns so that these housing targets have a chance of being met by 2030.
Apartment construction slowing
Despite the acute demand for new homes, it is startling how the delivery of housing has actually slowed within the last year. New dwelling completions nationally fell by nearly 7 per cent in 2024. In the case of Dublin apartment construction – despite the range of State-supported housing initiatives and the active capital of approved housing bodies (AHBs) – the number of apartment units completed last year dropped by 27 per cent from 2023. This slowdown will continue in 2025, where CBRE estimates a further 20 per cent decline. Beyond 2025 the pipeline (particularly for private apartments as opposed to social and affordable) will slow even more materially.
Policy change that can improve viability
New apartment development has been challenging since 2022, when construction costs and financing costs increased following the outbreak of the war in Ukraine. However, from a policy perspective, little has changed since then to encourage new construction in the sector. In fact, policy change has contributed to the problem.
In December 2021, the then government introduced restrictive rental policies that regulate annual rent increases to the lesser of inflation or 2 per cent. Such restrictions may sound reasonable but rent-control policies have a poor track record in delivering a vibrant rental sector anywhere in the world, and the net result is less supply. Instead, it creates a market of insiders – the community of renters who benefit from the controls – and outsiders – potential renters that cannot access any product. At the time of writing, the results of a recent review of this regulation by The Housing Agency have yet to be published. We expect that investment and development in the sector will remain stagnant until there is some clarity on the future of this policy.
The VAT payable on the sale of a completed development is where there is more potential for change that could support apartment viability. In fact, we believe that of all the options available to Government, an adjustment to VAT could have the single most positive impact on improving viability. At present, a VAT payment of 13.5 per cent of the sale price is due on the disposal of a private rented sector (PRS) development (timing dependent). This, in many instances, is eroding overall development margins and thereby making many projects unviable. Decreasing this rate to at least 9 per cent would improve viability materially and would clearly help increase apartment supply. It would also increase the exchequer return from this segment of the market through both additional VAT and stamp duty because at present virtually no such sales are completing and the sector is essentially stagnant. The UK treats VAT on new development much differently. A look at their rental market would be worthwhile for our policymakers.
Social and affordable housing provision
The range of schemes introduced since the launch of Housing for All in 2021 to support the provision of social and affordable housing has been positive and has certainly helped to slowly turn a corner on that tenure in the market. It is estimated that up to 50 per cent of new-dwelling completions last year had some sort of State support (either financed by or acquired by State entities). The Land Development Agency (LDA) has become increasingly active, and the number of large-scale residential projects being initiated around the country is at least somewhat encouraging.
However, some of these policy initiatives clearly haven’t worked. A recent release of data by the Department of Housing showed no private sector take-up of funding for the Secure Tenancy Affordable Rental (Star) scheme – an affordable rental funding mechanism to support new development. The private development community clearly had an appetite to engage with this initiative, but to date, of the €750 million allocated to the scheme, just €185.3 million has been taken up, with the only party to engage being the LDA.
Uisce Éireann’s call for action
Planning, infrastructure and utilities remain key challenges to significantly scaling up residential development across the country. In May, the CBRE planning advisory team hosted some of the key figures in infrastructure and utilities provision in Ireland for a panel discussion focused on “accelerating housing delivery”. Key utilities for housing, such as wastewater treatment and access to the electricity grid, need to be scaled up to match housing delivery targets. Indeed, Uisce Éireann sent a detailed document to the Government last week, highlighting that the scale of the task in front of them is “immense” and suggesting a number of planning, legal, regulatory and consenting issues that should be addressed, including fast-tracking decisions by An Bord Pleanála on strategic projects and asking for the expansion of exempt development provisions.
The urgency of this call to action from one of the country’s most important utility providers should serve as another wake-up call to policymakers about the need for immediate action.
Time for effective action
The good news is that, overall, Ireland remains an attractive destination for investors to commit funds to support the Government’s policy goals. Nowhere else in the OECD offers the consistent positive growth dynamics of Ireland combined with a stable political landscape and a strong state balance sheet buffered by the fiscal surplus of recent years. However, investors prize policy stability and predictability when committing capital to an economy for the long term. Their experience of recent unexpected policy actions in Ireland aimed at countering short-term political pressures raises question marks over the reliability of the Government’s intentions to address the housing crisis. Investors are committing capital to support the buildout of rental sectors in cities across Europe but can’t commit in a meaningful way to Ireland’s PRS sector as long as these rental controls remain in place.
Time is not on our side. The lag between effective policy action by the Government and activating all the legs of housing development – land acquisition, planning, securing finance and critical service connections – means it takes three to four years to turn a plan into new housing units. The Government won a clear mandate to deliver on Ireland’s housing challenge, and it is imperative to bring policy clarity to investors and developers alike, who stand ready to commit – before it’s too late.
Myles Clarke is managing director of CBRE Ireland
