- A recovery that is not balanced across the regions will not work for Ireland
A recovery that is not balanced across the regions will not work for Ireland
Q3 is not yet over and already we are seeing a host of new industry reports. In latter years, many of these reports became less relevant and more agenda-driven, making them appear less credible and open to routine economic and media criticism. However, after the unprecedented events of the past six months and resulting uncertainty, it has never been so important for industry operators to understand what is happening in the marketplace. For this reason, we welcome the publication of a new report, carried out by EY-DKM Economic Advisory Services on behalf of the Irish Home Builders Association (IHBA). This report, titled ‘Putting Affordability at the Heart of the Housing System’ provides a more comprehensive analysis of the home building market in Ireland than we have seen since the start of the pandemic.
Crucially, the study carried out by EY-DKM has found that up to 36,000 new homes will be required each year to meet demand over the next two decades. Even before Covid-19, delivery of private housing (for home buyers) in 2019 was only reaching levels seen in the 1970s. This is not an industry problem, this is everyone’s problem.
Despite a huge collaborative effort to re-open building sites quickly and safely, and the great work undertaken by teams on site to implement all HSE/CIF safety measures, the number of new homes built is expected to fall as low as 17,000 for 2020.
Identifying key issues around the cost of building, market supply and lack of affordability, the above report proposes a suite of corrective initiatives and potential solutions. Some of the proposed solutions are undoubtedly more aspirational, long-term ambitions that would require political and legislative support and changes. Such solutions include a reform of Ireland’s planning process and a change in taxation. The report points out that the steps involved in the residential development process are time consuming and this can lead to unnecessary delays, with such delays giving rise to additional costs that can have a detrimental impact on the viability of developments. The report goes so far as to state that current density levels are not always appropriate and this is unduly impacting development viability. It also calls for more effective management of State land, which is something that the wider industry has long been calling for.
The more immediate or short-term solutions proposed in the IHBA report range from extending the help-to-buy scheme and addressing high rental costs, to increased lending discretion for those providing loans to first time buyers.
Worryingly, the study concludes that the total cost of designing, planning and constructing a home, including a fair sum for profit and risk, means that building the right housing, in the right areas, is simply not always viable. This issue is more pronounced in urban areas where the cost of delivery exceeds the point of affordability for many first time buyers. In fact, this “affordability gap” shows that the income of first time buyers is insufficient to purchase the average starter home in 13 (mostly urban) areas out of 34 areas examined in this study.
One particularly interesting insight from the affordability study revealed that when it comes to raising the average deposit of 14 percent, the time it takes to save for one ranges from 1.7 years in Kilkenny to in excess of 15 years in Galway City, Wicklow, Waterford City, Cork City and Dublin City – 15 years!
When implementing development solutions, there needs to be an awareness of the market dynamics of each region. We know from past experience that one size does not fit all. Regional development – irrespective of whether it is public or private, residential or commercial – demands and deserves a more tailored approach and planners need to respect this. Implementing policy on a national rather than regional basis deepens the already troublesome east-west divide and results in the kind of figures that we saw from the GeoView Commercial Property Report this week, which revealed that Connacht now has the highest commercial vacancy rate at 17 percent. Policy-makers, and indeed the industry, need to learn from past mistakes and one of the key placemaking lessons from the past decade is that a recovery that is not balanced across the regions simply will not work for Ireland.