AOIFE BRENNAN, Director, Research & Consultancy, Lisney, writes that Housing for All will, in time, have a positive impact, but some parts of the plan may have unintended negative consequences on viability and the supply of land.
At Lisney, we have been talking about the lack of housing supply for a decade now. Over that time, there have been many documents and policies launched, most with limited success for a variety of reasons – mainly due to the viability of the types of development required along with capacity constraints.
Comments on the slow delivery of homes have always been tempered within the context that “supply cannot come on stream overnight, it takes time”.
2021 brought more new housing policy and yet another big document produced in Housing for All, not to mention the changes included in various draft development plans, notably in Dublin city. Additionally, the Land Development Agency (LDA) Act was signed into law, setting it on a statutory footing to work with state bodies and local authorities to provide housing on publicly-owned lands.
What projects will fit the housing for all mould?
Despite all that has gone before it, I believe Housing for All is generally a good document and if many of the measures included are implemented, they will be impactful in time. However, there are also parts of Housing for All and the draft development plans that I do not agree with and which I believe will have unintended, negative consequences on viability and the supply of land to the market.
In line with the National Planning Framework (NPF) requirement for compact growth and development within or adjacent to the existing physical footprint of existing cities and towns (ie 40% nationally; 50% in cities, and 30% in other settlements), much of the development in the medium term will be focused on sites in or adjacent to city and town centres, and less so on greenfield sites. For example, areas like the lands within the Heuston Station Masterplan in Dublin, the Cork Docklands, Colbert Station Quarter in Limerick and the Brewery Quarter in Kilkenny.
For cites, this will generally mean apartment development in central areas and high-density schemes of houses, duplexes and apartments further out. It will also mean apartment development in many regional town centres across the country. As is widely known, much apartment development remains unviable – the SCSI’s report from just over 12 months ago, Real Cost of New Apartment Delivery, clearly shows the viability gaps that persist, particularly around medium- to higher-rise schemes (five to 15 storeys) suitable for the build-to-sell (BTS) market. And in the past year, the gaps between cost and end-price are likely to have grown given the rise in construction and labour costs.
Cities and towns funds
In my view, the Croí Cónaithe funds (cities and towns) are very positive proposals in Housing for All, particularly the cities fund. Given the unviable nature of most BTS apartment development, a fund to subsidise apartment building (up to 20% of the cost) in the five main cities once the units are made available to owner-occupiers is welcome.
The fact that it focuses on units that already benefit from planning grants and can start immediately and be completed by 2025 means a reasonable delivery timescale. It should be noted that there are un-activated planning grants for an estimated 80,000 dwellings nationwide, with about half in Dublin. My only concern with the cities fund is that timelines will slip. A call for proposals from developers was due in late January but has still to be issued (at the time of writing in late February). It will be interesting to see what proposals are made, but I assume most will be for schemes in city centres and just edge of centre. While Dublin will greatly benefit from the fund, it is even more positive for regional city centres where apartment development (all tenure types) is just not currently viable. Cork, in particular, could greatly benefit, albeit much of the recent planning grants in the city have been geared towards the build-to-rent market.
The Croí Cónaithe towns fund is also a positive step forward for housing delivery in towns around the country, where supply is perhaps even more constrained than in the cities. It will focus on the provision of serviced sites for people to build their own homes and will support the refurbishment of vacant properties. Over the pandemic, environment, social, governance (ESG) criteria have come into greater focus across all property market sectors, and it is evident that such considerations are growing in importance to all stakeholders in the built environment – from individuals occupying a home to investors in large commercial schemes.
I think this towns fund not only addresses the environmental issues in terms of building new NZEB homes on serviced sites and reusing existing buildings, but also the social and wellbeing aspects in terms of sustainable communities within the footprint of towns. It will also assist in cutting down on one-off development further out of town centres (and the associated car-based transport required) while still giving homeowners the opportunity to design and build their own homes in a more rural setting. The fund will cater to the significant demands in most areas from locals, but it will also be positive for families relocating/ considering relocating due to more flexible working practices since the onset of the pandemic.
Continued improvements in broadband connectivity and other infrastructure will also be a factor in the success. It is likely that both large and small towns will benefit from new edge-of-town development and refurbishment of central derelict properties.
Land Development Agency
The establishment of the LDA is generally very welcome in the Irish property market, working to make more efficient use of state lands while also working with the private sector in a targeted way. With a firm focus on housing supply, its operation will undoubtedly impact on the lands that are developed in the coming years – with most lands owned by the state going towards residential use. An interactive map produced by the LDA shows specifically all of these lands.
Logic suggests that the sites that will be the focus in the coming years and progress first will be the ones located in areas where housing is required most and where services and infrastructure are available, in addition to being viable to build. However, current use by the state body will also be a factor in how quickly the lands can be released. The types of homes built will vary, but it is likely that most will be in higher density schemes, again within or adjacent to city and town centres and in well-connected suburbs.
Flagship schemes are already identified, such as the former St Kevin’s hospital in Cork, Dundrum Central in Dublin, Devoy Barracks in Naas, and Shanganagh in Shankill, Co Dublin.
Project Tosaigh
In addition to its ongoing activities, the LDA will also take the lead role in Project Tosaigh; a large-scale affordable cost rental scheme put forward in Housing for All. With such homes earmarked for those who do not qualify for social housing but cannot afford the private sector, tenants of future schemes will pay approximately one-third of their net disposable income on rent, reflecting a discount of about 25% on market rates. Cost rental will be permitted to be part of Part V affordable requirements, and we, in Lisney, believe within schemes where the majority of homes are owner-occupied, such a structure will be welcomed.
Finally, on the LDA, given its enhanced and significant future role in the Irish property market, particularly in city regions, and its access to funding, some private sector developers may decide to dedicate resources to developing social and affordable schemes for the agency. And while most will also still operate in the private sector, it may mean fewer private homes will be built. Additionally, many state-owned lands that would have come to the market for sale to the private sector will not now do so and will be developed centrally. This brings with it positives and negatives for the overall property market.
Dublin City Development Plan
The Draft Dublin City Development Plan, due to be finalised by the end of the year, contains many measures relating to the type and location of housing in the coming years. The policies on the BTR sector are concerning; a general assumption against BTR schemes with fewer than 100 units but also an assumption against larger apartment schemes (>100 units) unless at least 40% of them are BTS.
I understand the theory of why such measures are proposed given how topical the BTR sector is in the public debate on housing, however as already stated, apartment development is generally unviable for mid-rise (as would be required in DCC’s administrative area) BTS schemes. Institutional investor funding of BTR has ensured apartments were built in recent years. Without this, very few would have gotten off the ground. Requiring a large element of BTS in all apartment developments in the city will impact viability and funding opportunities. It may have the unintended consequences of no apartments being built unless they benefit from older permissions and can avail of the Croí Cónaithe Cities Fund – but these will dry up over the life of the development plan. However, it is in our view positive that the Office of the Planning Regulator has written to Dublin City Council on the matter, making suggestions.
Proposed changes to Z15 institutional lands
Also likely to affect the supply of land to the market in the coming years are DCC’s proposed changes to Z15 institutional lands where residential development is no longer a use open for consideration. Focusing solely on providing community use and social infrastructure on these lands will impact their saleability and, in certain areas, may result in lands not being brought to the market for sale, further impacting the supply of homes in these areas around the city where development was envisaged.
Zoned land tax
Budget 2022 introduced a new Zoned Land Tax to replace the existing vacant site levy, but with a two-to-three-year lead-in time. It will apply to all lands zoned for residential and mixed-use that are serviced and will be levied by Revenue at 3% of market value per year.
My main issue with this is that it will operate on a blanket basis and will ignore the multitude of reasons why lands remain undeveloped – viability, issues with title, access, contamination, flooding and other site-specific reasons.
On the surface, it appears that lessons have not been learnt from the lack of success of the vacant site levy, which was at a higher rate of 7% in recent years – in the vast majority of cases, it is not owners just sitting on land but rather other factors holding back works. It also fails to recognise that developers require a constant supply of land. To reach a target of 33,000 housing completions per annum nationally, as set out in Housing for All, the housing market needs builders of scale, who can build several hundred, if not thousands, of homes a year.
For developers to deliver these homes, they need a fully established operational platform, and to maintain this platform, they must have a continuous supply of land to move onto quickly. If they do not, this will further cause issues in housing delivery, particularly in areas where the planning process is more complex and perhaps subject to lengthy delays with JRs etc. The new tax will need to take this into consideration.
What projects will get built?
So, to answer my question at the start, what land will be available for development and what type of projects will get built.
Recent policy changes will dictate this to a greater extent than ever before. There will be a clear focus on the existing urban footprint of cities and towns nationwide, which will result in greater density schemes across the board – and higher costs. Apartment development, despite the viability issues, will become more prevalent (possibly with further assistance required), and fewer homes with gardens will be built (despite being in the greatest demand as people want more space since Covid).
That said, Lisney’s Development Land sales and acquisition team are inundated with requirements for greenfield sites, with planning permission, suitable for traditional semi-detached and detached homes. I think this mismatch will remain in 2022 but in the more medium-term will need to evolve – but viability will be the greatest difficulty.
Lisney was established in 1934 and is one of Ireland’s oldest and leading firms of chartered surveyors with offices in Dublin, Cork and Belfast. Owned and operated by its directors, it provides commercial and residential advisory and agency services throughout the country. Lisney.com / (01) 638 2700