SCSI Announce 10 Step Strategy to Solve Housing Crisis

The Society of Chartered Surveyors Ireland released their 10-point plan to address the national shortage in new and suitable housing. Ben Thompson considers the suggested policies and implications of the proposals:

SCSI Housing Shortage
Click to see the report.

The Society of Chartered Surveyors Ireland released their 10-point plan to address the national shortage in new and suitable housing. Ben Thompson considers the suggested policies and implications of the proposals:

1. Introduce a ʻBuilders Finance Fundʼ to support SME builders completing developments

This is a direct move to address the thousands of half-complete developments around the country. These schemes are the fastest way to deliver new housing stock in the shortest period of time. Based on a UK case study where the government launched a €525 million fund to restart and speed up housing developments of between 15 and 250 units that had slowed or stalled. This helped small to medium builders raise finance to complete viable schemes while the money would later be recouped at sale.

2. Reduce development contributions for a period of 2 years

Contributions to the local council have crippled the viability of schemes that would potentially work commercially. Many councils have taken steps to reduce these already (Dublin by up to 26%) and cut deals with existing developers to restart stalled schemes. The SCSI are calling for a nationwide solution for a finite period.

The same goes for Part V obligations to provide social housing with a development scheme. The UK has seen remarkable affects by reducing this obligation. This can make schemes viable, but at what cost to our desperate need for social housing – is it time we stop relying on private business to build what should be a state obligation?

3. Streamline planning process to speed up decisions and reduce delays

The report’s take on planning is confusing. They state we should streamline the process but then call for increased oversight so that new properties are “fit for purpose”. This would essentially mean better planning for unit types: less multi-storey apartment buildings outside of city centres, more low-rise low-density small family homes or European-style family apartments.

“Some local authorities remain too firmly fixed on high density residential development, even in less central locations. Demographic changes – in particular a sharp decline in the number of people in their 20’s – mean that the natural demand for apartments outside the city centre and locations close to good public transport links has diminished”
~ Chartered Surveyor, Dublin

They go on to highlight the huge numbers of NAMA owned schemes that have no planning permission or permissions that are no longer viable. If these were actively replanned to provide the right housing mix and pushed through. It highlights the successful implementation of the Dublin Docklands Special Development Zone (SDZ) and suggest more of this should be done on NAMA sites throughout the country.

Source: SCSI
Source: SCSI

4. Reduce VAT on new home construction from 13.5% to 5% for 2 years

The SCSI seems to like it’s UK comparisons but in this case it is quite shocking how the two countries compare with regards to VAT. UK developers pay no VAT on the services provided in the construction of new homes. The supply of materials is rated at 17.5% VAT however if this is bundled with services (for example, though a sub-contractor) it is zero-rated. By comparison, Irish developers pay the full 13.5% VAT on all materials and services. The SCSI advocates that the rate is reduced to 5% for 2 years.

5. Reduce windfall tax on land from 80% to 33% to bring it in line with Capital Gains Tax

According to the SCSI / Teagasc Land Sector Outlook 2014, the current level of land transfer for sale is minimal with just 0.5% of all land transacted annually and while transactions have increased nationally in 2013, Dublin was the only region members recorded a decrease of 1.4% in 2013. The current windfall tax is a disincentive to sell land and should be reduced from 80% to 33% to bring it in line with Capital Gains Tax.

Source: SCSI
Source: SCSI

6. Introduce Vacant Site Levy on sites of strategic importance in a targeted and transparent manner

Rather than a broad attack on vacant sites nationwide, there should be consideration of site viability and the owner’s funding position, so viable sites are freed up and small developers or landlords and unduly penalised. Strategically important sites and locations should be the primary focus.

7. Encourage NAMA to license developers to build out sites in strategic areas in its portfolio

This is a repeat of a successful scheme carried out in Dublin in the 1970s and 1980s. NAMA licences a site for a builder to develop, allowing their concentration and funds to be devoted to the building itself, then selling the land cost on to them only at completion. This allows NAMA to received some of the benefit of increased land values rather than have to sell bare sites at low values.

8. Introduce a Local Property Tax exemption for people ʻtrading- downʼ to smaller units to increase the availability of second hand homes

The SCSI proposes a system to incentivise older homeowners to trade-down from their large homes, such as a Property Tax exemption. In my mind this is a very minor concession that will have very little bearing on a couple leaving their lifelong home. The main issue here is again about supply, the supply of good quality alternative accommodation for retirees and older couples so that they look forward to downsizing from their comfortable large homes into smaller accommodation, not just tiny 2 bed apartments and pokey townhouses.

Source: SCSI
Source: SCSI

9. Introduce a Revolving Infrastructure Fund (RIF) to finance infrastructure provision upfront before development

Again basing it’s ideas on the UK, RIFs have been used to support large developments by funding the infrastructure requirements up front, green lighting the way for builders to break ground, while the funding is returned at completion.

10. Greater action needed on reducing the number of mortgages in arrears, particularly in the ʻBuy to Letʼ sector.

Surprisingly, the SCSI supports hesitancy to repossess properties in arrears, treading the fine popular line. Instead it directs it’s attention to the banks and making it their responsibility to reduce the number of accounts in arrears. They fail to say how to resolve the current issue, only how to avoid it again in the future.

We are sure they will support this week’s news that Bank of Ireland are putting 1,500 homes on the market to fund a €250 million development lending fund. That is more of what we need to get the market moving efficiently again.

Overall, in our opinion this is a fair advisory statement but weak in some areas in the application. The comparison to the UK is partly fair to make, they are the best basis for us to compare notes, but the UK market is very different from here.

Many parts of the South of England have bounced back tremendously since the bust, almost to the point it was barely a blip. House prices there are significantly higher than even many Dublin suburbs, making the viability of large scale developments far more assured. When construction costs are broadly similar between countries, the magic figure to make a scheme viable is a house price of between €300,000 and €400,000. Only a handful of Dublin postcodes are back to those levels compared to vast swathes of the UK.

Many of the SCSI’s points are crucial to the recovery of the Irish market. Funding small developments on a local level, masterplanning and facilitating large scale developments (i.e. 1,000 units plus) for more national needs, and using tax and planning processes to make the sector more viable again will help us all.

Read the full SCSI Report here – Delivering Houses.