Our Housing Stand-Off

at

app-savills

It’s positively Mexican.

Dr John McCartney, Director of Research at Estate Agent Savills writes in today’s Irish Times that “property prices will have to go up, or costs will have to come down, before we see the resumption of large scale housing development“.

A First Time Buyer writes:

It’s a Mexican stand-off.

Prices will only increase with wages or if the Central Bank relaxes its mortgage lending rules.

Increasing wages would make our economy less competitive and would be detrimental for our FDI [foreign direct investment] and SME [small and medium enterprises] sectors.

Relaxing the CBI rules would increase the available mortgage amounts for borrowers, which would directly result in higher bids on the few properties that are available.

But house prices are already expensive with the result that would-be homebuyers are again having to look to the commuter belt.

Robbie Kelleher, Senior Investment Strategist at Davy’s outlines that the ratio of average house price to average incomes is currently close to 6x – in the past this ratio ranged from between 3x and 4x.

So what about the costs?

We’re told that the reason for the lack of housing supply are the high costs incurred by builders which, at current selling prices, they find increasingly difficult to pass on to potential buyers.

These costs include including labour, materials, professional fees, site acquisition, finance costs, development levies, social housing obligations and building and planning regulations.

Builders say they need to make a profit of at least 15% in order to achieve replacement costs and that, at the prices being achieved at present, this isn’t possible.

The banks are making exorbitant profit margins on variable rates. The ECB has cut its rate to zero per cent and the Irish banks refuse to pass on these savings on to their customers.

The Legal Services Regulation Bill was diluted down and is unlikely to lead to any significant reduction in legal costs.

The Planning Guidelines on Design Standards for New Apartments introduced last December now allows for smaller sized one, two and three-bedroom apartments.

The Part V social housing requirements have been reformed and a rebate scheme has been introduced in respect of levies paid to local authorities in Dublin and Cork, on foot of affordable housing development.

The Urban Regeneration and Housing Act introduced a vacant site levy but it is not in effect until 2017 and not payable until 2019.

The Department of Finance are adverse to introducing tax breaks for the residential property market as they may simply lead to a transfer of tax revenue from the State to developers with no effect on supply.

The definition of Mexican stand-off is a situation in which no one emerges a clear winner.

One thing is for certain there are a lot of losers as a result of our housing crises. But who is going to break the deadlock?

Industry view: Prices must rise or costs come down for major house building to restart (Irish Times)

Ireland in 2016: Housing Remains the Big Challenge (Davy)

Rollingnews

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43 thoughts on “Our Housing Stand-Off

  1. john

    I dont know why anyone would listen to someone with such a vested interest in higher property prices comment on how prices need to go higher. If the central bank changes its mortgage rules or if first time buyers are funded in some way by the government pricings will only go higher.

    Given our complete lack of transport infrastructure i would have thought the only solution is to allow high rise apartments in the city centre. I’m surprised this is not being mentioned more. Some sort of taxation of vacant land would also speed up the process of building where there is space available.

    1. Anne

      ” If the central bank changes its mortgage rules or if first time buyers are funded in some way by the government pricings will only go higher.”

      Not necessarily.

      I fail to see why first time buyers are the ones punished for the massive greed of the banks and land owners.

      Here –
      http://www.davidmcwilliams.ie/2015/02/02/the-central-banks-new-rules-simply-make-life-even-easier-for-those-who-are-already-wealthy

      The problem in our housing market does not lie with first time buyers.. they should not be the ones to be punished IMO, making it practically impossible for them to ever own a home.

    2. Kieran NYC

      There’s an irrational paranoid held by the Joe-Duffy-caller types who think that if any building goes above 10 storys, whole swathes of the country will be plunged into darkness.

      Either that or it ‘wouldn’t be in keeping’ with the area.

      You could have said the same when the first stone house was built in a village of straw-and-cattle-poo huts.

  2. brownbull

    development land is too costly, there should have been a market correction after the crash yet the state through NAMA kept the prices inflated to minimise losses to the banks, implementing the Kenny report is the only way to address this barrier to development – there is also too much risk in the planning and regulatory system, hence why developers look for a massive 20-25% profit margin before commencing basic design, in other European states developers will move on a 5% margin as they are more confident that after costly design they will get planning approvals, and they can be confident of the scale and density that will be allowed, here the rug is constantly being pulled out from under developers with fluctuating development restrictions due to political interference

    1. ahjayzis

      The sole aim of the states reaction to the crisis was to preserve the broken system we came into it with. And now we’re back, with a construction sector that serves absolutely no one.

    2. Anne

      “development land is too costly, there should have been a market correction after the crash yet the state through NAMA kept the prices inflated to minimise losses to the banks,”

      +1

    1. Anne

      There’s absolutely no reason to build up, but to maximize profits.
      There are plenty of undeveloped sites in and around Dublin.

      Here you have Mick Wallace talking about developing in 2011.

      https://youtu.be/Dhf3InbsQL0?t=731

      They mention in that clip that it’s about 8 people who own the important development land in Dublin.

      1. timble

        You can’t have decent transport facilities without density that’s why we do need to build up

  3. Clo

    There needs to be a levy on land lying dormant, to make it costly not to develop, and there needs to be a limit on the price of land zoned for development. Also, there’s tons of empty space in existing buildings, above shops etc, that could be used for housing: some imaginative thinking needed on how this can be facilitated. It’s not rocket science, and it doesn’t need an increase in house prices.

  4. Owen C

    “But house prices are already expensive with the result that would-be homebuyers are again having to look to the commuter belt.

    Robbie Kelleher, Senior Investment Strategist at Davy’s outlines that the ratio of average house price to average incomes is currently close to 6x – in the past this ratio ranged from between 3x and 4x.”

    Sorry, what now? It was 8-9x during the bubble, and was last at 3-4x in the early 90s, when many families were still single income. 5-6x does not suggest prices are expensive, it probably suggests they’re currently fair value.

    The flatlining of Dublin house price at the same time as lower transaction volumes suggests prices are not the problem, and likewise mortgage interest rates at 3.5% cannot seriously be considered an issue when rental yields are more like 4-6%. It is simply the combination of credit and physical housing availability that is the problem. If you could create more houses at current prices, at the same time as more mortgages at current rates, you would not have a problem with creating transactions. So the issue is around whether to ease the macro prudential rules or somehow create more housing without sending this cost on to the consumer.

    http://www.ft.com/intl/cms/s/0/101b4310-4885-11e4-ad19-00144feab7de.html#axzz42bce3XVh

    1. Anne

      “5-6x does not suggest prices are expensive, it probably suggests they’re currently fair value.”

      Fair value for who?
      3 to 4 time annual income is considered the most you should be borrowing.

      Likewise, the land costs for developers should also be around 15%, at the height of the bubble they were 60%.

      “and likewise mortgage interest rates at 3.5% cannot seriously be considered an issue when rental yields are more like 4-6%”

      That’s horsepoo, sorry. People are scraping by paying massive rents, and we have a homelessness crisis.
      It can seriously be considered an issue.

      1. Anne

        Mortgage interest rates of 3.5%, on 5-6 times annual income of a mortgage is an issue for a lot of people.. as are massive rents. Come off it like.

          1. Anne

            Most banks within the E.U. follow the ECB rate within a percent.

            It’s a lot higher than 3.5% also.. BOI 4.5%

            And when you factor in the amount of a mortgage, you’re talking hundreds of euro every month on your mortgage on interest payments, to hike up the banks profits.

          2. Owen C

            “Most banks within the E.U. follow the ECB rate within a percent.”

            They really don’t. The average Eurozone bank interest rate for loans to households for house purchases (new business) is currently 2.5%. This includes fixed rates (where Irish banks typically offer around 3.5-4%). If only looking at teaser rates and variable (“period of up to one year”) the rate is 2%. Lower than Ireland, but at 2% above ECB rates.

            http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=124.MIR.M.U2.B.A2C.F.R.A.2250.EUR.N

          3. Anne

            I said within a percent or two..

            So Irish banks are charging double the interest rates of other banks within the E.U.

        1. Owen C

          “3 to 4 time annual income is considered the most you should be borrowing.”

          You’re mixing up mortgage and house prices….

          4x annual income on an 80% mortgage = house price of 5x income

          On the mortgage rate issue, my point is that it is significantly cheaper (3.5%*5% = 70% of cost) to borrow/buy than it is to rent, so it is not “high mortgage rates” that is the problem. Given historical mortgage rates of 5%+, again we should not be naive enough to think we need a system with 2-3% mortgage rates to create sustainable borrowing costs.

          1. Anne

            ok..gotcha

            “again we should not be naive enough to think we need a system with 2-3% mortgage rates to create sustainable borrowing costs.”

            However, the banks are getting money for nothing practically.
            Considering the cost of housing here, they should be passing on the rate reductions within a percent or two of the ECB rates. Baldy won’t do anything about this. He’s said they’re offering good fixed term rates.. shop around.

            Like Moany saying bargain with your landlord. Useless muppets.

  5. The Bottler

    What are all the Architects and Planners employed by the local authorities doing these days? If money is so cheap can local authorities borrow some and build houses at cost?

  6. tomkildare

    The build cost of 2 bed aparetment in west dublin is 270K!! Secound hand market there trading at 150K!!! Prices have to be 270+ for builders and banks to fund development!!!

    So be very clever and buy 2 bed apartments at 150 K with rental income of 150K because you are getting 120K of build costs

    Only way to get investors to buy apartments again at 270K is to offer section 23. There is no other way to fix the problem except reduce the cost of building by 50% which is not possible.

    1. tomkildare

      So be very clever and buy 2 bed apartments at 150 K with rental income of 1250 per month

    2. Anne

      270K across the board is it.. no regards to what a developer has paid for the site.

      You keep repeating 270k!!!!!!!! on every thread to do with housing tomkildare.
      Did you hear a developer say that figure in the boom or something?

  7. tomkildare

    Alan kelly figures to build 40sq meter 1 bed id 280K!! I know you can build a nice block of 2 beds at 270K each

  8. Bruncvik

    I’m currently finalizing my own mortgage application and house purchase process. I’ve had experience with both in the US, and I’ve been involved in both (albeit indirectly) in continental Europe, when I was helping my sister. Here are my three cents:

    First cent: Mortgage interest rates are far higher in Ireland than elsewhere I looked. On the continent, for example variable rates are tracking the ECB interbank lending rate, and currently the mortgage rates are at around 1.5%. It’s nearly impossible to get a tracker mortgage in Ireland anymore, and the best rate I managed to get was 3.2%, with most rates being around 3.75 to 4.25%. Banks told me that the current variable rates are calculated based on what other banks are offering, so we can talk about a silent cartel between banks. Obviously, such high rates don’t favor buy-to-live purchases, but buy-to-rent.

    Second cent: Travel infrastructure is atrocious here. Dublin is squeezed into the same space as many cities with only a third of the population. This is because (a) car routes and parking spaces have very little capacity, and (b) public transportation is severely limited, especially for suburb commuters (light rail, subway). Whenever I go outside Dublin, there are plenty of green fields that can be reclassified for construction, if there was better public transport access. A good short-term solution would be to invest into a lot more public transport: New Dart lines, Luas expansion (and automation), etc.

    Third cent: In the long term, infrastructure and business development investments would need to be done to other towns. One of the reasons Dublin is squeezed so much is that the vast majority of jobs is here. In many other countries I visited, jobs are more evenly distributed around the country. Now, Ireland will never be an industrial powerhouse due to high shipping costs to and from the island, but the service economy could be encouraged to move to other cities, spreading the demand for housing more evenly around Ireland.

    1. Harry Molloy

      All true. Don’t think any of those points were even brought up during the election, which is depressing. F*ck water, there are other issues.

      1. Sheik Yahbouti

        Jesus, good old Harry FG Molloy with the same tired old mantra. Citizens activism must be discouraged at all costs – it might catch on ;-)

  9. Provisionial Chicken Fillet

    “increasing wages…”

    we all know how more money equals less spending.

    horse poo

    1. Andy

      Minimum dual aspect thresholds – in fairness these were reduced by Kelly.
      Max units per common core – also reduced by Kelly.

      The “passive house” requirements of DCC and DLRCC [ridiculous]
      Levy’s, fees, Part V
      BCAR compliance costing €27k per unit versus Dept Environment estimate of €1-€3k in 2012. Costs under €1k in the UK as the LA’s do it.
      The fact you can only start selling units once the entire project is complete – i.e. developers can’t start selling units until absolutely everything is complete – landscaping, all floors etc. Delays cash flow, increases funding costs and reduces price certainty.

      The only apartments coming on line in DCC at present that I’m aware of are high priced small developments in D2/D4. Nowhere near affordable.

      The Savills guy is right and Ronan Lyons has been banging this drum for the past few years.
      If it costs more to build than they can sell it for a developer will not develop.
      Only options are to increase sales price (i.e. loosen lending restrictions) or reduce the cost to build.

      Parlon / Estate Agencies / mortgage brokers are all looking for looser lending restrictions.
      We need to reduce the cost!! But €160 worth of water charges is apparently more important than shaving €000’s of people’s future mortgage payments. Depressing.

  10. khanfred

    The developer-led model has failed in Ireland. It wasn’t particularly stellar from the early 2000s on, but post-crash, it is not where we need to look to find a solution. Throwing more cash (e.g. through loosening the macro-prudential rules) at a market with supply-side issues (and developers holding out for the top of the market) is not a solution. The only viable solution is State intervention over the medium term (this is not an issue that will be solved in 2-5 years, we need to think 10-20 years). The State can currently borrow 10 year money at less than 1% and can compulsorily purchase land (it is arguable that the exigencies of the common good will outweigh private property rights until such time as the housing crisis is solved, so FEMPI style legislation permitting purchase at long term rather than current market value may be a runner). It needs to build high and build close to public transport. The State can borrow at rates that a private developer can only dream of, does not require huge chunks of equity to do so and can recoup a significant portion of the expenditure through taxes initially and the remainder through sales or rent. Increased availability of housing will put downward pressure on wages, reducing the cost of direct labour (and thereby also the labour component of materials).

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