Just Build The Damn Things

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90431556Michael Taft

From top: Junior Minister Damien English and Minister for Housing, Planning, Community and Local Government Simon Coveney TD launching Pillar 2 of Rebuilding Ireland in September; Michael Taft

Public agencies, not just local authorities, have the land. We have the workers ready to build. and we certainly have the need.

Michael Taft writes:

The recent Saville Report, A Rent Forecasting Model for the Private Rented Sector in Ireland, should be a wake-up call to all policy makers.

Based on the relationship between private sector rents and the vacancy rate (the number of vacancies per 1000 rental units), Dr. John McCarthy estimates that rents will rise over 20 percent over the next two years.

Yes, there is a current rent freeze. But this doesn’t apply to new units coming into the market – and supply is growing, albeit at a slower rate than demand. Nor does it apply when a unit becomes vacant – when the current tenant leaves. And the freeze is only temporary and, unless extended, will be gone in less than two years.

Given that rents in Dublin rose by 10 percent in the last 12 months with rents rising faster outside Dublin (e.g. Cork rents grew by 15 percent), Dr. McCarthy’s prediction is reasonable.

With a one-bedroom apartment averaging €1,300 in Dublin city, we could see this rising close to €1,600 by 2018.

This is not good – for tenants, for the economy or for the Exchequer; the Government’s Housing strategy is premised on placing the majority of those on social housing waiting lists in private accommodation. Rising rent supplements for more people would seem to be in the offing.

Though the Government is set to publish proposals regarding the private rented sector in a few weeks, the early signals are not promising.

First, the Government seems intent on confining direct housing provision for the ‘poor’ only – what’s called residual housing.

Second, in answering a parliamentary question regarding affordable and non-speculative social housing units such as limited equity associations and long-term fixed leasing, Minister Simon Coveney didn’t refer to the public sector.

Rather, he confined his response to Approved Housing Bodies which the the National Economic and Social Council stated were incapable of dealing with the scale of the problem.

Third, the only budgetary measure regarding rent was to give a tax-break to landlords, many of whom have exploited market conditions to drive up rents to already unsustainable levels.

Let’s cut through this morass. While the delivery vehicles and planning logistics can be quite complex, the basic approach is rather simple: build units and rent them. Here are three models that could be developed – in both the best and worst case scenarios.

Cost Rental

Cost rental accommodation is just what it says – rents based on costs, not market-pricing. Take the cost of building/acquiring a unit with interest payments and amortisation, add in maintenance costs, property tax and a small percentage for a sinking fund – and charge rent at that level. Subsequent increases would be confined to a rental-inflation index to create certainty and tenants would have the full range of rights regardless of the law. This is the basic model pursued in other continental European cities. The NESC (in the link above) devoted an entire paper to this model – which could cover not only low-average income earners but those on the waiting list as well, creating a ‘unitary’ model where the distinction between public and private is blurred.

Limited Equity Housing

Even more provocative is the hybrid limited-equity model. In this instance, a person purchases 50 percent of the equity in the house and pays a monthly rent. So for a two-bedroom house costing €205,000 (not counting site costs or infrastructure), the owner/tenant would pay half through a mortgage and pay an additional ‘rent’. The owner/tenant would ‘own’ the house like any other owner but would only have to come up with smaller upfront costs. However, the house or apartment would be non-speculative which means that when the owner/tenant leaves the premises they would only receive their original mortgage which would be inflation-indexed. They could not sell their equity on the open market, nor could they release equity through another mortgage (unless the collateral was on some other asset); they could not automatically pass it on through inheritance or gifts or sub-let it out. In other words, it would be non-speculative housing but one that could be owned for life.

Temporal Ownership Schemes

In this model, a tenant pays an upfront amount to the owner/landlord for the ‘right to own’ a property for a set number of years. Lorcan Sirr has written about this model as it applies in Spain. When the contract ends the property reverts back to the owner – which can be a public, private or cooperative landlord. Temporal owners have all the rights and responsibilities of the property: they can sell the contract or leave it in a will – until the end of the ownership period.
The value to the tenant is certainty of tenure for the period. The value to the landlord is that they have been paid for a certain period (no vacancies, no looking for new tenants, no missed monthly rents, etc.). Further, tenants usually take care of property that they are going to reside in the long-term.Here’s an example: a tenant purchases a 10-year contract for a house/apartment. They get a mortgage for €90,000 and pay it over to the owner/landlord. The monthly mortgage payments would be €870 to €905 per month. This would remain constant throughout the ten years.

 

The best-case scenario would be if these models could be done ‘off-the-books’; that is, the cost of construction would not be a cost to the Exchequer. This could be done, as in continental European countries, through public housing associations. These would operate commercially at arms-length distance from the central and local government – though local governments could establish these associations by applying for Approved Housing Body status.

Even in this case, the state would still be involved through capital grants and, in the case of temporal ownership, provision of low-cost mortgages.

In the worst-case scenario these models would be on the books. However, this might go no further than the initial once-off capitalisation – the housing associations would still be commercial, albeit not-for-profit, entities. It would also allow for non-market transfers between public agencies (e.g. derelict / vacant land owned by one agency transferred to a housing association).

There is also the possibility of a state Rent Benefit which could be tied to income. This could be paid to all tenants of cost-rental models – whether in the public, private or non-profit sectors.

This would ensure that the Rent Benefit doesn’t inflate the market as it would be paid in regard to rents that are controlled by costs and not subject to market pricing.

In all probability it would be a combination of both. You would start up models, test their capacity and reform them to take them off-the-books. This experimentation would, therefore, entail both tenure and financing models. However, these models would not be a substitute to social housing building but a complement.

The main thing is to start building – and renting, long-term leasing or selling at affordable prices. Public agencies, not just local authorities, have the land. We have the workers ready to build. And we certainly have the need.

Now all we need is a bit of imagination.

Michael Taft is Research Officer with Unite the Union. His column appears here every Tuesday. He is author of the political economy blog, Unite’s Notes on the Front. Follow Michael on Twitter: @notesonthefront

29 thoughts on “Just Build The Damn Things

    1. Increasing Displacement

      +1

      “the only budgetary measure regarding rent was to give a tax-break to landlords” – this and the 20k given to developers for new houses.

      Nothing in the budget for families who want to buy their first home. Literally nothing. Government is corrupt as it is useless.

    2. SOQ

      +2.

      And include individual derelict buildings like on the Guinness site.

      I am not sure how it works up north but there is a lot of Housing Associations which have sprung up there over the last twenty years or so.

  1. dav

    FG’s property developer and Vulture fund mates don’t want them built.
    They might reduce their “return” and Enda’s “best little country to do corrupt Business” line might seem false..

    1. Steve

      True yeah sure we need to let the market sort it out.

      And any plebs who can’t afford dublin rent can p*@s off to Westmeath

      (I can stir it too)

  2. Fact Checker

    From the 1930s to the 1980s local government proved quite effective at purchasing land, putting houses on it, and filling them with social tenants.

    This fulfilled the social objective of clearing slums (Dublin and Limerick) and giving a large share of the population security of housing tenure. It was something that government did reasonably well.

    There were a few bad examples, but in many parts of Ireland 100% social housing produced sustainable communities and residents who were happy with their housing.

    What is needed now is lots of building, both private AND public. However it is not happening on a scale that is necessary. Private and public developments are all very small.

    Policymakers now have an almost theological objection to what was done successfully for half a century: large-scale, basic developments on greenfield sites. I would not hold my breath however that this will change any time soon.

    1. bisted

      …one of the biggest ever projects of this type was the Ballymun Regeneration Project and it started less than 20 years ago by Dublin Corporation…it provides a solution that is shovel ready but takes account of all aspects of community. It could be super-imposed in total on the glass bottle site and provide 1000s of homes.

    2. Kieran NYC

      “Policymakers now have an almost theological objection to what was done successfully for half a century: large-scale, basic developments on greenfield sites.”

      Because we don’t need more urban sprawl (their other theological objection is to building up). The M50 is effed enough as it is.

      1. Fact Checker

        Granted. The height restrictions imposed on large parts of Dublin are silly.

        You cannot really ruin the skyline of the already-dull north inner city.

  3. Baffled

    Surveyors have shown that it costs €330k to build a 3 bed semi-d house under the current rules here.

    The problem is not a “lack of imagination”. It’s basic economics. Cutting taxes on new build (e.g. 13.5% VAT, local authority charges) would make it economical for the private sector to build. This isn’t rocket science.

    It is entirely unrealistic to expect the public sector to fill the supply gap because of the limited ‘fiscal space’ under the EU’s rules. We only had fiscal space of €1.2bn in the recent Budget – that equates to the current cost of building only 3,636 standard houses, which is obviously a drop in the ocean.

    1. Fact Checker

      The state spends €75bn a year. Are you saying that there is no room in this for extra social housing provision? EU fiscal rules say essentially nothing about the re-prioritisation of existing expenditure, just about the pace in its overall growth.

      Ten times more houses were built by the state in the 1970s at a time where fiscal resources were dramatically lower in real terms than they are today.

    2. coco

      Genuine question. What are the vat rates in other countries? 330k can’t be the norm across Europe. are there other costs that are unusually high? Land must be one.

      1. Andy

        – Development levies are high – cause only new builds benefit from the luas, dart etc…….
        – Part V social housing costs – cause only new buyers should pay for social housing……..
        – Compliance & regulation costs are high – cause the LA’s won’t do it themselves……..
        – Design standards – stupid # of lifts per floor rather than lifts per total units, dual aspect rather than daylight calculations, car parking spaces no matter where located, caps on building heights, useless circulation spaces required rather than cheaper/more efficient sprinkler systems

        The entire planning system seems to actively oppose innovation and cost containment.

      1. Fact Checker

        EU fiscal rules have almost nothing to do with the low numbers of new social houses being built in Ireland right now.

    3. Kieran NYC

      Local authority charges were supposed to be an upfront alternative to a local property tax.

      Now there’s a local property tax AND the charges on new builds are still in place.

  4. Cian

    How does the Temporal Ownership Schemes work in practice? I get a €90,000 mortgage for 10 years, and give this to the landlord up front?. I pay the bank €900 per month. What collateral do I give the bank? if I don’t pay my mortgage what can the bank do? what can the landlord do?

    If the fridge breaks is it my responsibility or the landlords? if the house needs painting after 8 years who does it?

    1. ivan

      I’d assume that the mortgage holder would be able to boot out the mortgagee and get somebody else in for the remainder of the time left. It’d be a lease by another name.

  5. Junkface

    The 3 suggestions he made all sound like very smart ideas that would definitely help ease the housing crisis, therefore the Irish Gov’t will not take up any of them. They will continue with their current model of maintaining wealth for the landlord class (themselves) of Ireland. FG, FF have NO intent of solving the housing crisis, stop thinking that they do. They Don’t!

  6. nellyb

    Good time to sell and emigrate. Or in lieu of former – just emigrate. Other options: toxic mortgage, battle for schools, nightmare of school collections, medical and car insurance racket, commuting Japan style 3+ hours a day. And god forbid you end up in court on some frivolous charges – you might as well rob a bank now and save the money till then, because every barrister’s breath is forth a little fortune I was told.

  7. Toni the exotic dancer

    Tax owners of vacant land now.. Not like the 3% planned to take effect in 2019. Fupping 3%! Not till 2019.!Why the wait? Make it 10% and introduce it tomorrow on all derelict buildings. Dublin is awash with beautiful old buildings going to waste.

  8. Andy

    “Public agencies, not just local authorities, have the land. We have the workers ready to build. and we certainly have the need.”

    Is this Michael’s point or a broadsheet subheadline?

    I’d question whether “we have the workers” is true.

    There is a lot of construction going on presently however it’s largely commercial, industrial etc. Is the suggestion that there’s an army of builders on the dole who could be put to use? Did not most of these leave the country after the crash while those who are any good are now actually working on commercial projects?

    Do you really think the volume of residential houses/apartments should be built by those who (i) lack the ability to work overseas, and (ii) are most likely less skilled/able than those currently working in the market?

    People like to throw stones and name call the developers but at the end of the day it was crap workmanship (by the actual workers) which resulted in all the problems with shoddy poor quality boom time housing.

    1. anne

      I pick (i) ‘lack the ability to work overseas’…like the ones you mentioned working on those commercial buildings.

  9. Diddy

    Social housing is OUT. A capitalist meritocracy cannot reward failure with houses and give nothing to those who are trying. This has to be top down.

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