Sunday Business Post*

Sunday, 5 October 2014

Page: 16
Circulation: 34322
Area of Clip: 99500mm
Page 1 of 2
WHY IS CONSTRUCTION
DEAD IN THE WATER?
Houses, hotel rooms, offices: you name
it, and its in short supply in Dublin. So
why we are no longer building?
Naomi Powell
irst, there were the queues
at property showings
twisting lines of potential
buyers anxious to find
homes before soaring
prices pushed them out
of reach.
Then there were families
uprooted by skyrocketing rents, many
forced into hostels and other temporary
digs as a last resort. And now, the news
is that Dublin City7 Council is looking at
pre fabricated houses on derelict sites to
shelter the growing numbers of homeless
people in the capital.
It can seem impossible that it has come
to this: the same country that churned
out more than 93,000 homes in 2006
- four times what economists say was
necessary - now finds itself unable to
address even the most modest demands
of the market.
Anditsnotjusthousingthatsin short
supply. Although the dynamics differ
across each sector, worrying shortages
of hotel rooms, suitable office space and
industrial property - particularly in Dublin
- are also taking shape, analysts say.
Although the solution is more complicated
than simply getting the cranes
up again, most agree that a failure to
kick-start construction will bring with
it significant consequences - ranging
from an alarming rate of homelessness to
a drag on the countrys efforts to attract
foreign direct investment
Ultimately, housing is a competitiveness
issue, Ronan Lyons, an economist
at Trinity College Dublin said in a speech
lastweek Inthepostdouble-Irish world
itll be about attracting skilled labour.
Already, he said, tech firms were straggling
to convince employees to move to
Dublin.
They look at what theyll get for their
euro and they say... I dont want to five
in that kind of market. I dont think were
past the tipping point there, but Id say
were approaching it.
Housing Agency figures suggest the
country needs an average of nearly 16,000
new dwellings annually, up to 9,000 of
them in Dublin. Builders are expected to
choke out just 10,000 homes in 2014, less
than 2,000 in the capital, where a severe
shortage has forced property prices up 25
per cent compared to last year.
So why arent builders springing back
to action?
According to the Construction Industry
Federation (CIF), the overwhelming
problem is the lack of development
loans. Without the money to fund projects,
builders cant get back to business,
and while several banks have said they
will resume development lending, it will
be on a significantly more conservative
basis than in the past, said Jimmy Healy,
a spokesperson for the CIF.
The sting in the tail is thattheyre only
providing up to 60 per cent equity of the
project, he said. So the construction
company has to raise the other 40 per
cent themselves. Unfortunately not many
construction companies who survived
the downturn and the lack of activity
have access to those kinds of funds.
The CIF has also called for lower levies
and taxes for builders and easier routes
to converting planning permissions for
apartments into single family homes. The
organisation also wants the current Part
V social housing requirement - in which
developers must set aside 20 per cent of
new developments for social or affordable
housing - to be replaced with a one
per cent levy across all house purchases.
The biggest concern, Healy insists, is
funding. Although the government has
pledged to explore the issue in its Construction
2020 strategy to stimulate the
building industry, the devil will be in the
details, Healy said. If we get finance
working, I think youll see a steady and
strong increase in the level of building.
But not everyone believes money is the
problem Indeed, the level of international
interest in the Irish property market
suggests the challenge rests elsewhere,
said Lyons.
If you cant get international investors
to build now, capitals not the problem,
its something else, he said.
The true deterrent, he said, can be
found in the added cost of construction
imposed by an overly top-down planning
approach. Specifications involving
the number of required parking spaces
and lifts and the orientation and size of
units add up to 35,000 to the cost of
constructing a single home in Dublin,
he said.
This is value-destroying because what
you are doing is making viable sites unviable
just through regulation.
US based investment funds were
among the first to enter the Irish market
after the crash and remain among
the most active buyers of residential and
commercial property. There are those
who believe that once the best deals on
existing property have been snapped up,
those investors will become developers
in their own right
Although Lyons agrees that the government
needs to review planning standards
to ensure they can be met at affordable
levels, John OConnor, chief executive
of the Housing Agency, said there are
currently a number of international
players who would be willing to invest
in construction as part of a longer term
play in Ireland.
As for funding, increased access to finance
from banks and investors is necessary
to return the market to health.
There has to be a mindset change among
developers, he said.
The day of getting 100 per cent development
finance from banks is gone.
The development industry has to accept
that they might get 50 per cent finance
from the banks and the balance has
to be got from investors or other equity
providers. They have to share the profits
with the investment sector.
Sunday Business Post*
Sunday, 5 October 2014
Page: 16
Circulation: 34322
Area of Clip: 99500mm
Page 2 of 2
For the moment, one of the key questions
facing the market is just how many
developers are still around. At the peak
of the bubble, about ten major building
firms provided 90 per cent of the housing
supply In Dublin.
Of those, roughly half have disappeared
from the market and those that remain
are operating at a dramatically reduced
capacity, some with a heavy debt load
to manage.
Weve gone through a very significant
downturn and a lot of the major developers
have either gone out of business or
their capacity at this stage is very minimal
compared to what it was, said OConnor.
Thats a big issue.
When the sector does get back on its
feet, it will need to address the changing
profile of Irish households. Housing
Agency research indicates that in the next
five years roughly half of all households
will be comprised of just one to two people,
suggestingmuch smaller units will be
required. That means more apartments
and more units for older people looking
to downsize, said OConnor.
There is a huge opportunity now to
ensure we build the right type of housing
in the right places, he said.
44
A failure to kickstart
construction
will bring with
it significant
consequences
See cover story, Property Plus