Paul Hannon
Director & Head of Sherry FitzGerald New Homes Munster and Council Member of the Society of Chartered Surveyors Ireland.
New Homes: Review of the Year
So, it looks like despite the pandemic lockdowns the New Homes building industry will deliver approximately 21,000 completions before the end of the year. This will be an excellent result given the building sector faced such immense challenges such as lockdowns, supply chain issues and policy interventions.
As 2020 was, 2021 has been another year of change, but the difference this year has been that Government have produced major policy interventions which are being introduced and will impact on how housing is planned and delivered for the long term. These interventions have included adjustments to stamp duty rates to planning reform, de-zoning and rent controls, judicial reviews, and development plan challenges. The sector has been hit with a lot and is constantly evolving. The obvious and well documented major issue for home building has been the global supply chain, which has created hold ups and cost increases across the board.
One must remember the entire private home building sector was locked down for over three months earlier this year. Given social housing projects were allowed to continue while private schemes had to shut has resulted in distorted results in terms of the numbers of New Homes delivered in 2021.
As we all know housing is an emotive issue, and throughout 2021 we have seen heated debate amongst many commentators relating to the issues and changes proposed. The lack of supply of private housing and the delays in construction have impacted aspiring home buyers. It is vital for us all as a sector to be more empathetic to the needs and perspectives of all those who are affected. We need to create a sustainable environment, a planning system and market to deliver homes for all, whether for sale or for rent.
Housing for All
I broadly welcome the measures outlined in the Housing for All plan. It is wide ranging, detailed and recognises that there are many current failings in the market that need to be addressed. It is positive to see such a substantial investment committed. A serious ramp up in construction will be needed to fulfil the target of 33,000 new homes a year for the next decade. Just 11,300 on average were built each year between 2011 and 2020. The Government is looking to essentially double output. To see this through, both public and private sectors will need to improve their collaboration and engagement.
Home ownership and affordability are at the core of the plan. We have been campaigning for some time to set clear targets by tenure and it is encouraging to see a clear breakdown. The plan recognises the affordability and viability gap that is currently present in the market and outlines a number of new measures to address these e.g. Croí Cónaithe Fund (Cities), First Home – Shared Equity Scheme. This is to be welcomed as not much had been done in these areas previously, particularly in terms of viability.
Unfortunately, the plan lacks substantive supply side measures and has little that will reduce the high cost of construction. The document contains few measures that will stem the current outflow of small private investors from the Irish rental market. Between 2016 and 2020, the number of tenancies nationally registered with the RTB fell by nearly 22,000. This is resulting in significant rental inflation.
The challenges and practical difficulties for the sector include bridging the affordability and viability gap. The cost of new housing is still largely too expensive for people to afford. While H4All has some measures to try and reduce this, it is limited in scope e.g., the funding provided for First Home would only allow a limited number to make use of the scheme.
The cost of delivery of new housing is already substantial, and this is likely to rise further in the future as increased demand for materials and labour raises their costs. This could have a knock-on effect on overall output. The lack of skilled workers available and a reduced pipeline of young apprentice trades people coming through is also concerning.
Buyer side incentives are incredibly important and there is no doubt the Help-to-buy scheme has been successful; it has supported almost 30,000 new home owners. Of the more than 7,000 new home sales we have managed over the past five years, over 80% have been below the Help-to-buy threshold. The timing of the review planned during 2022 will be important as it could result in a ‘hysteria’ from buyers to ‘use it or lose it’.
Meanwhile, we await the announcement of the full details of the First Home Shared Equity Scheme. Recently approved by the Central Bank, this much misunderstood initiative will widen market access and allow people who are currently unable to buy realise their aspiration of owning a home. Repayments will be affordable, typically at around 21% of the net disposal income, and should activate the building of more new homes than have been otherwise possible or indeed viable.
Project Tosaigh, which is being managed by the LDA is at expressions of interest stage. The plan is to provide up to 5,000 cost rental and affordable units. Cost rental is a private tenure and will support households with incomes of €45,000 to €80,000, with typical rental payments set at up to 30% of net income. An important cohort of our population should benefit from this initiative.
The Croí Conaithe (Cities) Fund, managed by the Housing Agency is again at its early stage. It includes a subsidy of up to 20% (equivalent of VAT and levies) to support the delivery of owner-occupier apartments.
One more element of the plan to note is the National Downsizing Strategy. Handled correctly, it could be meaningful and could assist in unlocking exiting homes for the ‘trader’ market.
2022 and beyond challenges
Considerable liquidity and funding will be required to deliver the plan: €250bn to €300bn will need to be invested across the residential sector over the next nine years. This figure will require the participation of many stakeholders including private owner occupiers and investors of all sizes, as well as the Irish State. There is no doubt the Central Bank mortgage rules have a role to play, but our constrained liquidity is hugely conservative (forcing many aspiring homeowners to rent). Ireland needs much greater liquidity in line with other jurisdictions who benefit from more varied controls.
2022 is a year of hope……challenges of lockdowns, reactionary policy changes and supply chain issues have delayed many development projects in the year past, but there is promise that some ‘pent-up supply’ will come through in 2022. We have visibility, of a number of significant new housing developments nationally and regionally which should come to the market next year with completions picking up a pace from 2022 and beyond. Most forecasts suggest an uplift of some 24% to 26,000 homes being completed in 2022.
The type and location of new homes being built is set to change too. Design and much needed sustainability innovations are a hallmark of several exciting new projects. The working from home phenomenon has led to a desire for larger homes, and there is also strengthening demand outside the Capital. We have witnessed a marked increase in people choosing to find more space and choice in the cities of Cork, Galway, and Limerick.
The challenges we face in our housing system are consistent with many countries across the world. At least as we enter 2022 there is a robust new plan, strong momentum, and political endeavour. Let us all do our best to play a part in its successful delivery.