The following article originally appeared in the Leinster Leader
Both sticks and carrots needed to secure housing delivery in Kildare and nationwide
Since the scale of the current housing crisis became apparent, government has been highly responsive to the demands of the development industry. Surely there must come a point when we ask how much more we are expected to give without asking for something in return?
In advance of the coming budget, suggestions are being made as to the kind of incentives that might encourage developers to start building housing.
Fianna Fáil has made the suggestion of reducing VAT on new construction. Another idea floated has been exemptions from Capital Gains Tax that might see sites released more quickly. But supports to help developers are nothing new.
Examples of concessions made to the development sector over the last few years are numerous. Space standards for apartments in Dublin were blamed for high construction costs and were reduced by Minister Alan Kelly.
The planning process was blamed for slowing down developments and numerous reforms were introduced, including extending permissions for housing developments up to 2021. The costs of providing infrastructure were blamed for undermining scheme viability and €226 million was earmarked for the Local Infrastructure Housing Activation Fund.
Difficulties accessing finance were blamed for the low numbers of first time buyers and the Help-to-Buy scheme was introduced.
No one disputes that developers of property are entitled to make a reasonable profit on their investment, their work, and on the risks they undertake. Nonetheless, we need to recognise that land hoarding is a real problem within our current development system and that it is having a profoundly negative impact on the current housing crisis.
This situation was acknowledged by Brendan McDonagh of NAMA who noted that while the agency had sold land with the potential for 50,000 housing units, only 3,000 of those were being delivered.
With rapidly rising house prices and more favourable lending terms permitted by the Central Bank, the often repeated concerns around viability are becoming more and more difficult to sustain. Increasingly, it is becoming easier to believe that certain land owners are holding land for speculative profit, rather than seeking to secure its productive use.
Numerous carrots have been offered to try and incentivise development. Now, with record numbers homeless and an escalating affordability crisis, it is surely the time for us to consider the use of some sticks.
Action on vacant sites
One option to promote the use of land is the vacant sites levy. This levy will come into force in 2018 but won’t fall due for payment until 2019.
Local authorities can charge up to 3 per cent of the market value of a site, but discounts are available where loans are attached to properties. The values of residential development land rose by 14 per cent in 2016 and are forecast to rise by 17 percent again in 2017. In other words, the cost of the vacant sites levy is easily offset by rising land values.
Some more dramatic intervention is now needed to compel landowners either to use their sites productively, or to get out of the way of those who will.
One obvious option is compulsory purchase, but this route represents the nuclear option – putting the state up against the very strongly protected property rights of the individual. It would potentially also only serve to add yet more land to an already under-utilised state land back.
Far preferable would be a stick that actually achieved the objective of compelling the current landowner to realise the existing development potential of their site. The potential role of the planning system in performing such a task should now be explored.
It is well-known that most of the value of a residential site comes not from the inherent value of the land, but from the land use zoning and any planning permissions that are associated with it. The potential loss of that value is one mechanism that might cause land speculators to prioritise securing development.
A zoning and a planning permission represent a licence from the community to provide development to meet an agreed need. If land owners are sitting on sites and failing to develop them, then the contract between the land owner and the community has been broken.
Is it unreasonable that if a permitted development is not achieved within the very generous timeframe allowed, then not only the value of the permission, but of the zoning, should also be forfeited?
In such a case, the value of the land would revert to its underlying, agricultural value.
Now, with the ticking time bomb of loss of value to focus minds, landowners would have a real incentive to press ahead with delivery. In the event that they still fail to do so, a steady supply of low cost sites would become available to state and local authorities to deliver the housing we so badly need.
Michael is a tenant member of Goodwill Housing Co-operative in Co. Kildare and chair of Co-operative Housing Ireland, which is the national association representing, promoting and developing the co-operative housing movement in Ireland since 1973.