Rationale for and Impact of a
Use It or Lose It Scheme
December, 2003
Goodbody Economic Consultants
Ballsbridge Park, Ballsbridge, Dublin 4  Tel: 353-1-6410482  Fax: 353-1-6682388
www.goodbody.ie/consultants/ 
e-mail – econsultants@goodbody.ie
Table of Contents
1.
Introduction
1
2.
Developments in the Housing Market
3
3.
Impact of Land on Housing Supply and Prices
11
4.
Evidence of Hoarding
19
5.
Evaluation of Impacts
32
6.
Conclusions
39
List of Tables
2.1
2.2
4.1
4.2
Annual Inflation in Dublin Land Prices
House Completions, 1996-2002
Land Banks Held by UK and Irish Firms, 2002
Availability of Zoned Undeveloped Land in Dun-Laoighaire Rathdown,(1999 – 2003)
4.3
Status of Undeveloped Zoned Services Land in Housing Units in Dun-Laoighaire Rathdown
(June 1999 – June 2003)
Availability of Zoned Undeveloped Land in Fingal (1999 –2002)
Status of Undeveloped Zoned and Serviced land in Housing Units in Fingal (June 1999 –
June 2003)
5
6
20
22
4.4
4.5
22
25
26
List of Figures
2.1
House Price Trends
3
Executive Summary
The Department of Environment, Heritage and Local Government is currently examining a
specific proposal aimed at accelerating the supply of land for affordable housing development:
this would be based on the principle of “Use or Lose”.
The purpose of this study was to provide an economic proofing of the proposal. This was to be
done by reference to the factors impeding the supply of land to the market, including the
hoarding of land.
The report identifies three types of hoarding behaviour:

Commercial hoarding: Purchasing or optioning land in excess of immediate needs, so as to
ensure a future supply of an essential material input.

Speculative hoarding: Purchasing or optioning land, but holding it vacant in anticipation of a
more profitable development opportunity in the future.

Oligopolistic hoarding: Purchasing or optioning land in a particular market area, seeking to
exercise some oligopolistic control over that market, and thus obtaining higher prices for
housing output.
Oligopolistic hoarding is of much greater concern than the other two types. This is because the
extent of commercial hoarding will be limited by the builder-developers output levels and thus the
reserves of land that he must hold. Speculative hoarding will eventually be limited by a market
correction, although this could take a considerable time to occur. However, oligopolistic hoarding
could persist indefinitely.
The study considered previous analyses of the housing and land markets, including the three
Bacon reports. These analyses noted the rapid house price inflation and inadequate supply of
housing in the Dublin Metropolitan area in the 1990s. The prevailing view was that these aspects
of the market reflected very strong market demand conditions coupled with an inadequate supply
response. The latter was partly due to a lack of zoned and, particularly, serviced land. Hoarding of
land was not considered to be a significant factor.
Government policies have emphasised a number of supply side measures, including increasing the
volume of serviced land, raising housing densities, and the zoning of additional lands for housing.
The housing market in the Metropolitan Area has responded with a 31 per cent increasing in
housing output being recorded in 2002, and an anticipated housing output of 12,500 units in 2003.
The study then considered the direct evidence for hoarding by considering information on
builders’ land banking behaviour and from three case studies, relating to Dun Laoighaire
Rathdown County Council area, Fingal and Ennis and Environs.
With regard to land banking, although the data on Irish building firms are limited, there is no
evidence of excessive levels of land banking compared with UK experience.
The study noted that it is very difficult to prove that speculative or oligopolistic hoarding is taking
place. It is easier to identify when such practices are not impacting on the supply of development
land. For example, if it is observed that a high proportion of zoned and serviced land is brought
speedily to development stage, then it is clear that such practices are not seriously affecting
supply. Conversely, if it is observed that a high proportion of zoned and service land is inactive
and is not being brought through the planning process, then this opens up the possibility that
speculative or oligopolistic hoarding is having an effect on the market.
With regard to the three case study areas, it was concluded that there was no evidence that
hoarding was a widespread problem. This is particularly clear with respect to Dun Laoighaire
Rathdown and Ennis and Environs. The situation in Dun-Laoighaire Rathdown is particularly
instructive. This is an area in which the availability of zoned and serviced land has been limited.
This could be perceived as creating a particular opportunity for hoarding of land and market
manipulation. The evidence is, however, that a very high proportion of zoned and serviced land is
being brought forward for development through the planning system in a speedy fashion.
The situation with regard to Fingal is less clear cut. The availability of zoned and serviced lands is
such that a much higher level of housing output than was the case could have been achieved in the
recent past. It is not possible to identify precisely the reasons for this. However, it is noted that
housing output in Fingal more than doubled between 1996 and 2002, so that the building industry
may have been experiencing capacity constraints.
While there is no evidence of hoarding of land on a large scale, examination of one area of Dun
Laoighaire Rathdown revealed that one builder has control over a significant proportion of the
lands, but has yet to bring a scheme through the planning process. There may be case for
intervention in such instances.
The study then provides a number of indicators to which Local Authorities should have regard if
they are considering a limited intervention in the market in the form of a use it or lose it scheme.
These are:
The Extent of Inactivity of Zoned and Service Lands

A significant proportion of zoned and serviced land is not being brought through the planning
and development process. A threshold of, say 25 per cent could be considered.
The Ownership Structure of Inactive Lands

The major portion of inactive lands are in the ownership of active market participants viz.
builder-developers rather than farmers, private individuals or religious or other institutions
The Extent to which Housing Output falls short of Housing Needs

Current housing output is at a lower level than requirements as set out in the Housing
Strategy; and those requirements are deemed to be still relevant;

Anticipated future housing output in the short term is similarly deficient, as indicated by the
pipeline of houses under construction;
The Market Situation as indicated by House Price Inflation
The rate of house price inflation should be high and escalating, indicating a continuing tightening
of supply.
1.
Introduction
1.1
General
The Department of Environment and Local Government is currently examining a specific proposal
aimed at accelerating the supply of land for affordable housing development: this would be based
on the principle of “Use or Lose”. The following is a general outline of how this proposal might
operate:

The local authority would identify suitable plots of land for development following an
examination of housing needs;

The land would be designated for acquisition by the local authority and the owner would be
given a specified period in which to secure planning permission; once the landowner secures
planning permission, a further time limit will be set for the completion of the development;

If the landowner fails to comply with the above the local authority may acquire the land by
Compulsory Purchase Order; the price paid for such land would be at a specified percentage
above agricultural value;

If a local authority acquires land in this manner it would be required to develop it or procure
its development within a specified timeframe.
The purpose of this study was to provide an economic proofing of the proposal. This was to be
done by reference to the position in three housing authorities, two urban and one rural. This
analysis was to include:
1.2

A profile of development land available for housing and the factors impeding its supply to the
market, including the hoarding of land; and

Evaluation of the market and other impacts of the proposal.
Context of the Analysis
This study is concerned with an economic proofing of the proposal. As such, its main concern is to
establish whether there are inefficiencies in the housing and land markets arising from hoarding
behaviour. It is not concerned, for example, with equity considerations. Thus, the fact that the
betterment value arising from the zoning of land for residential purposes may accrue to relatively
few individuals is not an issue that is addressed.
In order to assess economic impacts, there must be some vision of what an economically efficient
market would look like. This is usually taken to be a market where the forces of demand and
supply are free to operate. Viewed against this background, economists regard the planning
development and control system as restrictive in that it interferes with the operation of market
forces. This is not to suggest that the planning development and control system is without value or
is unduly restrictive. There are negative external effects associated with free market operation that
justify the system from a wider perspective.
1
1.3
Layout of the Report
Section 2 of the report provides a background to the evaluation of the proposal, by considering
developments in the housing and land markets and Government policies. Section 3 assesses the
impact of land availability on housing supply and prices. Section 4 considers evidence that
hoarding is a contributory factor in determining housing supply. The impact of the proposed
initiative is considered in Section 5. Conclusions and Recommendations are considered in Section
6.
2
2.
Developments in the Housing Market
2.1
Introduction
Through the 1990s, the rate of increase in house prices far outstripped increases in general
inflation. This has caused concern in relation to the affordability of housing, particularly for first
time buyers. As a result, the Government has commissioned several analyses of the housing
market and has put in place a variety of policy measures, action plans and legislation to reduce the
rate of growth in the price and cost of housing. These analyses and policy decisions provide
insights into the factors that have hindered housing supply. Government policy has been to
increase housing supply in order to meet demand, thereby reducing the upward pressure on house
prices. This section provides an overview of the trends in land and house prices and discusses the
analyses undertaken and the policy decisions made, with particular reference to measures to
increase supply.
House Price Trends
Between 1996 and the first quarter of 2003, the average price of a home in Ireland increased by
172 per cent. This represented the combined increase of 147 per cent in the price of new homes,
and 193 per cent in second hand homes. In the Dublin area, the price of homes increased even
more dramatically, with prices rising by 220 per cent between 1996 and 2003.
Figure 2.1 below shows that house prices in Dublin have more than doubled since 1996. The
growth in prices has occurred in every year during this period, but the rise was highest in 1998 and
2000. Furthermore, the rate of increase has been far higher in Dublin than in other areas of the
country.
Figure 2.1: House Price Trends, Dublin and National, 1996 - 2003
Dublin
National
300
250
Euro '000s
2.2
200
150
100
50
0
1996
1997
1998
1999
2000
2001
2002
Q1
2003
Time Period
Source: Department of the Environment, Heritage and Local Government
The rapid increase in house prices reflected the strong growth in demand for housing since the
mid-1990s. This demand arose for a number of reasons. The population grew strongly, partly on
foot of significant net immigration. Population growth in the key age cohort of 25 to 34 years was
3
particularly substantial, giving rise to increased headship rates and demand from first time
purchasers. Rising disposable incomes and low interest rates facilitated high levels of demand.
2.3
Land Price Trends
Comprehensive and coherent data on land prices are difficult to assemble largely because of the
variability in land purchases in terms of plot size, location and the ultimate uses to which the land
may or can be put. Thus, sites with planning permission for high-density apartment development
in prime urban locations are likely to command much higher prices than sites for housing on the
urban fringe. The heterogeneity of land deals presents challenges for the development of a
consistent index of land prices. In this study, two sources have been used. The first relates to the
annual survey of land prices conducted by IAVI. Currently, approximately 100 estate agencies
provide data on nation wide trends through this survey. The second relates to direct inquiries to
estate agencies made by the consultants. The results of the IAVI survey for the Dublin area over
the period 1996 to 2002 are set out in Table 2.1. 1 These indicate very rapid price inflation in the
period 1996 to 1999 of over 25 per cent per annum. This was followed by two years – 2000 and
2001 - in which land prices tended to fall, only for the upward trend to re-establish itself in 2002.
For the period 1995 to 2002 as a whole the data suggest that land prices increased two and one half
times.
Direct enquiries with estate agents and the data collected from them suggest a more than trebling
of prices in the same period. These direct enquiries revealed a similar pattern in the trend of land
prices to the IAVI survey, in particular the decline of land prices in 2000-2001 and the subsequent
resumption of inflation. The decline of land prices in 2000-2001 may be attributed to a number of
factors including tighter margins in the building industry arising from cost inflation and the
confirmation by the Supreme Court in August 2000 of the constitutionality of Part V of the
Planning and Development Act, 2000.
Table 2.1. Annual Inflation in Dublin Land Prices
Year
Land for Houses
Land for Apartments
(%)
(%)
1996
1997
1998
1999
2000
2001
2002
N.a.
23
N.a.
N.a.
-10
-10
12
N.a.
28
N.a.
N.a.
0
-9
13
Land for Residential
Developments
Generally
(%)
26-29
N.a.
N.a.
26
N.a.
N.a.
N.a.
Source: IAVI Annual Survey
1
Data for 1998 were not available. It should be noted that the statistical error in the survey results may vary from year to year,
depending on the survey response rates.
4
2.4
Land Costs and House Prices and Costs
Data on the proportion that land costs are of total building costs or of house prices are not easily
obtained. Land purchased for housing may take some years to develop, so that land costs and other
building costs are incurred at different periods of time. The Joint Oireachtas Committee on
Building Land (1973) examined a number of housing developments and developed two indicative
models to indicate the relative order of magnitude of the components of building cost and house
prices. These models suggested that land purchase costs could account for 27 per cent to 34 per
cent of building costs and between 20 and 40 per cent of house prices. The reason for the greater
variability in relation to house prices arises from the lag between land purchase and the sale of the
housing and the potential for the prices that can be commanded for houses to reflect changing
market conditions.
One way of estimating whether these estimates are still relevant is to examine the price paid for
development sites currently and to relate these land costs to the price that housing on these sites
would command at current market prices. Data on a number of site deals and on the number of
housing units for which planning permission had been granted on these sites were collected from
estate agents.2 Approximate market values were then ascribed to these housing units. The results
indicated that land costs were in the range of 20 to 33 per cent of house prices, depending on the
location and the nature of the development.
The Annual Construction Industry Review published by the Department of Environment, Heritage
and Local Government posits a figure for land costs at 22 per cent of the house price in 2002. This
is a nation-wide estimate rather than one focused on urban areas. 3
2.5
Housing Supply
The number of private dwellings built annually in the State has tripled from 19,000 to almost
58,000 between 1993 and 2002. Most of this increase has taken place since 1996, as shown in
Table 2.2 below.
The trend in the Dublin area was quite different. The annual rate of new home completions in
Dublin has risen by 34 per cent in the past six years, but this is well below the increase in the
country overall, which was 71 per cent. As a result, the proportion of new homes completed in the
Dublin area has fallen from 28 per cent to 22 per cent as a proportion of national house
completions. However, Dublin has still seen the addition of 69,396 homes in the past seven years,
64,000 of which were private homes. In addition, output in 2002 at 12,623 houses represents a
significant increase on previous years.
There are four Local Authorities within the Dublin area, and there has been a significant variation
in the number of units completed in each. Both Fingal and South County Dublin each account for
34 per cent of house completions in Dublin over the past seven years. Dublin City Council account
for a further 25 per cent, and less than 9 per cent of all housing has been constructed in the area of
Dun Laoghaire-Rathdown.
In addition, house building in the counties surrounding Dublin (Meath, Wicklow, Kildare and
Louth) has seen housing output double from 5,191 per annum in 1996 to 9,975 per annum in 2002.
2
3
Lisney, Gunne and HOK.
See: Construction Industry Review 2001, Outlook 2002-2004. Department of Environment, Heritage and Local Government, 2002.
5
Table 2.2: House Completions, 1996-2002
1996
1997
1998
1999
2000
2001
2002
Dun
LaoghaireRathdown
Fingal
South
County
1,053
712
549
886
860
1,166
785
2,024
2,707
2,618
4,296
4,044
3,602
4,308
2,244
2,479
2,013
2,049
2,139
1,746
3,406
Dublin City Dublin Total National Total
4,125
3,427
3,777
2,804
2,362
3,091
4,124
9,446
9,325
8,957
10,035
9,405
9,605
12,623
33,725
38,842
42,349
46,512
49,812
52,602
57,695
Source: Housing Statistics Bulletin - Department of Environment, Heritage & Local Government
2.6
Government Policy
2.6.1
General Background
The rapid rise in house prices especially in the Dublin area and the evidence that house purchasers
were being forced to consider commuting from locations at some distance from the Metropolitan
Area raised concerns about the efficiency of the housing market and the factors hindering the
supply of houses. The Government policy has been influenced by three reports, which were
commissioned from Peter Bacon and Associates over a three-year period from 1998 to 2000. The
Planning and Development Act 2000, which was amended in 2002, has been an important vehicle
for change in relation to housing.
The chronological order of these measures is as follows:

Bacon 1: An Economic Assessment of Recent House Price Developments (March 1998);

Bacon 2 : The Housing Market: An Economic Review and Assessment (March 1999);

Bacon 3 : The Housing Market in Ireland: An Economic Evaluation of Trends & Prospects
(June 2000);

Planning and Development Act 2000 (March 2002);and

Planning and Development (Amendment) Act (2002)
Immediately following the publication of each of the Bacon reports, the Government produced an
action plan based on the recommendations of the report, and adopted various measures in
subsequent budgets.
6
2.6.2
Overview of the Bacon Analysis
In general terms, the Bacon analysis concluded that the increase in house prices in these years was
due to a mismatch between demand and supply. There was a strong growth in demand arising
from:

economic convergence with European living standards due to
- rising levels of real personal disposable income per capita
- increasing employment
- net immigration

rapid growth in the rate of household formation; and

falling interest rates that encouraged expansion of mortgage credit
The supply response was insufficient to match demand, with the result that house prices were
subject to strong upward pressures. Bacon recommended a series of supply side measures aimed at
achieving a demand-supply balance. 4
2.6.3
Measures Adopted
In the light of the Bacon analysis, the Government introduced a number of new measures and gave
renewed emphasis to some existing measures. These included:
Density
It was recommended that more efficient use be made of development land by allowing for
increased density of development. This was supported by Government policy and the release of
Residential Density Guidelines for Planning Authorities in September 1999, that resulted in the
inclusion of policies and objectives in development plans supporting increased densities,
particularly on lands approximate to existing or proposed public transport corridors.
Serviced Land Initiative
If the potential of housing land was to be realised effectively, that rapid investment in water,
sewerage and road infrastructure was necessary in Dublin, as well as investment in social
infrastructure such as schools and public transport.
Additional funding was subsequently made available for the existing Serviced Land Initiative,
which had been introduced in 1997. Priority was given to the Dublin region in particular.
Rezoning
Significant additional lands were proposed for housing in the Dun Laoghaire-Rathdown, South
Dublin, Fingal and Dublin City Development Plans to improve the supply of residential lands.
Use of Strategic Development Zones for Housing
The Planning and Development Act 2002 made it explicit that Strategic Development Zones
(SDZs) could be used for residential development with the aim of expediting the development of
large-scale residential sites.
4
See Appendix A2, for an overview of the Bacon analyses.
7
Removal of Water and Waste Water Infrastructural Constraints
Key water and waste water infrastructural projects that were essential for the release of housing
land were identified, and the Government adopted measures to address the issues of project offices
for key water and sewerage projects, amendments of wayleave procedures, and additional schemes
under the Serviced Land Initiative.
Enhancement of Planning Resources
Measures to make better use of existing planning resources and to increase the number of planners
produced by the education system were also introduced, and a commitment given that adherence
by local authorities to encouraging increased densities would be monitored.
Planning and Development Act 2000
New streamlined procedures for the making of development plans at county and local level within
a regional planning framework. Procedures for dealing with planning applications and public
involvement in these procedures have been improved under the Act.
Part V
The Act contained radical measures in relation to the provision of affordable or social housing.
Under Part V of the Act, all local authorities are obliged to prepare housing strategies that estimate
the need for all types of housing, including social and affordable housing, for the population in
each area. In addition, a proportion, up to a maximum of 20 per cent of residentially zoned land in
each area must be reserved for the local authority for the provision of social and affordable
housing.
Planning and Development (Amendment) Act 2002
In 2002, the Government introduced the Planning and Development (Amendment) Act 2002. The
primary purpose of the Act was to amend the Planning and Development Act 2000 particularly in
relation to the housing supply and social housing measures of Part V.
Most importantly, the act introduces other ways in which developers seeking planning permission
can comply with the Part V requirements of the 2000 Act. Instead of reserving land within the
boundaries of the land that is the subject of the planning permission application, developers can
also agree with the local authority to:
2.6.4

Reserve land, services sites or units at another location;

Make a payment to the local authority which it would use for other social and affordable
housing schemes; or

Arrange a combination of the above.
Impact of Government Policies
There are strong indications that the policies that were put in place by Government are bearing
fruit. In 2002, there were 12,623 house completions in the Dublin area, representing an
exceptional increase of 31.4 per cent over the previous year. Data for the first quarter of 2003
suggests that a similar level of output will be achieved in 2003.
8
2.7
Conclusions
Between 1996 and the first quarter of 2003, the average price of a home in Ireland increased by
172 per cent. In the Dublin area, the price of homes increased even more dramatically, with prices
rising by 220 per cent between 1996 and 2003.
There was a very rapid rate of land price inflation in the period 1996 to 1999 of over 25 per cent
per annum. This was followed by two years – 2000 and 2001 - in which land prices tended to fall,
only for the upward trend to re-establish itself in 2002. For the period 1995 to 2002 as a whole the
data suggest that land prices increased by two and one half to three times.
Land costs are in the range of 20 to 33 per cent of house prices, depending on the location and the
nature of the development.
The number of private dwellings built annually in the State has tripled from 19,000 to almost
58,000 between 1993 and 2002. Most of this increase has taken place since 1996.
The trend in the Dublin area was quite different. The annual rate of new home completions in
Dublin has risen by 34 per cent in the past six years, but this is well below the increase in the
country overall, which was 71 per cent. As a result, the proportion of new homes completed in the
Dublin area has fallen from 28 per cent to 22 per cent as a proportion of national house
completions. However, Dublin has still seen the addition of 69,396 homes in the past seven years.
The slower rate of increase in housing supply in the Dublin area was analysed through a series of
reports. While both demand and supply side measures were adopted to remedy the situation, the
emphasis of policy was on increasing the volume of serviced land, raising housing densities,
zoning of additional lands for housing, and the use of Strategic Development Zones for residential
purposes.
There was an exceptional increase of 31.4 per cent in housing output in the Dublin area in 2002.
There are indications that housing output will once again exceed 12,500 units in 2003.
9
3.
Impact of Land on Housing Supply and Prices
3.1
Introduction
This section of the report examines the role of supply and demand side factors in determining
house and land prices. Consideration is then given to outlining a number of features of hoarding
behaviour. Finally, the views of various commentators and authorities on the issue of hoarding are
set out.
3.2
Role of Supply and Demand Factors
Historically, there have been two opposing views about the role of supply side factors such as land
in determining outcomes in the housing market. The first view held that supply side factors are
relatively unimportant in the housing market because new houses make up such a small part of the
total housing market. On this view, house prices are determined by the overall market conditions,
which is dominated by developments in the used housing sector. Constraints on land or new
housing supply are unlikely therefore to push up land or house prices. Rather, house prices reflect
the demand for housing, with land prices in turn being determined as a residual, after the other
costs of bringing houses to the market have been met.
The second view, while not denying a contributory or even a primary role for the demand for
housing in determining house and land prices, takes the approach that supply-side factors also
impinge on the market. The supply side factors usually considered in this regard are:

The planning system, with its impact on the availability of land through the zoning of
adequate land under the development plan, the servicing of that land, and the granting of the
requisite planning permissions.

The capacity or willingness of the building industry to respond to changes in the quantity or
quality of housing demanded in the market place.
With regard to the impact of the planning system, there is now a large body of evidence, which
supports the view that the more restrictive planning systems serve to raise both land values and
house prices. With regard to the USA, these studies have demonstrated the impact of zoning
provisions of varying severity in different States on the operation of the housing and land markets,
by comparing pre and post zoning impacts for individual States as well as cross-State impacts.
Similar studies in the UK examined, for example, differences in the impact of planning systems in
two towns, one of which operated a stronger planning control system than the other. Monk and
Whitehead provide an overview of the literature in this regard. 5
3.3
Elasticity of Supply
A second stream of literature has examined the elasticity of supply in the housing market. A recent
review of this literature concludes that while short run supply elasticities are low, the reverse is
5
Sarah Monk and Christine Whitehead. Land Supply and Housing: A Case Study. Housing Studies, Volume 11, No. 3, 1996.
10
true of long run effects.6 This is consistent with the view that the building industry requires time to
respond to demand, but that a substantial response eventually occurs. This lagging of supply may
occur both because of the failure of planning authorities to zone and service sufficient land, the
inability of existing building companies to expand rapidly, or the time taken by new companies to
enter the market. Given this lagged response and depending on the variations in demand levels, the
housing market may be characterised by periods of over and under supply, leading to rapid
increases or reductions in house and land prices. This process of boom and slump is reinforced, if
the planning system is characterised by restrictions punctuated by once-off and substantial
additions to the areas zoned for housing.
3.4
Hoarding of Land
The shortfall in housing output that occurred in the 1990s has often been attributed by popular
opinion to the hoarding of land. The implication is that hoarding has reduced the supply of land for
new housing, with reduced housing output and raised house prices. This is an issue that has
received relatively little analysis in either the international literature on the housing and land
markets or in the analyses of the Irish housing and land markets. Hoarding of land can have a
number of dimensions or meanings. It may refer to builder developers who:
3.5

Purchase or option land in excess of their immediate needs, so as to ensure a future supply of
an essential material input. We will refer to this as commercial hoarding;

Purchase or option land, but hold it vacant in anticipation of a more profitable development
opportunity in the future. We will refer to this as speculative hoarding ; or

Purchase or option land in a particular market area, seeking to exercise some oligopolistic
control over that market, thus obtaining higher prices for their housing output. We will refer
to this as oligopolistic hoarding.
Commercial Hoarding
If zoned and serviced land is scarce relative to demand, then a prudent builder will seek to reduce
risk by holding land in excess of his immediate needs. This will ensure that he can maintain or
increase output and thus revenue levels into the future. It will also ensure that he is in a position to
maintain his direct or sub-contracted workforce and avoids the financial and management costs
associated with varying the level of resource input. The alternative would be to rely on the
purchase of ready-to-go land, which may not be available when land supply is constrained. It is
clear, of course, that the more restrictive the planning system, the greater the extent to which
commercial hoarding will occur. If the builder anticipates that zoned and serviced land will be
restricted in future or that negotiating the planning system will take a long time, then he will tend
to hold a long pipeline of land for his future use. This type of hoarding can thus be seen as a
commercial reaction to the market, the extent of which is exacerbated by the restrictive nature of
the planning system.7 As such, intervention policies that would penalise the builder for this form
of hoarding may not always be appropriate.
6
Stephen Malpezzi and Duncan MacLennan. The Long Run Price Elasticity of Supply of New Construction in the United States and
the United Kingdom. Journal of Housing Economics, September 2001.
7
The term restrictive here is used in the context set out in paragraph 1.2. It is not meant to imply that the Irish planning system is
more restrictive than others.
11
3.6
Speculative Hoarding
If market demand is expected to grow and land prices to appreciate over time, then there is an
incentive for market participants to acquire land and hold it vacant in anticipation of a rise in its
value. Investors will continue to hold land provided that its rate of appreciation exceeds the net
cost of holding it by a sufficient margin to provide an adequate return on capital. Such holding of
land can become excessive, if investors suffer from ‘disaster myopia’ and do not foresee the
possibility of oversupply in the market and a fall in asset prices. The outcome may be a
speculative bubble in which the reserve price of land exceeds its fundamental value. 8 This will
result in an overshooting of the market and volatility in house and land prices. The more restrictive
the planning system, with consequent discontinuities in the availability of building land, the more
volatile house and land prices may be. Viewed against this background, policy interventions to
improve the availability of building land would serve to reduce expectations of future price
increases and thus avoid excessive speculation.
In general terms, however, speculative hoarding will restrict the rate at which land becomes
available for development, especially during a period where market demand is rising rapidly.
3.7
Oligopolistic Hoarding
If builder-developers obtain ownership or control over a significant proportion of building land in
a given market, then they will be in a position to influence the overall supply of land to the market,
and thus its price. This practice can also reduce the contestability of the market, by creating
barriers to entry for builder-developers, who do not currently have access to land. The extent to
which this type of hoarding is possible depends on the nature of the housing market. If the market
is spatially segmented, so that housing in one area is not a close substitute for that in another area,
then builder-developers with significant land holdings in a given area may be in a position to
exercise market power. The trend for workers in Dublin in the recent past to opt to purchase
homes in towns some distant from the capital, suggests that there is a limit to the spatial
segregation of markets.
There is relatively little in the housing literature that would support or deny the existence of
oligopolistic hoarding. Rydin, in comparing two areas in the UK, established that in the area where
the planning system was more restrictive, builders focussed their activity on land deals. In
contrast, in the less restrictive area, the focus was on housing construction. When planners
released additional land, competition from other developers raised the rate of new building. 9 At
best, this suggests that the extent to which oligopolistic hoarding is possible is circumscribed by
local housing market conditions.
Oligopolistic hoarding is of much greater concern than the other two types. This is because the
extent of commercial hoarding will be limited by the builder-developers output levels and thus the
reserves of land that he must hold. Speculative hoarding will eventually be limited by a market
correction, although this could take a considerable time to occur. However, oligopolistic hoarding
could persist indefinitely.
8
See: Stephen Malpezzi and Susan Wachter. The Role of Speculation in Real Estate Cycles. The Center for Urban Land Economics
Research, University of Wisconsin, 2002.
9
Y. Rydin. Residential Development and the Planning System: a study of the Housing Land System at the Local Level. Progress in
Planning, 24(1), 1985 as reported in Monk and Whitehead Op.cit.
12
3.8
Role of Land Purchase Options
Land purchase options are private contracts whereby builder-developers acquire the right to
purchase land from a landowner at some future date. They are a relatively cheap means by which
builder-developers acquire control over land. They are a thus a potential means by which builderdevelopers could hoard land.
However, as with the purchase of building land in excess of immediate needs, land purchase
options may be seen as a legitimate means of reducing risks associated with land development.
For any builder-developer considering the purchase of a plot of land, there are risks arising from
the fact that land may not be currently zoned for residential use, or if zoned may not be serviced.
Even if the land is zoned and serviced, it may not be immediately marketable, because of, say
inadequate transport links. Finally, there is uncertainty regarding the outcome of any planning
application with regard to the land.
In these circumstances, outright purchase carries considerable risks and a land purchase option is a
means of reducing the costs to the builder-developer. Landowners also benefit from these
arrangements, as there is usually an onus on the builder-developer to promote the development of
the land through the planning and development control process. The landowner may have neither
the resources nor the expertise to do this himself.
The benefits of optioning to the smooth operation of the land market may be discerned by
considering the effect of a prohibition on this type of arrangement. If optioning were prohibited,
then land-owners would be faced with a choice between bringing the land through the planning
process themselves or selling it to developers at a price not much in excess of existing use values.
As landowners may have neither the expertise nor the resources to bring land through the planning
process, and may not favour selling the land at relatively low values, the likelihood is that it will
be slow to come onto the market. The pipeline of land being brought through the planning process
would therefore be reduced, with negative consequences for housing output and prices. Another
possible effect would be that a minority of builder-developers would have the financial resources
to engage in land purchase on a significant scale. This might serve to concentrate the ownership of
ready-to-go land in a small number of individuals, raising the possibility that these could exercise
market control through hoarding.
In general terms, therefore, land purchase optioning must be seen as vital to the smooth operation
of the land market, in the face of market uncertainties. However, this is not to deny that optioning,
no less than land purchase, could be used by builder-developers to seek to gain control over land in
specific areas i.e. to engage in oligopolistic hoarding. The extent to which optioning could
contribute to this process depends in part on the duration of option agreements and strictures put
on builder-developers to promote the development of the land that is the subject of the option.
3.9
Views of Commentators on the Irish Housing Market
3.9.1
Introduction
Having explored the nature of hoarding, this section examines the views of commentators on the
housing market on the issue of affordability. In some cases, these commentators are concerned
with the role of land in determining house prices and do not directly address the impact of
hoarding on supply. However, as hoarding would tend to both restrict supply and raise prices, their
views are relevant.
13
3.9.2
Committee on the Price of Building Land (Kenny Report, 1973) 10
This report considered the causes of the increase in the price of building land that were then
evident. It did not explicitly examine the constraints on the supply of land.
With regard to the role of land in determining house prices, the Committee was of the view that
the demand side factors were the principal cause of house prices increases and that land values
essentially reflected house prices. However, the committee did consider that speculative hoarding
could exacerbate the upward price trend of house and land because in a period of house price
inflation “investors and speculators will be attracted to land as an appreciating asset, which can be
acquired and held at little risk and cost.”
3.9.3
Report of the Joint Oireacthas Committee on Building Land, 1985 11
The report considered why land acquired by developers-builders might not be developed for some
time. It identified three possibilities:

Changes in the housing market that were contrary to builder-developers expectations. As a
result, the costs incurred in land acquisition and development may be out of line with the
market value of buildings;

Advance acquisition or retention for land banks (equivalent to our commercial hoarding); and

Speculation or holding land for asset purposes (equivalent to our speculative hoarding).
With regard to oligopolistic hoarding the report noted that the possibility that individual or small
numbers of firms might acquire “undue market influence”. It concluded that” …there is no
evidence that land prices or supply have been subject to control in this way; indeed such
information as is available suggests the contrary.” The overall view was that “in general, prices for
publicly service housing land have reflected demand pressure and over the medium term have
reflected the development potential of the land”.
The report examined speculative hoarding in greater detail. It suggested that in times of rapid
house price inflation, non-building interests become involved in land acquisition for speculative
reasons, and consequently exacerbate price distortions. The report mentioned but did not evaluate
legislative measures to restrict transactions in development land to legitimate building interests.
3.9.4
Bacon 1 (1998)
This report posed a key question:
“It has been stated that land costs represent an increasing proportion of housing costs. However,
from an economic point of view a key issue is the direction of causation between land cost and
house prices. In other words, is it the supply and demand for housing that is pushing development
land prices or higher land prices that are pushing housing costs? From an economic point of view
the balance of probability would suggest the former channel rather than the latter. In other words it
is the dynamics of demand and supply for the end product - housing - that is giving rise to
increasing land prices, not the other way round. The contention that land costs are a rising
proportion of total housing costs could reflect the relative inelastic supply of serviced development
10
11
Committee on the Price of Building Land. Report to the Minister for Local Government, 1973.
Houses of the Oireachtas. Report of the Joint Committee on Building Land, 1985.
14
land in locations that are sought after. Data are not available which could indicate the impact of
this on the trend in profitability in the home building industry, or for that matter, on what that
trend is.”
The report went on to state that:
“Between 80-90 per cent of the variation in house prices nationally and in Dublin relative to the
rest of the country can be explained within the demand-supply model that had been constructed for
the study. The explanatory power achieved in relation to housing supply nationally was around 80
per cent but somewhat less power was achieved in relation to supply in Dublin - at about 60 per
cent.”
3.9.5
Bacon 2 (1999)
The report noted that the projected increase in the supply of developed land for Dublin City and
County was regarded as inadequate by representatives of the IHBA, “….taking into consideration
such matters as the need for choice and the lead time now required by developers in planning
future developments. In effect this lead-time, of three or more years, requires developers to hold
significant land-banks……”
House Price Affordability had declined sharply since the publication of the first Bacon report. In
commenting on the issue of affordability, Bacon raised the issue of control of the price of
development land, but concluded that it was not appropriate:
“Some believe that an appropriate solution to the current problem of deteriorating house price
affordability is to engineer, in some way, an across the board reduction in new house prices from
their current levels. Most usually, it is argued that a reduction in land prices (again, engineered in
some way) should be the means used to bring about this outcome. If such an outcome could indeed
be brought about affordability for first time buyers would be improved. However, a negative side
effect of this approach would be to risk creating a negative equity problem for many house
purchasers and most new house purchasers over the past two years or so……. Furthermore,
experience from other markets, in which episodes of negative equity have occurred demonstrates
that if this problem emerges it tends to gather its own internal dynamic as potential house
purchasers postpone buying in anticipation of further price reductions. The result can be a vicious
circle of downward spiralling prices, which can spill-over into wider economic
recession…….Therefore, it is not considered that an attempt at engineering a broad reduction in
new house prices should be contemplated. Rather, the aim should be to achieve stability of the
overall housing market. In addition there should be a targeted strategy focussed at improving
affordability for first time buyers and without negative side effects on the welfare of other
homeowners”
3.9.6
Society of Chartered Surveyors Housing Study, 2002
This study was aimed at identifying the principal determinants of supply side response in the
housing market and examining the provision of new housing under the housing strategies adopted
by the seven local authorities in the Greater Dublin area.
The study examined, inter alia, the supply of development land. It noted that development land in
Dublin is in short supply due to the constraints of the planning and policy making process. This
ensures that ready-to-go land is at such a premium that builder-developers are reluctant to dispose
of existing holdings. This occurs despite the demand for sites from existing developers and
15
potential entrants to the development market. The study concludes, however, that “no evidence
was found as to an oligopoly of development interests withholding land in the Dublin market.”
3.10
Conclusions
The shortfall in housing output that occurred in the 1990s has often been attributed to the hoarding
of land. This is an issue that has received relatively little analysis in either the international
literature on the housing and land markets or in the analyses of the Irish housing and land markets.
The supply side factors that are usually considered to impact on the housing market are:

The planning system, with its impact on the availability of land and on the type of housing
construction; and

The capacity or willingness of the building industry to respond to changes in the quantity or
quality of housing demanded in the market place.
There is now relatively firm evidence from the UK and the USA that the more restrictive the
planning system the higher land and house prices will be. There is also evidence that the building
industry usually requires time to adjust to changes in housing demand and that this leads to periods
of over and under supply.
Three types of hoarding may be discerned:

Commercial hoarding: Purchasing or optioning land in excess of immediate needs, so as to
ensure a future supply of an essential material input.

Speculative hoarding: Purchasing or optioning land, but holding it vacant in anticipation of a
more profitable development opportunity in the future.

Oligopolistic hoarding: Purchasing or optioning land in a particular market area, seeking to
exercise some monopolistic control over that market, and thus obtaining higher prices for
housing output.
Oligopolistic hoarding is of much greater concern than the other two types. This is because the
extent of commercial hoarding will be limited by the builder-developers output levels and thus the
reserves of land that he must hold. Speculative hoarding will eventually be limited by a market
correction, although this could take a considerable time to occur. However, oligopolistic hoarding
could persist indefinitely.
Previous commentators on the housing market have tended to emphasise demand side factors as
the predominant influence on house and land prices. The possibility of speculative hoarding is
acknowledged, even though its extent has not been gauged. Where oligopolistic hoarding is
considered, it has been concluded that there is no evidence that it exists.
16
4.
Evidence of Hoarding
4.1
Introduction
This section of the report examines the evidence that hoarding exists. Before doing this, indicators
and tests for hoarding are proposed. These are then used to assess the evidence for hoarding with
regard to information on builders’ land banking behaviour and from the results of three case
studies, relating to Dun Laoighaire Rathdown County Council area, Fingal and Ennis and
Environs.
4.2
Indicators and Tests for Hoarding
In Section 3, it was argued that commercial hoarding was a legitimate reaction to the constraints of
the planning system. Thus, situations could obtain in which zoned and serviced land is not readily
developed for genuine commercial reasons. These encompass the fact that the builder-developer
may not have the capacity to develop the lands, because of existing workloads, or may perceive
that there is insufficient demand or over supply. Thus, the fact that land is not being brought
quickly to development stage, is not in itself an indicator of speculative or oligopolistic hoarding.
It is very difficult to prove, therefore, that speculative or oligopolistic hoarding is taking place. It is
easier to identify when such practices are not impacting on the supply of development land. For
example, if it is observed that a high proportion of zoned and serviced land is brought speedily to
development stage, then it is clear that such practices are not seriously affecting supply.
Conversely, if it is observed that a high proportion of zoned and service land is inactive and is not
being brought through the planning process, then this opens up the possibility that speculative or
oligopolistic hoarding is having an effect on the market.
Another test for speculative hoarding on the part of builders would relate to the size of the land
banks that they hold relative to the scale of their activity. The requirement for builders to hold land
is related to the availability of zoned land and the speed at which the planning process can be
successfully negotiated. Thus, the more restrictive the planning system, the greater the cover that
builders need. It would appear that a land bank of three to four times annual output would not be
excessive, given the difficulties involved in procuring land and bringing it through the planning
application process.
Oligopolistic hoarding strategies are more likely to be effective if builder-developers focus their
land acquisition on particular areas. Their capacity to acquire dominance over land supply would
therefore be affected by the characteristics of zoned land within specific local authority areas. For
example, if zoned land is made up of a large number of discrete plots of relatively small size, then
the logistical difficulties of assembling land banks would multiply. Conversely, if the zoned areas
comprise large contiguous plots, then the process of land acquisition would be easier, as fewer
landowners are likely to be involved.
The presence of relatively few developer-builders active in a particular area would also raise the
possibility that oligopolistic practices could be adopted.
4.3
Land Banking
Information on the scale of land banking is difficult to obtain, as such information is often
regarded as commercially sensitive. However, publicly quoted building companies provide such
information to inform the market of their potential to maintain or increase output.
17
Table 4.1 provides data on the scale of land banks for a selection of UK building companies and
for two publicly quoted Irish companies. The data relate to the number of years of land supply that
companies hold relative to their output levels. It may be seen that the average holding of UK
companies is 4.0 years, with a range of 2.9 to 6.4 years. The two Irish companies, McInerney and
Abbey, at 3.0 and 4.7 years respectively, fall within the range of behaviour exhibited by UK
companies. McInerney is focussed on the Irish market. They have a practice of selling on a
proportion of their land banks to the market. Abbey has a presence in both Ireland and UK. They
purchase land with planning permissions only, and this may contribute to their relatively low level
of land banking.
Although the data on Irish firms are limited, it does not indicate excessive land banking, or an
unusual level of land banking compared with UK experience.
Table 4.1: Land Banks Held by UK and Irish Firms, 2002
Company
Land bank in years
Barratt Developments
Bellway
Berkeley Group
Bovis Homes
Countryside Prop
Crest Nicholson
McCarthy and Stone
Persimmon
Redrow
Swan Hill
Taylor Woodrow
Westbury
Wilson Bowden
Wilson Connolly
Wimpey (George)
Average UK
McInerney
Abbey
3.3
2.9
6.4
4.0
5.0
5.7
5.1
4.3
4.0
3.0
3.1
3.0
4.2
3.3
3.2
4.0
4.7
3.0
Source: UK Housebuilding. Bridgewell 2002; Building Firms
4.4
Dun-Laoghaire-Rathdown County Council Case Study
4.4.1
Background
Between 1996 and 2002, the population of the Dun Laoighaire Rathdown increased by 0.7 per cent
or 1,390 persons. This means that the total population stands at 191,389 persons compared to the
original target set out in the Strategic Planning Guidelines of 200,000 persons for 2001. The DunLaoighaire Rathdown Draft Housing Strategy acknowledges that a shortfall in housing supply has
deflected population to other counties in the Greater Dublin Area.
18
The average number of house completions in the five years 1998 to 2002 was only 839. This
compares with an estimated need for 2,260 houses annually up to 2010, if the requirements of the
Strategic Planning Guidelines are to be met. The Draft Housing Strategy for the area indicates that
there is insufficient land zoned to fulfil the targets of the Strategic Planning Guidelines.
4.4.2
Trends in Land Availability
Table 4.2 indicates that the availability of zoned but undeveloped land in Dun LaoighaireRathdown has remained static over the last five years at close to 300 hectares. This figure
underestimates the supply of land, as land on which housing development has been completed is
not included in the annual totals.
The data support the view that the lack of serviced land was a major factor in the housing shortfall.
In 1999, there were only 118.5 hectares serviced or ready for development, representing only 39
per cent of the zoned land then available. However, there has been a rapid rise in the supply of
serviced land for housing within the five-year period. The proportion of development land that was
serviced and ready thus rose to 224.6 hectares or 77 per cent in 2003. The data suggest that the
absence of serviced land rather than zoned land was the critical factor in the poor housing output
during these years.
The impact on the housing market of these trends in the availability of land may be discerned from
Table 4.3. The potential output of zoned and serviced development land rose from 5,291 units in
1999 to 11,745 in 2003. The proportion of land under active development has also increased,
giving rise to a more than doubling in construction activity to 3,063 units in 2003. Completions
have increased from an estimated 400 in the year to June 1999 to 1,055 in the year to June 2003.
19
Table 4.2: Availability of Zoned Undeveloped Land in Dun Laoighaire-Rathdown (1999 –
2003)
Year
Of Which:
Total Zoned
Undeveloped
Land
(ha)
Serviced and
Ready
To be serviced
within 2 years
(ha)
(ha)
To be serviced
within following 4
years
(ha)
1999
302.8
118.5
81.1
103.2
2000
293.9
135.6
158.4
0.0
2001
315.6
190.6
125.1
0.0
2002
323.3
213.0
110.2
0.0
2003
292.0
224.6
67.4
0.0
Source: Housing Land Availability Returns; data refer to total zoned and undeveloped lands that could be developed for
residential use within a six year period.
Table 4.3: Status of Undeveloped Zoned and Serviced land in Housing Units in Dun
Laoighaire-Rathdown (June 1999 – June 2003)
Status of Land
1999
2000
2001
2002
2003
Number of Housing Units
Under Construction
1,381
780
589
1,645
3,063
496
406
1,705
2,748
1,455
1,414
956
3,247
1,497
2,133
Total Active
N.a.
2,129
852
870
1,600
Total Inactive
N.a.
4,271
6,393
6,760
8,251
Grand Total
N.a.
2,401
2,466
3,057
3,494
5,291
6,672
8,859
9,817
11,745
Awaiting Construction
Commencement
In the Planning System
In Pre-planning
Source: Housing Land Availability Returns; data refer to total lands zoned, serviced and undeveloped that could be
developed for residential use within a six year period.
20
4.4.3
Land Hoarding as a Contributory Factor
While the lack of serviced land has been the major factor resulting in the shortfall in the supply of
housing in Dun-Laoighaire Rathdown, hoarding of land could have played a role. If it could be
demonstrated that land was not being brought forward for development, then there would be the
possibility that hoarding was a factor affecting supply.
At June 2003, there were 292 hectares of land zoned for residential use, which could be developed
over the period 2003 to 2009. Of this, 29.9 hectares were in local authority ownership.
The 292 hectares comprises both serviced (224.6 hectares) and unserviced land (67.4 hectares). All
of the unserviced land is at three sites. These are the Glenamuck Road (13.3 hectares),
Cherrywood (45.7 hectares), and Rathmichael (8.4 hectares). These sites are awaiting sewerage,
with the Cherryville site also awaiting completion of the Wyatville Interchange and the provision
of an internal spine road. The lack of development at these sites is related to these factors and
hoarding is not an issue.
Turning to zoned and serviced land, Table 4.3 presents a breakdown of the current status of the
serviced land in terms of housing units. The table distinguishes between active and inactive lands.
The former comprise lands that that have gone through the planning process, are in the course of
doing so, or are the subject of preplanning discussions with the local authority. Inactive lands are
those where there the process of development has not yet started.
The table indicates that there are development lands sufficient for 11,745 housing units in the
council area as of June 2003. Land in active development accounts for 8,251 units or 70.3 per cent
of the total. The remainder (29.7 per cent) is inactive land with a potential for 3,494 houses.
As the scale of inactive land could be an indicator that builder-developers are hoarding land and
not bringing it forward for development, it is worth looking at these statistics more closely. One
possibility is that land is inactive because it has only recently been service and or zoned. A better
indicator of inactivity might therefore be obtained if the quantity of currently inactive land is
expressed as a proportion of the quantity of land which was zoned and serviced one year ago and
which is still available for development. 12 This was estimated for 2003 as 8,762 units. As the total
active lands have the capacity to give rise to 8,251 units, this means that active lands account for
94 per cent and inactive lands to 6 per cent of the total of available lands one year previously. This
in turn indicates that zoned and serviced lands are being brought forward for development through
the planning system in a speedy fashion.
Builders-developers could attempt to hoard land by failing to develop land that has full planning
permission. Table 4.3 shows that lands representing 1,455 housing units are awaiting construction.
Of these, 722 units have planning permission more than one year old. The remaining 733 units
acquired planning permission within the last year, and therefore could not be regarded as being
withheld from the market.
The lands, which account for the 722 housing units of longer duration, are at three sites only. The
position with regard to the these sites is:

First site: builder has 214 houses under construction and is phasing the development of the
remaining 138;
12
This was calculated by the quantity zoned and serviced in 2002 less the number of units completed in the period June 2002 to June
2003
21

Second site: planning permission was granted for 401 units in July 2001, but development has
not proceeded, for reasons that are not clear.

Third site: Planning permission was granted for 183 units in 2000, but developer proceeded to
make an application for a larger scale development which was refused planning permission by
an Bord Pleanala in April 2003.
For two of the sites, therefore, it is clear that developers are not necessarily holding back the
construction phase.
4.4.4
Oligopolistic Hoarding
While above analysis indicates that hoarding of land is generally not an issue, there remains that
possibility that oligopolistic hoarding could be occurring in certain areas. Examination of the
geographic spread of inactive lands indicates that a significant proportion is in one area. In 2003,
there were some 98 hectares of zoned and serviced land in this area, with a potential to yield over
4,200 housing units at a density of 43 units per hectare.
The level of completions was 327 units in the period June 2002 to June 2003. This indicates that at
current completion rates, it will take more than 12 years for the area to be fully developed.
However, over half the lands in this area are either in construction (36 per cent) or in planning or
pre-planning (17 per cent). This represents some 1,500 and 700 housing units respectively. There
is thus a strong pipeline of activity and the level of completions will increase in the next two years.
There are five builder developers active in this area. Four of them have sites under construction.
The fifth has entered into pre-planning discussions on a number of occasions, without as yet
significant follow through in terms of construction. As this developer has up to 50 per cent of the
development land in the area, there is the possibility of market manipulation. However, there are
other reasons why he may not be pursuing development:

He is active elsewhere in the city and has not got the managerial resources to develop a
scheme in this area;

He may be taking the view that marketing of houses may prove difficult, as four other builders
are active in the area; or

He may be reluctant to comply with Part V requirements.
Whatever the reason, there may be a case for intervention in instances such as this where a
developer has a large proportion of the available lands.
4.5
Fingal County Council Case Study
4.5.1
Background
Between 1996 and 2002, the population of Fingal County Council increased by 17.1 per cent to
196,413. This was the third highest increase for the country as a whole, after Meath (22.1 per cent)
and Kildare (21.4 per cent). The outturn of 196,413 persons compares with the original target set
out in the Strategic Planning Guidelines (SPG) of 193,371 for 2001.
The average number of house completions in the five years 1996 to 2001 was 3,453. The SPG
originally estimated that that an average annual completion rate of 2,182 units would be required
22
over the same period. Completions in the period represent a surplus of 6,715 of output over the
then anticipated need, implying a sharper than anticipated decline in average household size, as
greater numbers of young persons set up households. In 2002, housing output stood at 4,308 units.
4.5.2
Trends in Land Availability
Table 4.4 presents data on the availability of land for housing in Fingal over the period 1999 to
1992. Total zoned and undeveloped land has declined slightly over the period, from 1,810 ha in
1999 to 1,605 ha in 2003. It should be noted that as lands are developed, they no longer appear in
the totals. The decline in zoned land is thus compatible with an increase in building output over
the period.
Table 4.4: Availability of Zoned Undeveloped Land in Fingal (1999-2002)
Year
Of Which:
Total Zoned
Undeveloped
Land
(ha)
Serviced and
Ready
To be serviced
within 2 years
(ha)
(ha)
To be serviced
within following 4
years
(ha)
1999
1,810
648
657
506
2000
1,816
1,174
460
183
2001
1,737
1,304
326
70
2002
1,605
1,288
268
49
Source: Housing Land Availability Returns; data refer to total zoned and undeveloped lands that could be developed for
residential use within a six year period.
23
Table 4.5: Status of Undeveloped Zoned and Serviced land in Housing Units in Fingal (June
1999 – June 2002)
Status of Land
1999
2000
2001
2002
Under Construction
1,927
1,206
9,150
10,258
4,322
7,504
4,018
5,509
6,904
5,371
6,281
1,220
Total Active
N.a
N.a
3,655
5,814
Total Inactive
N.a
N.a
23,104
22,801
Grand Total
N.a
N.a
19,348
12,755
18,382
34,621
42,452
35,556
Awaiting Construction
Commencement
In the Planning System
In Pre-planning
Source: Housing Land Availability Returns; data refer to total lands zoned, serviced and undeveloped that could be
developed for residential use within a six year period.
The potential output of housing has risen from 18,382 unit in 1999 to 45,452 in 2001. In 2002, it
fell back somewhat to 35,556 units. At the beginning of the period in 1999, the amount of
serviced land (648 ha) was only 35.8 per cent of all land zoned for residential use. However, this
does not imply that lack of serviced land was a constraint on housing output at that time. Table 4.5
shows that zoned and serviced land in 1999 represented a total potential housing output of 18,382
units. This is more than eight times the annual demand anticipated in the Strategic Planning
Guidelines.
4.5.3
Potential and Actual Housing Output
In 1999, only 1,927 housing units or 10.5 per cent of the total potential housing units were under
construction. A significant proportion (4,322 units or 23.5 per cent) had planning permission but
were awaiting construction. The low levels of construction activity continued through the year
2000. This raises the possibility that builder-developers were holding back on developments at that
time. Hoarding of land is a possible explanation, although it is also possible that builders were
finding it difficult to expand output rapidly. The publication of the Planning and Development Bill
in this period may also affected builder-developer confidence.
Since 2001, the number of housing units under construction has been at a high level, in the range
of 9,000 to 10,000 units. However, compared to total potential output, activity has remained low.
For example, in 2002, the number of units under construction was 10,253 or 28.9 per cent of
potential output. Moreover, the proportion of zoned and serviced land that was inactive, that is not
being brought through the planning system, was high at 35.8 per cent. A more precise indicator of
inactivity is the quantity of currently inactive land is expressed as a proportion of the quantity of
24
land which was zoned and serviced one year ago and which is still available for development. For
Fingal, in 2002 this was at a level of 43 per cent. It is clear therefore that the proportion of zoned
and serviced land that is being brought to the market falls significantly below the potential.
4.5.4
Reasons for the Gap between Housing Output and Potential
There are two possible reasons for the gap between housing output and potential output, viz. that

Hoarding was occurring; or

The building industry could not expand capacity quickly enough.
13
In the late 1990s, the zoned and serviced land in Fingal was largely concentrated in just two areas
– Blanchardstown and Balbriggan. Such a concentration would make it easier for builderdevelopers to acquire large land banks and manipulate the market This sort of behaviour would
require collusion on the part of builder developers and the existence of cartels. Economic analyses
of collusive behaviour indicates that such behaviour is likely to occur and persist where:

Market concentration is high;

Barriers to entry are significant; and

The market is not very transparent.
Where market concentration is high, it is easier for collusive behaviour to emerge and large firms
have less incentive to cheat on others. A common test of market concentration is to examine the
market share of the four largest market participants. Where this is a large proportion of the total
market, collusion is regarded as more probable.
Barriers to entry prevent the break-up of collusive behaviour through the advent of new players in
the market. If the market is not very transparent, then participants can cheat on the cartel.
Estimation of market concentration in the Fingal area would require an analysis of the ownership
of land throughout the county. This would require detailed research of the ownership structures for
each plot of zoned land in the county. This is not an easy task and would require a greater input of
time and resources than could be applied within the context of this study.
However, examination of existing sites for which planning permission has been granted revealed a
wide range of ownership. At least 15 significant builder-developers were identified as active in the
Fingal area. This suggests that the market is not concentrated to any significant degree. 14
13
The most obvious reason for the gap between output and potential is the scale of the lands zoned and serviced for residential
development. Potential output is some sixteen times that of demand envisaged in the Strategic Planning Guidelines and approximately
seven times current housing output levels. Zoning and servicing of land in Fingal is thus relatively generous, and housing output will
inevitably be lower than potential in these circumstances. However, this view may be countered by the argument that during this
period, house prices were increasing rapidly and house buyers were forced to purchase at some distance from the urban area, so that it
could not be said that the shortfall was the result of insufficient demand.
14
A recent analysis in the Building Industry Bulletin reached the conclusion that housing land in Fingal is owned by a small number
of wealthy individuals, and proposed policy changes to “wrest back the monopoly rent that they currently earn”. However, the analysis
presented identified 20 major landowners, who had an average holding of 30 hectares and a total holding of 605 ha. This is in the
context of a total of undeveloped zoned land of more than 1,600 ha for the county as a whole. Thus, the analysis presented does not
provide evidence of high levels of market concentration, rather the opposite. This is not to deny that the policy conclusion reached in
the Bulletin does not have merit on equity grounds of ensuring a fairer distribution of the betterment value between private individuals
and the State.
25
An alternative view is that housing output was initially constrained by the capacity of the building
industry. This view is supported by the high rate of construction cost inflation in the late 1990s.
The Construction Industry Review and Outlook indicates that construction price inflation was in
excess of 10 per cent per annum during the late 1990s, and only began to moderate in 2001. This
coincided with a stagnation and then decline in the output of the non-residential sector from 2000
onwards. This may have released resources to the house building sector. Housing output is now
rising strongly. In the first quarter of 2003, output stood at 1,445 units. This is equivalent to an
annual output of 5,780 units. If this were to be achieved, it would represent a 34 per cent increase
on 2002 output levels. There is thus evidence that housing supply is increasing rapidly. This is
supported by data provided by Fingal that indicate that there were 6,503 houses under construction
at the beginning of 2003 compared to 4,090 one year earlier.
On balance, it would appear that oligopolistic hoarding of land is an unlikely explanation.
However, speculative hoarding of land or a lack of capacity in the building industry or a
combination of these factors could have played a role in restricting output. It is not possible to be
definitive as to the allocation of responsibility among these factors. It is clear, however, that in
2002-2003, housing output has begun to grow rapidly.
4.6
Ennis and Environs Case Study
4.6.1
Background
This section briefly examines the housing sector in Ennis and Environs. Data with which to assess
the housing sector are poorer than in respect of Dun-Laoighaire Rathdown and Fingal, partly
because countywide data is always more readily available. As a result, the detailed analysis of the
housing sector of Section 4.4 is not possible.
4.6.2
Population and Housing
The population of Ennis and Environs stood at 26,170 persons in 2002. This represents a growth
rate of 22 per cent. The current Ennis and Environs Development Plan 2003 envisages a further 22
per cent rise in the population by 2008. These are substantial rates of population growth by
comparison with towns of similar size.
During the period 1992 to 2000, a total of 2,268 housing units were developed, or approximately
252 per annum. This indicates a very substantial supply of housing during the 1990s. The evidence
is that housing development is continuing at a rapid pace, with some 600 additional units either in
construction or in planning.
4.6.3
Provision of Land
This expansion of housing and population was facilitated by sufficient zoning provision. The
previous Ennis Development plan, which was adopted in 1994, zoned an additional 512 hectares
of land for residential development. At 20 units per hectare, this amounts to some 10,200 units.
This proved more than adequate, with 194 hectares (2,495 units) developed by the time the Plan
was reviewed in 2000.
The new Development Plan 2003 has defined three Residential Development Areas of Clarecastle
RDA, Eastern RDA and Western RDA. These comprise 258 ha of land with a capacity for 8,931
housing units. It is estimated that it will take fifteen years for these lands to be developed, so that
26
they represent a long-term plan. These RDAs fall within the Serviced Land Initiative and comprise
areas that are adjacent to major water and sewerage services.
One of the features of the Development Plan is that it designates “other settlement land” for
residential purposes. These are lands adjacent to existing residential areas that were originally
intended for retention as open space, but were allocated to residential development at the behest of
the elected representatives.
As a result of this process, the zoning for residential development is very extensive and far
exceeds requirements. Precise details of the proportion of residential zoning that is serviced are not
available. However, examination of existing settlements suggests that a substantial quantity of
“other settlement land” is serviced or could be at low cost. The RDAs will require significant
additional expenditure to become fully serviced, so that residential developments may be focussed
on “other settlement lands.”
The overall view is that zoned and serviced land has been and will continue to be in plentiful
supply.
4.6.4
Local Building Industry
Availability of zoned and serviced land would not appear to be a constraint on development.
Development lands are in fairly widespread ownership. Construction of housing has been in the
hands of four builders. These are relatively small firms and do not have large land banks. To a
great extent, they tend to purchase land as required. Recently, the scale of demand for housing in
Ennis has attracted builders from the Galway area.
Given the availability of zoned and serviced land, the distribution of land ownership and the scale
of local building firms, hoarding of land would not seem to be an issue.
4.7
Conclusions
The fact that land is not being brought quickly to development stage, is not in itself an indicator of
speculative or oligopolistic hoarding. It is very difficult to prove, therefore, that speculative or
oligopolistic hoarding is taking place. However, if it is observed that a high proportion of zoned
and serviced land is brought speedily to development stage, then it is clear that such practices are
not seriously affecting supply.
A test for speculative hoarding on the part of builders would relate to the size of the land banks
that they hold relative to the scale of their activity. The requirement for builders to hold land is
related to the availability of zoned land and the speed at which the planning process can be
successfully negotiated. Thus, the more restrictive the planning system, the greater the cover that
builders need. It would appear that a land bank of three to four times annual output would not be
excessive, given the difficulties involved in procuring land and bringing it through the planning
application process.
Oligopolistic hoarding strategies are more likely to be effective if builder-developers focus their
land acquisition on particular areas. Their capacity to acquire dominance over land supply is
therefore affected by the characteristics of zoned land within specific local authority areas. The
presence of relatively few developer-builders active in a particular area would also raise the
possibility that oligopolistic (or, strictly, oligopolistic) practices could be adopted.
27
Although the data on Irish firms are limited, they do not indicate excessive land banking, or an
unusual level of land banking compared with UK experience.
Analysis of the land and housing markets in the Dun-Laoighaire Rathdown area suggests that the
lack of serviced land has been the major factor influencing the supply of housing.
Lands in active development represent 70.3 per cent of all serviced lands. As additional land is
being serviced each year, a better indicator of inactivity is the quantity of currently inactive land
expressed as a proportion of the quantity of land which was zoned and serviced one year ago and
which is still available for development. In the case of Dun-Laoighaire Rathdown active lands
account for 94 per cent of the total of available zoned and serviced lands one-year previously. This
indicates that zoned and serviced lands are being brought forward for development through the
planning system in a speedy fashion.
There is no evidence that builders are delaying construction of housing in Dun-Laoghaire
Rathdown once planning permission has been obtained.
Examination of one area of Dun Laoighaire Rathdown where there was a significant proportion of
inactive lands, revealed that the rate of completions is set to rise rapidly. One builder has control
over a significant proportion of the lands, but has yet to bring a scheme through the planning
process. There may be case for intervention in such instances.
In relation to Fingal, it is clear that the availability of zoned and serviced lands is such that a much
higher level of housing output than was the case could have been achieved in the recent past. It is
not possible to identify precisely the reasons for this. Speculative hoarding could have played a
role in this. However, it is noted that housing output in Fingal more than doubled between 1996
and 2002, so that the building industry may have been experiencing capacity constraints.
A separate analysis of Ennis and Environs revealed that there was a strong growth in housing
supply through the 1990s on foot of generous zoning for residential purposes. The principal
constraint on development was the lack of capacity in the local building industry.
These analyses suggest that hoarding is not a widespread problem. However, specific instances
can arise which give rise to concerns.
28
5.
Evaluation of Impacts
5.1
Introduction
This section of the report evaluates the impact of a use it or lose it scheme. The nature of such a
scheme is first discussed. This is followed by guidance on the circumstances under which a local
authority might implement such a procedure. The wider impacts of such a measure are then
assessed. Because such a measure if implemented by exception and on a small scale would tend to
have little impact on the housing and land markets as a whole, these wider impacts are considered
in the context of a more intensive use of the provision within a local authority area.
5.2
Nature of the Scheme
The proposed use it or lose it scheme has the following features:

The local authority would identify suitable plots of land for development following an
examination of housing needs;

The land would be zoned for housing and would be capable of being serviced in the short
term;

The land would be designated for acquisition by the local authority and the owner would be
given a specified period in which to secure planning permission; once the landowner secures
planning permission, a further time limit will be set for the completion of the development;

If the landowner fails to comply with the above the local authority may acquire the land by
Compulsory Purchase Order, at a specified percentage above agricultural value;

If a local authority acquires land in this manner it would be required to develop it or procure
its development within a specified timeframe.
The scheme has three significant attributes:

It may increase the availability of zoned and serviced land for housing;

It brings forward development of that land; and

Depending on the landowner’s response, the betterment gain may accrue to the State and not
the landowner.
In situations where the availability of zoned and serviced land is constrained, the first attribute of
the scheme would tend to be beneficial for the more efficient operation of the housing and land
markets. The expansion of zoned and serviced land capacity and the requirement that the planning
authority and An Bord Pleanala would have to have regard to the designation of lands under the
scheme would tend to have beneficial impacts in freeing up the development of land. However, the
key point here is that these benefits could be obtained more readily and in a more universal
manner, by direct actions to zone and service more land rather than by a use it or lose it scheme.
The third attribute of the scheme has little relevance to the efficient operation of the market and
may not occur in any case.
29
It is the second attribute viz. that of requiring development of the land within a specified period
that has the potential to most impact on operation of the market. This is a direct intervention by the
local authority in the market, which will increase the supply of land.
5.3
Conditions for Local Authority Intervention in the Market
Benefits to the consumer will arise if the proposed scheme:

Increases the supply of land;

The price of land falls; and

More and cheaper housing is built.
For the consumer to benefit in this way, two conditions must apply:

The market must be currently operating inefficiently; and

The intervention must remedy that inefficiency.
In the late 1990s, Government was concerned that housing supply in the Dublin area was not
sufficient to meet demand and that as a result house price inflation was excessive. The Bacon
reports commissioned by Government indicated that there were a number of reasons for the
shortfall, including some inadequacies in the supply of serviced land, delays in the planning
process, and the incapacity of the building industry to respond to increases in demand sufficiently
quickly.
This study has examined whether hoarding of land has been a contributory factor. In relation to
Dun-Laoighaire Rathdown, it has been established that the lack of zoned and serviced land has
been the main restraint on housing output. Available zoned and serviced land is being brought to
the market quickly, and speculative hoarding of land would not appear to be a significant factor.
The analysis did, however, point to the problems that can occur where insufficient land is zoned
and serviced, and a significant portion of that land is acquired by a small number of builder
developers, who either do not have the capacity or motivation to develop it fully in the short term.
In relation to Fingal, it is clear that there is sufficient availability of zoned and serviced land. It is
not considered that oligopolistic arrangements among builder-developers to restrict output are
likely to be factor affecting housing supply. However, speculative hoarding and or the incapacity
of the building industry to respond may have been factors. In this regard, it is noted that housing
output in Fingal is now increasing significantly.
It is clear, however, that the analysis does not support a conclusion that land hoarding is occurring
in a manner that is restricting the supply of development land on a large scale.
Because confusion can often arise, it is worth dispelling a number of myths in relation to land
hoarding and its effects:

Land banking by builders is not a form of hoarding that necessarily diminishes housing
supply. If not taken to excess, it is a normal commercial reaction aimed at securing a raw
material that is in short supply and which cannot be readily sourced in the market because of
the delays caused by the planning control system.
30

The fact that a small number of developers have control over a sizeable proportion of
development land is not in itself an indication that this form of speculative hoarding is
impacting on supply: it may simply reflect these developers’ attempts to garner the betterment
gain over a wide area. While this may be undesirable from an equity viewpoint, it will not
have impacts on market supply, unless developers seek to manipulate the market by holding
back the development of the land; and

The fact that zoned and serviced land is not being developed is not necessarily an indication
of market manipulation. Developer-builders may simply be incapable of expanding their
operations in the short term. Another possibility is that there was lack of demand in the
market place, although this is unlikely to have been the case in the period under review.
Thus, a necessary but not sufficient condition for intervention in the market is that a significant
proportion of zoned and serviced land is inactive i.e. is not being brought to the market. Where, as
in the case of Dun-Laoighaire Rathdown, a very high proportion of zoned and serviced land is
either under construction, in the planning control process, or in pre-planning, then a generalised
intervention in the market would not be warranted.
A second condition for intervention on the part of the local authority is that a high proportion of
the inactive lands is in the hands of developer-builders. If inactive lands are in the hands of noncommercial interests, such as, say private homeowners or religious institutions, then market
manipulation is unlikely to be the cause of land inactivity.
Where these conditions are met, the local authority should then consider whether supply is being
withheld because of market demand conditions. Lands may remain inactive because developerbuilders are gauging that the market is not or will not be strong. Because developer-builders are
likely to be in a better position to assess the market than local authorities, there are obvious
dangers in local authority intervention.
These dangers reside in the fact that the use it or lose it scheme may encourage developers to bring
increased supply to the market, for which there may ultimately be little demand. This would
increase the extent of house price fluctuations and increase the perceived market risk. This in turn
may cause a future shortfall in housing supply.
The local authority needs to be sure that housing demand levels are such that a shortfall in supply
exists. Because the use it or lose it scheme would result in a two to three year lag before
development, the local authority should also be assured that the shortfall will persist over such a
time period. This is particularly relevant at the current juncture, where housing output in the
Dublin area has recently risen to high levels by comparison with the recent past.
While assessments of housing demand, such as those contained in the Local Housing Strategies
are useful in assessing the adequacy of supply, prices are the best indicator of the state of the
market. If prices are rising strongly, then the local authority may be assured that supply is
inadequate. Conversely, where house price inflation is moderate or non-existent, then local
authorities should be wary of a use it or lose it intervention that would tend to add to supply in the
short term.
Given the lack of evidence in relation to the impact of hoarding on supply and the potential for
local authorities to gauge the market incorrectly, the use of a use it or lose scheme on an extensive
basis would carry considerable dangers for the operation of the housing and land markets.
However, its deployment on a selective basis, where careful consideration has been given to the
conditions set out above, may yield benefits.
31
5.4
Impacts on the Consumer
The impacts of the scheme on three types of consumer need to be considered:

The first time house purchaser;

The existing home owner; and

The first time purchaser seeking an affordable home.
The impact on consumers depends on the extent to which land prices fall as a result of the scheme
and the extent to which these reductions are passed on to the final consumer.
The extent of the fall in land prices in the open market depends on the scale of activity under the
scheme. If the scheme were to be applied on a widespread basis, then the supply of land would
increase and development land prices would fall substantially. In Section 2, it was suggested that
land prices could account for up to one-third of the price of housing, so that if land were to
approach agricultural land values the potential reduction in house prices is large.
If the scheme resulted in widespread compulsory purchase, then local authorities would acquire
land at existing use values, which could result in the price of local authority housing falling by 10
to 20 per cent depending on location.
If the impact of the scheme is that land owners bring forward the development of the land and the
price of land falls, then the extent to which supply increases and house prices fall will be
determined by the capacity and competitiveness of the building industry. In Section 3, the
elasticity of supply in the housing market was considered and it was concluded that supply is
relatively inelastic in the short term. This means that if the building industry is operating at
capacity, then expansion of activity will take some time to effect. This means that the supply of
housing will not increase in the short term, and the fall in land prices will be reflected in higher
profit margins and increased cost inflation in the building industry. That is, not all of the land price
decrease will be passed through to consumers.
In the longer term, the position is more positive as existing builders expand operations and there
are new entrants to the market. However, the possibility of overheating in the building sector
would argue against an extensive application of the scheme and for operating it on a selective
basis.
To the extent to which house prices are reduced and supply increased, the scheme will have
benefits for first-time purchasers and particularly those that require affordable housing. With
regard to existing homeowners, if house prices were to fall substantially then a problem of
negative equity could arise. This could in turn lead to a downward spiral in house prices that could
persist. Again, the crucial issue here is the scale of the intervention. Selective use of the scheme by
local authorities is unlikely to result significant house price reductions. Also, If the scheme were
operated at a time when house prices are inflating rapidly, then the position of existing
homeowners would be further safeguarded.
Selective use of the scheme could however add significantly to the supply of affordable housing. If
additional residential development takes place, and this is obviously conditional on the capacity of
the building industry, the supply of affordable housing under Part V could increase.
32
5.5
Impact on the Construction Industry
If the scheme were used selectively to address instances where oligopolistic hoarding was
occurring, then the impact on landowners within the building industry would be to reduce the
return on existing land holdings and thus profitability. However, such a reduction would be
entirely justified by the beneficial impacts on consumers. Moreover, oligopolistic practices hinder
new entrants to the building industry, so that the scheme would have beneficial impacts for smaller
builders who find it difficult to obtain development land.
The consequences for the construction industry would be more profound, if the scheme were to be
applied on a more widespread basis. In the short term, if demand for construction services were to
rise as landowners and or local authorities expanded their demand, then builders’ capacity to raise
their profit margins would increase.
To the extent to which builders own land designated under the scheme, there would be an
incentive for them to opt to develop such lands, rather than lose them at existing use value. This
could cause considerable disruption as builders reduced activity at existing sites and transferred
resources. It should also be noted that if builders reacted in this fashion, there would be no net
addition to the supply of housing.
As housing supply increased, land and house prices could fall sharply and builder-developers with
existing land banks could find that profitability would be affected as revenue from sales of house
that are currently under construction would fall without a corresponding reduction in costs.
The capacity of the building industry to expand output emerges as a key determinant of the
effectiveness of such a scheme. As the industry has expanded considerably in recent years, there is
a considerable risk at this juncture that a further increase in demand for construction services will
not be met.
5.6
Impact on Existing Instruments – Part V
Because the enactment of Part V caused developers to delay planning applications, local
authorities are only negotiating Part V agreements with builders at this stage. There is thus little
experience to date as to how the scheme will operate in practice. If the introduction of a use it or
lose it scheme were to result in a large number of Part V social and affordable houses, then the
smooth operation of Part V would be desirable.
5.7
Indicators for Intervention
There are a number of indicators to which Local Authorities should have regard if they are
considering intervention in the market in the form of a use it or lose it scheme. These are:
The Extent of Inactivity of Zoned and Service Lands

A significant proportion of zoned and serviced land is not being brought through the planning
and development process. A threshold of, say 25 per cent could be considered.
The Ownership Structure of Inactive Lands

The major portion of inactive lands are in the ownership of active market participants viz.
builder-developers rather than farmers, private individuals or religious or other institutions
33
The Extent to which Housing Output falls short of Housing Needs

Current housing output is at a lower level than requirements as set out in the Housing
Strategy; and those requirements are deemed to be still relevant;

Anticipated future housing output in the short term is similarly deficient, as indicated by the
pipeline of houses under construction;
The Market Situation as indicated by House Price Inflation
The rate of house price inflation should be high and escalating, indicating a continuing tightening
of supply.
34
6.
Conclusions
6.1
House and Land Markets
Between 1996 and the first quarter of 2003, the average price of a home in Ireland increased by
172 per cent. In the Dublin area, the price of homes increased even more dramatically, with prices
rising by 220 per cent between 1996 and 2003.
There was a very rapid rate of land price inflation in the period 1996 to 1999 of over 25 per cent
per annum. This was followed by two years – 2000 and 2001 - in which land prices tended to fall,
only for the upward trend to re-establish itself in 2002. For the period 1995 to 2002 as a whole the
data suggest that land prices increased by two and one half to three times.
Land costs are in the range of 20 to 33 per cent of house prices, depending on the location and the
nature of the development
The number of private dwellings built annually in the State has tripled from 19,000 to almost
58,000 between 1993 and 2002. Most of this increase has taken place since 1996.
The trend in the Dublin area was quite different. The annual rate of new home completions in
Dublin has risen by 34 per cent in the past six years, but this is well below the increase in the
country overall, which was 71 per cent. As a result, the proportion of new homes completed in the
Dublin area has fallen from 28 per cent to 22 per cent as a proportion of national house
completions. However, Dublin has still seen the addition of 69,396 homes in the past seven years.
6.2
Policy Response
The slower rate of increase in housing supply in the Dublin area was analysed through a series of
reports for Government. While both demand and supply side measures were adopted to remedy the
situation, the emphasis of policy was on increasing the volume of serviced land, raising housing
densities, zoning of additional lands for housing, and the use of Strategic Development Zones for
residential purposes. In 2002, there was a very significant increase in housing output in the Dublin
area.
6.3
Hoarding of Land
The shortfall in housing output that occurred in the 1990s has often been attributed to the hoarding
of land. This is an issue that has received relatively little analysis in either the international
literature on the housing and land markets or in the analyses of the Irish housing and land markets.
Three types of hoarding may be discerned:

Commercial hoarding: Purchasing or optioning land in excess of immediate needs, so as to
ensure a future supply of an essential material input.

Speculative hoarding: Purchasing or optioning land, but holding it vacant in anticipation of a
more profitable development opportunity in the future.
35

Oligopolistic hoarding: Purchasing or optioning land in a particular market area, seeking to
exercise some oligopolistic control over that market, and thus obtaining higher prices for
housing output.
Oligopolistic hoarding is of much greater concern than the other two types. This is because the
extent of commercial hoarding will be limited by the builder-developers output levels and thus the
reserves of land that he must hold. Speculative hoarding will eventually be limited by a market
correction, although this could take a considerable time to occur. However, oligopolistic hoarding
could persist indefinitely.
6.4
Evidence for Hoarding – Previous Analyses
Previous commentators on the housing market have tended to emphasise demand side factors as
the predominant influence on house and land prices. The possibility of speculative hoarding is
acknowledged, even though its extent has not been gauged. Where oligopolistic hoarding is
considered, it has been concluded that there is no evidence that it exists.
6.5
Tests for Hoarding
The fact that land is not being brought quickly to development stage, is not in itself an indicator of
speculative or oligopolistic hoarding. It is very difficult to prove, therefore, that speculative or
oligopolistic hoarding is taking place. However, if it is observed that a high proportion of zoned
and serviced land is brought speedily to development stage, then it is clear that such practices are
not seriously affecting supply.
A test for speculative hoarding on the part of builders would relate to the size of the land banks
that they hold relative to the scale of their activity. The requirement for builders to hold land is
related to the availability of zoned land and the speed at which the planning process can be
successfully negotiated. Thus, the more restrictive the planning system, the greater the cover that
builders need. It would appear that a land bank of three to four times annual output would not be
excessive, given the difficulties involved in procuring land and bringing it through the planning
application process.
Oligopolistic hoarding strategies are more likely to be effective if builder-developers focus their
land acquisition on particular areas. Their capacity to acquire dominance over land supply is
therefore affected by the characteristics of zoned land within specific local authority areas. The
presence of relatively few developer-builders active in a particular area would also raise the
possibility that oligopolistic practices could be adopted.
6.6
New Evidence on Hoarding
Although the data on Irish firms are limited, they do not indicate excessive land banking, or an
unusual level of land banking compared with UK experience.
Analysis of the land and housing markets in the Dun-Laoighaire Rathdown area suggests that the
lack of serviced land has been the major factor influencing the supply of housing.
Zoned and serviced lands are generally being brought forward for development through the
planning system in a speedy fashion. There is no evidence that builders are delaying construction
of housing once planning permission has been obtained.
36
Examination of one area of Dun Laoighaire Rathdown where there was a significant proportion of
inactive lands revealed that the rate of completions is set to rise rapidly. However, one builder has
control over a significant proportion of the lands, but has yet to bring a scheme through the
planning process. There may be case for intervention in such instances.
With regard to Fingal, it would appear that oligopolistic hoarding of land is an unlikely
explanation of the failure of housing output to grow rapidly. However, speculative hoarding of
land or a lack of capacity in the building industry or a combination of these factors could have
played a role in restricting output. It is not possible to be definitive as to the allocation of
responsibility among these factors. It is clear, however, that in 2002-2003, housing output has
begun to grow rapidly
A separate analysis of Ennis and Environs revealed that there was a strong growth in housing
supply through the 1990s on foot of generous zoning for residential purposes. The principal
constraint on development was the lack of capacity in the local building industry. Hoarding of land
is not an issue.
These analyses indicate that hoarding is not a widespread problem. However, specific instances
can arise which give rise to concerns. This suggests that a use it or lose it approach could have
application on a selective basis.
6.7
Criteria for Use of the Scheme
A necessary but not sufficient condition for intervention in the market is that a significant
proportion of zoned and serviced land is inactive i.e. is not being brought to the market. Where a
very high proportion of zoned and serviced land is either under construction, in the planning
control process, or in pre-planning, then a generalised intervention in the market would not be
warranted.
A second condition for intervention on the part of the local authority is that a high proportion of
the inactive lands are in the hands of developer-builders. If inactive lands are in the hands of noncommercial interests, such as, say private homeowners or religious institutions, then market
manipulation is unlikely to be the cause of land inactivity.
Where these conditions are met, the local authority should then consider whether supply is being
withheld because of market demand conditions. The local authority needs to be sure that housing
demand levels are such that a shortfall in supply exists and will persist over two to three year
period.
While assessments of housing demand, such as those contained in the Local Housing Strategies
are useful in assessing the adequacy of supply, prices are the best indicator of the state of the
market.
Given the lack of evidence in relation to the impact of hoarding on supply and the potential for
local authorities to gauge the market incorrectly, the use of a use it or lose scheme on an extensive
basis would carry considerable dangers for the operation of the housing and land markets.
However, its deployment on a selective basis, where careful consideration has been given to the
conditions set out above, may yield benefits.
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6.8
Impacts on the Consumer
To the extent to which house prices are reduced and supply increased, the scheme will have
benefits for first-time purchasers and particularly those that require affordable housing. With
regard to existing homeowners, if house prices were to fall substantially then a problem of
negative equity could arise. This could in turn lead to a downward spiral in house prices that could
persist. The crucial issue here is the scale of the intervention. Selective use of the scheme by local
authorities is unlikely to result in significant house price reductions. Also, If the scheme were
operated at a time when house prices are inflating rapidly, then the position of existing
homeowners would be further safeguarded.
If the scheme resulted in widespread compulsory purchase, then local authorities would acquire
land at existing use values, which could result in a result in the price of social housing falling by
10 to 20 per cent depending on location.
Selective use of the scheme could however add significantly to the supply of affordable housing. If
additional residential development takes place, and this is obviously conditional on the capacity of
the building industry, the supply of affordable housing under Part V could increase.
6.9
Impact on the Construction Industry
To the extent to which builders own land designated under the scheme, there would be an
incentive for them to opt to develop such lands, rather than lose them at existing use value. This
could cause considerable disruption as builders reduced activity at existing sites and transferred
resources. It should also be noted that if builders reacted in this fashion, there would be no net
addition to the supply of housing.
If the scheme were used selectively to address instances where oligopolistic hoarding was
occurring, then the impact on landowners within the building industry would be to reduce the
return on existing land holdings and thus profitability. However, such a reduction would be
entirely justified by the beneficial impacts on consumers. Moreover, oligopolistic practices hinder
new entrants to the building industry, so that the scheme would have beneficial impacts for smaller
builders who find it difficult to obtain development land.
The consequences for the construction industry would be more profound, if the scheme were to be
applied on a more widespread basis. In the short term, if demand for construction services were to
rise as landowners and or local authorities expanded their demand, then builders’ capacity to raise
their profit margins would increase.
As housing supply increased, land and house prices could fall sharply and builder-developers with
existing land banks could find that profitability would be affected as revenue from sales of house
that are currently under construction would fall without a corresponding reduction in costs;
The capacity of the building industry to expand output emerges as a key determinant of the
effectiveness of such a scheme. As the industry has expanded considerably in recent years, there is
a considerable risk at this juncture that a further increase in demand for construction services will
not be met.
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Appendix A1: Persons Consulted
Person
Affiliation
William Soffe
Fingal County Council
Alan Carthy
Fingal County Council
Kathleen Holohan
Dun Laoghaire –Rathdown County Council
Bernie O’Reilly
Dun Laoghaire –Rathdown County Council
Thomas Coughlan
Clare County Council
Josephine Cotter-Coughlan
Clare County Council
Bernard Thompson
NABCO
Donal McManus
Irish Council for Social Housing
Noel O’Connor
Irish Home Builders Association
Alan Cooke
IAVI
Jim Devlin
Irish Farmers Association
Patrick Burke
Threshold
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Appendix A2: Analysis of the Housing Market
A2.1: Bacon 1: An Economic Assessment of Recent House Price Developments
The first of Bacon report: An economic assessment of recent house price developments analysed
the recent trends in the housing market, and offered a number of recommendations to Government.
It concluded that the increase in house prices in the years leading up to 1998 was due to several
forces:

economic convergence with European living standards due to
- rising levels of real personal disposable income per capita
- increasing employment
- net immigration

rapid growth in the rate of household formation

existing norms of low density housing by comparison with Europe

falling interest rates that encouraged expansion of mortgage credit
Economic growth, demography, cost of finance and the speed of the supply response were
identified as the key influences on house price determination and housing supply. In Dublin it was
estimated that this supply response was only half what it was in the rest of the country, pointing to
special limiting influences such as accessibility to serviced land (with consequential effects on site
costs), a longer planning process in Dublin; and other economic influences which can lead to a
more protracted completion process e.g. risks of engaging in large scale developments.
Bacon concluded that so long as the economic outlook was positive, demand would probably
remain buoyant, and house-prices would continue to rise. However, in order to improve
affordability, especially for first-time buyers, a number of policy responses were recommended.
Improving the Potential Supply of Housing
Bacon concluded that unanticipated rates of take-up of development land were reducing the land
bank in Dublin faster than had been anticipated, but that prospective demand for the next 3-5 years
could be met on the basis of existing zonings and services. However, he recommended increased
densities on the basis that they would improve this outlook, and he noted the need to ensure that
lands were adequately serviced by infrastructure. Greater densities within Dublin have since been
permitted by all of the Local Authorities – particularly on brown field sites and at public transport
nodes.
Where lands currently zoned for uses other than residential were either inappropriate or surplus to
their existing zoned use, the report recommended that preference should be given to their
development for residential purposes.
If the potential of housing land was to be realised effectively, that rapid investment in water,
sewerage and road infrastructure was necessary in Dublin; as well as investment in social
infrastructure such as schools and public transport.
The existing Serviced Land Initiative, introduced in 1997, was commended in the report for
opening up land for residential development. It was proposed that the funding should be increased
and that priority should be given to the Dublin region in particular. Additional funding for the
Serviced Land Initiative was subsequently made available.
40
The report also recommended that the Government should proceed with public-private partnership
(PPP) initiatives for the provision of infrastructure and other services in the residential
development sector.
A2.2
Bacon 2: The Housing Market: An Economic Review and Assessment
In 1999, the Department commissioned a second report from Peter Bacon and Associates: The
Housing Market: An Economic Review and Assessment. This report assessed the success of the
measures taken by the Government in the previous year, and took other changes in the housing
market into account. The rate of house price inflation had peaked in the previous year, but was
still at a worryingly high rate.
The report asserted that the primary impact towards price stability has been achieved through:




Reducing investor demand for residential properties;
Promoting liquidity in the second hand market by reforming the stamp duty regime, including
extension of the new regime to purchases of new houses by non-owner occupiers;
Announcing and implementing a strategy in a manner that had credibility in the market; and
The effects to date represented only a portion of the likely full effects of the measures taken.
The report also reviewed the success of the previous year’s action plan, and made a number of
recommendations.
Serviced Land
Delays had been experienced in the receipt and implementation of schemes under the Serviced
Land Initiative (SLI) - the projected servicing of land was to eventually accommodate over 42,000
housing units, in Dublin and the Mid-East Regions.
Upon Bacon’s recommendation, the Government implemented interim and temporary
arrangements, including temporary treatment facilities, to allow residential development to
proceed quickly in advance of the provision of the necessary permanent facilities. This had the
potential to bring forward up to 16,000 housing units in the short term in the Dublin North Fringe.
In addition, the Department of the Environment and Local Government put in place measures to
expedite delivery of SLI schemes.
Rezoning
Significant additional lands were proposed for housing in the Dun LaoghaireRathdown, South Dublin, Fingal and Dublin City Development Plans to improve the residential
lands supply.
Density
It was recommended that more efficient use be made of development land by allowing for
increased density of development. This was supported by Government policy and the release of
Residential Density Guidelines for Planning Authorities in September 1999, that resulted in the
inclusion of policies and objectives in Development Plans supporting increased densities,
particularly on lands approximate to existing or proposed public transport corridors.
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A2.3
Bacon 3: The Housing Market in Ireland: An Economic Evaluation of Trends &
Prospects
In June 2000, the third Bacon report was released. While the rate of house price increases had
peaked in 1998, the report acknowledged that the ongoing growth in the economy continued to
fuel demand for housing, and that factors such as high inward migration would continue to put
upward pressure on real house prices in the medium term. The report also asserted that “The sharp
moderation in house price inflation since the Government’s first package of measures to bring
stability to the market owe much to the expansion in housing supply, which has accompanied
them” but that “…the rate of change in supply associated with the rate of change in price (i.e. the
price elasticity of supply) appears to have fallen in the past few years…” However, the report also
stated that affordability continued to be a problem, especially for first time buyers.
The report returned to issues of supply that had been addressed in previous reports: the need for
high standards of quality in planning applications; adequately resourcing the planning system to
deal with the increased workload; delivering necessary infrastructure quickly, and facilitating the
construction sector in overcoming capacity constraints and achieving sufficient scale to meet the
projected demand.
Housing demand in Dublin and the Mid East Region of at least 20,000 units per annum was
considered likely, over the coming five years – at that time home completions in Dublin were
running at less than 10,000 per annum, with a further 7,700 in the surrounding counties.
The unpredictability of where serviced land would become available was also addressed:
“At present there is considerable uncertainty in the housing market in relation to when and where
significant amounts of additional serviced land will become available in Dublin City & County. As
a result, demand is being fuelled for development land and speculative elements of demand are
persisting, including the artificially bringing forward of demand for housing.”
Bacon suggested that an effective response was to increase the efficiency and predictability with
which services sites with planning permission became available. In addition, measures should be
adopted to curb any significant speculative or transitory component of demand.
The report made a number of recommendations, which were then brought into action through the
adoption of the Planning and Development Act 2000.
Use of Strategic Development Zones for Housing
The Planning and Development Act 2002 made it explicit that Strategic Development Zones
(SDZs) could be used for residential development with the aim of expediting the development of
large-scale residential sites.
A range of Project Offices, similar to that already established to bring forward development of the
North Fringe Sewer were subsequently established.
Removal of Water and Waste Water Infrastructural Constraints
Key water and waste water infrastructural projects that were essential for the release of housing
land were identified, and the government The Department of the Environment and Local
Government adopted measures to address the issues of project offices for key water and sewerage
projects, amendments of wayleave procedures, and additional schemes under the Serviced Land
Initiative
42
Measures to make better use of existing planning resources and to increase the number of planners
produced by the education system were also introduced, and a commitment given that adherence
by local authorities to encouraging increased densities would be monitored.
On the demand side, Bacon proposed revisions to the Stamp Duty Regime to facilitate owneroccupiers and to discourage speculative or transitory demand. In response the Government
changed the stamp duty regime so that first time buyers were given a more favourable rate of
stamp duty than other owner occupiers; and applied a flat rate of 9 per cent on all investors.
Following Bacon 3, measures were also implemented to improve the institutional framework
governing housing supply, to increase the Local Authority Housing Programme, and to facilitate
Land Acquisition for Social and Affordable Housing.
A2.4
Planning and Development Act 2000
Overview
Ireland's planning system was introduced in 1964, when the Local Government (Planning and
Development) Act, 1963 came into effect. The Government began a review of planning legislation
in August 1997; and the Planning and Development Act, 2000 arose out of this review. The Act
consolidates all previous Planning Acts and much of the Environmental Impact Assessment
Regulations.
The Act also accommodates many of the initiatives proposed by Bacon and others in the preceding
years, and includes new, streamlined procedures for the making of development plans at county
and local level within a regional planning framework. Procedures for dealing with planning
applications and public involvement in these procedures have been improved under the Act, and it
also contains proposals for the establishment of Strategic Development Zones.
Part V
The Act contained radical measures in relation to the provision of affordable or social housing.
Under Part V of the Act, all local authorities are obliged to prepare housing strategies that estimate
the need for all types of housing, including social and affordable housing, for the population in
each area. In addition, a proportion, up to a maximum of 20 per cent of residentially zoned land in
each area must be reserved for the local authority for the provision of social and affordable
housing. This part of the Act was referred to the Supreme Court by the President, to establish its
constitutionality, and this was subsequently upheld in August 2000. All parts of the Act were
brought into force by 11 March 2002.
Planning and Development Regulations, 2001
The Planning and Development Regulations, 2001 implement the Planning and Development Act,
2000 in its entirety. Included in the regulations are changes to procedures for the processing of
planning applications to ensure that the great number of applications now being made annually can
be processed as efficiently as possible.
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A2.5
Planning and Development (Amendment) Act 2002
In 2002, the Government introduced the Planning and Development (Amendment) Act 2002.
The primary purpose of the Act was to amend the Planning and Development Act 2000
particularly in relation to the housing supply and social housing measures of Part V.
The Act preserved certain planning permissions that were to lapse on 31 December 2002,
throughout 2003, where the developer pays a levy to the relevant local authority for each unit built
under the planning permission. The Act additionally attempts to make it illegal for this levy to be
passed on to house purchasers.
Most importantly, the act introduces other ways in which developers seeking planning permission
can comply with the Part V requirements of the 2000 Act. Instead of reserving land within the
boundaries of the land that is the subject of the planning permission application, developers can
also agree with the local authority to:

Reserve land at another location;

Make a payment to the local authority which it would use for other social and affordable
housing schemes; or

Arrange a combination of the above.
44