The Housing Market:
An Economic Review and Assessment
Report submitted to the Minister for Housing and Urban Renewal
Peter Bacon & Associates
ECONOMIC
CONSULTANTS
Ballyrane House
Killinick
Co. Wexford, Ireland
Tel: +353-53-58211
Fax: +353-53-58181
Mobile: 088-558915
E-Mail: pbacon@iol.ie
in association with:
Fergal MacCabe
Architect & Town Planner
56 Fitzwilliam Square
Dublin 2. Ireland
Tel: +353-01-676 2594
Fax: +353-01 676 2310
E-Mail: maccabe@officelink.eunet.ie
Anthony Murphy
Economics Department
University College, Dublin 4. Ireland
March 1999
The Housing Market: An Economic Review and Assessment
TABLE OF CONTENTS
EXECUTIVE SUMMARY..........................................................................................1
1:
INTRODUCTION ..............................................................................................11
2:
KEY FEATURES OF HOUSING MARKET TRENDS: RECENT
DEVELOPMENTS IN THE CONTEXT OF GOVERNMENT’S
ACTION ON HOUSE PRICES ..........................................................................12
2.1 INTRODUCTION ...............................................................................................12
2.2 HOUSE PRICES ...............................................................................................12
2.2.1
Principal Sources of Data................................................................12
2.2.2
Overall Price Trends 1996 to Date ..................................................13
2.2.3
Trends in House Prices According to House Type,
Location & Characteristics of Purchaser ........................................16
2.2.4
Trends in Residential Rents..............................................................21
2.3 RECENT DEVELOPMENTS IN HOUSING ............................................................24
2.3.1
Trends in House Completions ..........................................................24
2.4 HOUSE PRICE AFFORDABILITY ........................................................................27
3:
2.4.1
Updating of Countrywide Estimates contained in An Economic
Assessment of Recent price Developments ......................................27
2.4.2
House Price Affordability in Dublin Compared with
National House Prices .....................................................................30
POTENTIAL HOUSING SUPPLY IN THE DUBLIN REGION &
SELECTED OTHER MAJOR URBAN AREAS............................................31
3.1 INTRODUCTION ...............................................................................................31
3.2 DEVELOPMENT PLANS: CURRENT DEVELOPMENTS IN RELATION TO
RESIDENTIAL ZONING, SERVICING AND RESIDENTIAL DENSITIES ....................31
3.3 PROCESSING OF PLANNING APPLICATIONS.......................................................33
3.4 ESTIMATES OF POTENTIAL SUPPLY CLASSIFIED BY PLANNING AUTHORITY......37
3.5. IDENTIFICATION OF KEY CONSTRAINTS ON REALISATION OF
HOUSING SUPPLY DUBLIN REGION .................................................................40
3.5.1
Infrastructure requirements (water/sewage/road access) ................40
3.5.2
Serviced Land Initiative ...................................................................41
3.5.3
Northern Fringe Interceptor Sewer..................................................45
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The Housing Market: An Economic Review and Assessment
3.6. ASSESSMENT OF ADEQUACY OF CURRENT SUPPLY SCENARIOS .......................45
3.6.1
Existing Pipeline Effects: Dublin Region.........................................45
3.6.2. Existing Pipeline Effects: Eastern Region .......................................46
4:
ASSESSMENT OF GOVERNMENT’S ACTION ON HOUSE PRICES......47
4.1 INTRODUCTION ...............................................................................................47
4.2. PROGRESS TOWARDS ATTAINMENT OF KEY OBJECTIVES ..................................47
4.2.1
House Price Stability .......................................................................47
4.2.2
House Price Affordability.................................................................48
4.2.3
Optimising Potential Housing Supply ..............................................51
4.2.4
The Private Rented Sector ...............................................................54
4.2.5. Improving Planning & Information for the Better
Development of Settlement & Housing in the Medium Term. .........55
4.3 OVERALL ASSESSMENT ..................................................................................56
4.4. PROPOSALS FOR FURTHER ACTION..................................................................57
4.4.1
Improving Planning & Information for the Better
Development of Settlement & Housing in the Mediu58m Term. .....57
4.4.2
Improving Affordability of Housing .................................................58
4.4.3
Increasing Potential Housing Supply in the Short Term..................62
4.4.4
Securing Stability in the Private Rented Sector...............................65
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The Housing Market: An Economic Review and Assessment
Executive Summary
1.
Year on year comparisons of quarterly data, show that a peak occurred in house
price increases around the first quarter of 1998. Since the Government’s Action
on House Prices, of April 1998, there has been a general easing in house price
inflation, in year on year terms, most particularly in prices of new houses. The
rate of increase in new house prices in Dublin in 1998 slowed compared with
1997, across most house types, although not apartment dwellings. The rate of
increase in second hand house prices continued to accelerate into the third
quarter of 1998, nationally and in Dublin in particular, with the strongest rates
of increase occurring at the top end of that market. However, preliminary
official data for the fourth quarter also indicates a slowdown commencing in the
year on year trend. There is widespread consensus that Government actions
have played a key role in achieving this slow-down. The primary impact
towards price stability has been achieved through:
● Reducing investor demand for residential properties through the removal of
deductibility of interest on borrowings undertaken for investment in
residential property, against rental income for personal income tax
purposes.
● 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 in this way breaking the psychology of house price inflation
and expectations of further acceleration.
● The effects to date represent only a portion of the likely full effects of the
measures taken.
2
According to the IAVI, rents in the twelve months to 1 November 1998 rose by
24 per cent in Dublin, with lesser increases of 17 per cent occurring in the rest
of Leinster and Munster and 12.5 per cent in Connaught. The IAVI survey notes
that “to be offset against this 24 per cent rise in Dublin rents, however, went the
fact of a 30 per cent increase in the price of Dublin apartments during the year,
while second hand houses rose by 30 to 40 per cent in the same period and new
homes by 20 to 25 per cent.” Thus the overall rate of increase in rents in Dublin,
in the twelve months to 1 November last appears to be in line, generally, with
the rise in house prices.
3.
The trend in house completion for the year 1998 is estimated to be stronger than
in 1997, with completions in each quarter being above the corresponding period
of 1997. For 1998 as a whole, total completions amounted to 42,349 up 9 per
cent on the level in 1997. Private house completions are estimated to be about
39,000 up almost 9 per cent. These levels of completions are the highest that
have ever been recorded in one year. Moreover, each of the past four years has
set a record in terms of new house completions
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The Housing Market: An Economic Review and Assessment
4.
Given the inherent long response time required to generate additional housing
supply, the progress achieved to date, in slowing down the rate of increase in
new house prices and securing continued growth in house completions to record
levels has to be regarded positively. All the more so when it is considered that
this progress was achieved against a continuing strong economic background,
in which interest rates fell significantly further.
5.
On average from 1990-97, new house completions in Dublin amounted to
28 per cent of the total, although in 1990, 1991 and 1997 the share was below
this average and in 1998 the proportion has continued to fall to 21 per cent.
6.
The number of planning permissions granted and the floor area (in 000s of M2)
involved in the third quarter of 1998 was the highest since this series
commenced in 1973. The year on year rate of increase amounted to 31.6 and
67.3 per cent in terms of number of permissions for new dwellings and the floor
area to which they relate. Quarter-on-quarter rates of increase are also very
strong.
7.
The vast bulk of the increase in permissions is accounted for by new housing.
The trend in apartments actually declined from a peak in the first quarter of
1997. However, by the third quarter of 1998 apartment permissions had almost
regained the earlier peak level of the first quarter of 1997.
8.
As a result of the Serviced Land Initiative (SLI) the projected servicing of land,
which will accommodate over 42,000 housing units, in Dublin and the MidEast Regions. However, of the total about one fifth is likely to be completed in
1999. Of these, a little over half will be in Dublin County with the balance in
the adjacent counties of Wicklow, Meath and Kildare. The Department has put
in place a streamlined administrative system to facilitate the speedy
implementation of SLI schemes. On the basis of submissions made by local
authorities earlier in 1998 four schemes, with an estimated housing yield of
1,400 were due to start in 1998 in the Dublin region. Only one did (and was
completed) with a yield of 300 houses. The other three schemes are now
scheduled to commence in 1999.
9.
At the end of 1998, the Department of Environment and Local Government
asked all local authorities to provide an update of the status of each water and
sewerage scheme approved under the Initiative. This information is reflected in
relevant Tables in this Report. In the light of the experience in 1998 with delays
in starting schemes, it is essential that local authorities take steps to ensure that
deadlines for scheme commencements and completions are met.
10
Significant additional lands are proposed for housing in the Dun LaoghaireRathdown and South Dublin Development Plans and the Fingal and Dublin City
Draft Development Plans will improve the residential lands supply. Increased
densities will give greater yields from zoned and serviced lands, both in
brownfield and greenfield locations. There is also evidence of significant
housing development schemes in the pipeline.
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The Housing Market: An Economic Review and Assessment
11.
However, it would appear that the current potential supply (i.e. that can be built
upon immediately) of housing land in counties Kildare, Wicklow & Meath is
substantially less than previously estimated. Current housing density policies of
the Planning Authorities in these counties is a major factor behind this. In part
these policies reflect infrastructure constraints in terms of water, sewerage and
roads in these areas, which are being addressed in the short to medium-term.
12.
In May 1997, the Department of the Environment and Local Government and
local and regional authorities decided that Strategic Planning Guidelines should
be prepared for the Greater Dublin Area and Consultants have been appointed
to indicate the preferred area for development by general location, type and
scale of such use. The Guidelines will address the amount of population/
households to be accommodated in the Greater Dublin Area and in particular
will indicate the preferred distribution of that future population as well as
general locations for commercial and industrial development. Without prejudice
to the forthcoming strategic planning guidelines it is considered that it would be
appropriate that urgent consideration should be given to establishing the scope
and requirements in order to develop existing towns outside the Dublin
conurbation, (e.g. Navan and towns in South Kildare and County Wicklow).
Clearly, a prerequisite for such development is good quality public transport
links. Therefore, it is considered that specific proposals should be
formulated at an early date for improvement in public transport facilities
to locations having the scope for growth (without adverse planning, social
and sustainability effects) and a supply of land suitable for development.
13.
It is anticipated that the Consultants will report by March 1999. The Strategic
Guidelines will provide an overall strategic context within which the
Development Plan Reviews of the constituent Planning Authorities would be
undertaken. This may require a review of the Development Plans for the
four Authorities earlier than the ordinary five years review period in order
to harmonise their policies and objectives with those of the Guidelines.
14.
At a broader level, the housing market situation would be improved
significantly if it was possible to achieve a better geographical balance of
economic activity with an associated more even distribution of population. It
would be appropriate that the next National Development Plan should
address the issue of achieving a better geographical balance of economic
activity with an associated more even distribution of population and afford
a high priority to achieving it. The preparation of a National Spatial
Development Strategy would facilitate and assist with developing policy in
this regard and it is recommended that such a strategy should be
formulated and published. A comprehensive land use analysis relating to
the Dublin and Mid-East Region should be undertaken in the meantime.
This should be sponsored under the direction of the Minister for the
Environment and Local Government and subsequently updated at regular
intervals.
15.
A number of measures undertaken to enhance potential housing supply have
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The Housing Market: An Economic Review and Assessment
been put in place and at this early stage there are indications that they have the
potential to make a significant contribution in this direction. However,
representatives of the IHBA are firmly of the view that even the estimate of
current potential supply for Dublin City and County, (which have been revised
up marginally) is inadequate, 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. However, the current anxiety should
be relieved as additional lands become available continuously over the
forthcoming five years. The process of expansion underway is continuous and
the pattern projected for the next five years will prelude further supply beyond.
16.
The combination of stronger house price rises and a delay in cutting mortgage
rates has resulted in a sharp decline in house price affordability during 1998 for
both the single and two wage earner households, both nationally, and in the
Dublin region in particular. Indeed, house price affordability would appear to
have fallen back to close to previous 1990 lows, at the end of 1998. The full year
effects of lower interest rates in 1999 and possible further easing during the year
along with easing price increases should result in some improvements in
affordability in the course of this year.
17.
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. The likelihood is that the magnitude
of the problem that would be created in this way would be as large and could
be greater than the problem that would be resolved. 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. The UK
market of the late 1980s and well into the nineties provides a good example of
such a negative scenario and how pervasive they can become. 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’. Any such starategy needs to
be carefully designed so as to avoid risks of stimulating demand and not adding
to supply.
18.
In essence therefore, the focus has to be on ways of filling the gap between the
4
The Housing Market: An Economic Review and Assessment
current price of starter homes and a price that is more affordable to new home
buyers who cannot finance current prices. Taking this approach of designing a
strategy, which will fill a gap in the housing market, suggests that innovation is
a key requirement of any future strategy that is to be successful. There would
appear to be scope for achieving innovation in two directions. The first is in
terms of designs and densities of new houses that are used to meet housing
needs. The second relates to innovation in the financial products that are
currently available to facilitate potential new homeowners in buying a home.
These two aspects are developed upon below.
19.
As discussed elsewhere, in Ireland housing densities are low, by comparison
with other countries. The predominant starter home in Ireland tends to be a
three-bedroom semi-detached house, with front and back garden. Developments
of such houses require about one acre for ten units. With higher densities and
different design other possibilities can be created. For example, using terraced
developments, at densities of 16-20 per acre would result in savings in costs. It
is estimated that total cost savings of 20-30 per cent could be achieved off the
cost of a 1,000-1,100 square foot 3 bedroom semi by providing two bedroomterraced housing of 750 square feet. Indeed, some experts consider that
significant savings can be achieved through changes in design and without
significant reductions in floor area. Clearly there would be risks of social
exclusion and the creation of isolated suburban developments at the bottom of
the market if such an approach was pursued in a wholesale basis. Certainly, this
would not be desirable. Rather, this type of housing would need to be integrated
in wider developments to provide a cohesive mix of development. In addition,
to be effective, such an approach would need to incorporate quality in design
and construction and be undertaken in appropriate locations – e.g. at city
locations, or adjacent to high quality public transport and other amenities or as
part of a balanced mix of larger developments.
20.
To achieve a significant increase in the supply of more affordable housing it is
recommended that all local authorities should avail of all possibilities
under the Planning Acts, including in relation to development plans,
development control and policies such as those on densities, to ensure that
the demand for different house types and sizes, to meet current and
prospective demographic trends are satisfied. This would improve the
achievement of housing policy objectives. In reviewing and updating the
Planning Code, the Department of the Environment & Local Government,
should consider whether the Planning Acts need to be strengthened to
support the objectives of a modern housing policy, including the provision
of the necessary mix of house types and sizes. It is understood that
consideration is being given as to whether the Planning Acts need
strengthening.
21.
A gap exists between the price of existing starter homes and the level of debt
financing which some income earners can secure from mortgage lenders,
considering applicable loan criteria. Another possible approach to bridging this
gap is through a more broadly based financial initiative to promote shared
5
The Housing Market: An Economic Review and Assessment
ownership. There are a number of conceivable approaches to achieving this. For
example, the existing local authority shared ownership scheme might be
extended to income categories marginally above the current limits (desirably on
the basis of reduced local authority equity participation to maintain an effective
price limit). Alternatively, it may be possible to develop a scheme for provision
of affordable housing through local authorities, possibly involving private
sector developers, either on the basis of sale through shared equity
arrangements or otherwise.
22.
Another possible approach might be a private sector shared equity scheme, in
which the purchaser might finance say 70 per cent of the property with the
balance (stub equity) being acquired for a specified period by a trust or similar
vehicle. Such arrangements would have to be subject to appropriate conditions
and safeguards, for example, minimum deposit, assessment of purchasers’
ability to buy out the stub equity, purchasers’ inability to raise a mortgage or
normal terms for a house priced at say 80 per cent of the prevailing average new
house price, upper income and price criteria, financial sustainability and prior
detailed analysis of the practicability or otherwise of the trust or other such
vehicle. Finally, a similar effect, in terms of accessibility of mortgage funding
to that of shared equity arrangements might be achieved through appropriate
changes in mortgage lending criteria. This is duscussed further below.
23.
It is recommended that in the context of sustained price stabilisation and
significant increase in housing supply, consideration could be given to the
foregoing financial options for “bridging the gap”, for purchasers whose
incomes would not enable them to obtain sufficient mortgage funding at
current price levels. However, it is emphasised that any shared equity
scheme or other innovative financial instrument, which would increase
access to mortgage funding for house purchase would give rise to increased
effective demand in the market. Unless there is a corresponding increase in
housing supply, this will result in price increases, especially in the segment
of the market at which the scheme is targeted. Therefore, the end result
would be counter productive and such measures are not desirable while
there is a shortfall of supply in the housing market. Therefore it is
recommended that the introduction of any such scheme or initiative should
be contingent on the previous recommendation in relation to promoting the
development and supply of affordable housing or should be directly linked
to the provision of such housing.
24.
It is considered appropriate that standard lending criteria applied by mortgage
lenders should be re-appraised. This is in the light of rapidly changing
relationships between gross and net income as a result of ongoing reductions in
direct taxation and long term changes in Ireland’s interest rate structure, arising
from the commencement of the Euro.
25.
In particular, it is recommended that consideration should be given to
altering from using current multiples of gross salary to a percentage of net
salary, on the basis that mortgage applicants lock-in at a fixed rate for say
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The Housing Market: An Economic Review and Assessment
7-10 years. The precise maximum percentage or other conditions should be
determined in consultation with mortgage lenders. The Central Bank
would be the appropriate authority to conduct such consultations and to
determine when effect should be given to any revisions that might be
agreed. In this context also it might be appropriate to establish criteria as
to the range of house sizes or price categories to which any changes in
lending criteria might be applied. However, any revisions on foot of such a
reappraisal should be implemented only when there is evidence of a general
easing of supply pressures within the housing market.
26.
It is estimated that the North Fringe Interceptor Sewer, together with the
provision of additional water distribution and storage, will provide necessary
services to open up in the region of 373 hectares of land for residential
development. On the basis of existing densities, it is projected that the housing
yield from this will be over 15,700 housing units. (This does not include a
further 329.5 hectares of land zoned for residential which is undeveloped). It
has been established, and agreed with Dublin Corporation and Fingal County
Council that it would be technically feasible to use interim/temporary
arrangements (which may include temporary treatment) to provide sewerage
services to land zoned residential at the densities currently envisaged.
(Proposed to be zoned residential land in the case of Fingal Development Plan).
Therefore, if planning permissions were granted to proposed housing
developments and suitable approved interim/temporary arrangements
(including temporary treatment) could be put in place, it would be possible to
achieve a short term increase in housing potential in Dublin of up to 15,700
houses. All such arrangements would need to have all the safeguards necessary
to comply with the highest environmental standards.
27.
Now, agreement has been reached between the Department of the
Environment and Local Government and relevant planning authorities
that, pending completion of the North Fringe Interceptor Sewer,
interim/temporary arrangements (which may include temporary sewage
treatment or pumping facilities) will be permitted in deciding on planning
applications for residential development. It is, therefore, recommended
that Developers should be encouraged to enter into dialogue with the
relevant planning authorities on appropriate arrangements. Any such
temporary arrangements will be subject to safeguards in relation to
environmental impact/water quality
28.
It is considered that the North Fringe Interceptor Project and the
accompanying water infrastructure works amounting to £16 million
should be examined with a view to establishing if PPP arrangements could
be used for all or part of the works. Any necessary public funding required
(having taken account also of development levies) will need to be met from
public resources to be committed to water and sewerage services over the
period of the forthcoming National Development Plan, 2000-2006.
Consideration of the most appropriate manner of funding need not and
should not delay commencement of the projects involved.
Another type of infrastructure constraint is access roads to lands zoned for
29.
7
The Housing Market: An Economic Review and Assessment
residential development. It is proposed that the Department of the
Environment & Local Government should promote an initiative, involving
local authorities, to identify with developers and others the road and public
transport constraints preventing the development of existing zoned
residential lands. The objective should be to identify and report within six
months on such constraints, stating clearly the amount of housing development,
which is constrained; other infrastructure developments considered necessary to
permit development and an estimate of the capital cost and time-scale involved
to release the lands for development. In the course of identifying such
constraints judgements should be offered as regards the scope, feasibility and
suitability of using PPP to overcome the constraint.
30.
In order to assist An Bord Pleanala, it is recommended that the Minister
for the Environment and Local Government should request the Bord to
present to him a proposal, including an evaluation of the efficiency and
effectiveness of current operations and the adequacy of current resources
in relation to these operations. It is understood that the Bord is experiencing
difficulties with recruitment of planners.
31.
To judge from the assessment contained in this review, there is some move to
increase housing densities taking place in some Development Plans. The
planning guidelines issued by the Minister in relation to residential densities
have had an influence on changes taking place. However, the pattern is uneven
and there is not a clear set of principles against which progress to higher
densities is occurring. A consultant’s report on housing densities, commissioned
by the Minister will soon be available. It is recommended that when it is, it
would be appropriate for the Minister to incorporate relevant conclusions
and recommendations contained therein in a general directive to planning
authorities, using powers under Section 7 of the Planning and Development
Act 1982. The aim should be to provide a sound set of principles and
criteria for planning authorities to implement a consistent and coherent
policy designed to achieve greater densities in a timely way and in a
manner that contributes to sustainability. Of course it is recognised that it
will be difficult to formulate a directive, so as to ensure that the many
ramifications associated with greater densities are taken into account
adequately. However, in light of the acute situation regarding current and
prospective potential supply it is considered that a directive along the lines
proposed, if it can be carefully drawn would be an effective instrument for
achieving greater densities.
32.
When assessing the impact of reducing the CGT rate to 20 per cent for land
brought into residential development it was noted that in practice the impact to
date has been limited. In particular, the requirement to have outline planning
permission in place, in order to take advantage of the effects of this measure,
means that it will be eighteen months to two years before any significant
amounts of development land are sold to take advantage of this incentive.
Therefore, it is recommended that it would be beneficial to withdraw this
requirement. In the event that disposals of land, taking advantage of this
8
The Housing Market: An Economic Review and Assessment
incentive are not in fact brought into residential development the Revenue
Commissioners should institute appropriate arrangements to recover any
tax due. The benefit of this amendment would be expected to arise in the
wholesale market for development land. Houses cannot be built in any event
until planning permission has been granted. However, developers’ attitudes to
releasing and replacing potential development land could be materially affected
if there was greater supply and liquidity in the market for development land. It
is believed that this latter aspect is being adversely affected by the prior
requirement to obtain outline planning permission and would be changed
beneficially if this requirement were dropped.
33.
Rents generally have been rising rapidly, in line with the trend in house prices.
These trends reflect the fact that conditions of excess demand for
accommodation (both owner occupied and for rent) exist in the Irish housing
market. The optimal course to achieve a sustainable balance in this market, like
that for owner-occupiers, is to expand supply. This needs to take place at a
general level and targeted interventions are required, which focus on particular
segments of the market.
34.
In the context of improving the environment for investment in residential
property, it is recommended that the matter of landlord tenancy legislation
in Ireland should be reviewed. One objective should be to determine if
there are aspects to this, which constrain the development of a vibrant
rented sector. There should be a focus both on barriers to investment and
the matter of an appropriate balance in tenure rights. The Law Reform
Commission would appear to be the most appropriate authority for
carrying out such a review.
35.
The Minister for Finance announced in Budget ’99 the introduction of tax
incentives for the provision of student accommodation. The relief will be
available for accommodation provided in the 4-year period from 1 April, 1999
to 31 March, 2003 and will allow investors to offset 100 per cent of the costs of
construction, conversion or refurbishment (but not site costs) of purpose built
third level student accommodation against all rental income over a maximum
period of 10 years. This type of relief has become commonly known as “Section
23” relief.
36.
This relief should contribute to the provision of student accommodation at or
near third-level institutions, which in turn will ease pressures in the general
rental market in the medium term. The relief is well targeted in that it will result
in an increase in residential accommodation provision without adverse impacts
or displacement effects on prospective home purchasers.
37.
Under the new urban renewal scheme, 43 towns and cities are to benefit.
Designations are based on the concept of Integrated Area Plans (IAPs) prepared
by County Councils and County Borough Corporations. These are to address
not only issues of physical development, but also wider issues of local socioeconomic benefit, including training, education and social housing. The role of
9
The Housing Market: An Economic Review and Assessment
preparing IAPs is pitched at county/city level in the interests of allowing
priorities to be determined.
38.
The Finance Bill provisions allow for the entire area to which an IAP relates to
be a qualifying area for the purposes of the owner-occupier residential
allowances and/or the investor allowances for rented residential accommodation
where these options may be justified by reference to the above-mentioned
criteria.
39.
It is recommended that where either category of residential allowances is
being recommended local authorities should consider whether in the
interest of the IAP, they should be made subject to conditions in relation to
the accommodation to be provided e.g. the design, construction, size, room
dimensions, type and quality of the accommodation, the balance between
houses of different types and sizes and the amenities to be provided etc. In
this regard it should be noted that under previous urban renewal schemes only
12 per cent of residential investment was in refurbished property.
40.
The current tax allowance for rent, for those under 55 years, applies at the
standard rate and amounts to £500, £750 and £1,000 p.a. for a single, widowed
or married person respectively. For those aged over 55 years the allowance
amounts to £1,000, £1,500 and £2,000 for single, widowed and married persons
respectively and is available at the marginal rate. It is recommended that this
threshold should be revised to reflect broadly the recent trend in rents
across the country.
41.
In other countries the resources of the voluntary sector has been harnessed
effectively to assist in providing accommodation to less well-off groups in
society. In Ireland the potential of the voluntary sector to contribute to housing
is underdeveloped. Therefore, it is recommended that, on a pilot basis, the
Minister for the Environment & Local Government should invite proposals
from interested and concerned agencies in the voluntary sector as to how
they can be assisted to develop and apply their resources more beneficially
to provide accommodation for needy sectors of the community. For
example, projects might be identified in which voluntary agencies might
develop, renew, refurbish or convert dilapidated, run-down or disused buildings
for the purposes of providing residential accommodation with some assistance
of public services. The main objective of this proposal is to seek to harness the
energy, imagination and commitment of voluntary agencies concerned with
developing innovative housing solutions for socially disadvantaged sectors.
Such proposals might also address the possible scope for a role for the
voluntary sector in providing accommodation for owner occupation.
10
The Housing Market: An Economic Review and Assessment
1: Introduction
This report is submitted to Mr. Robert Molloy T.D., Minister for Housing and Urban
Renewal setting out the results of a study, commissioned by the Department in
November 1998. It assesses the implications and affects of measures taken by
Government in April last and other recent developments on house prices and the rental
market for accommodation. The formal terms of reference for the study were as
follows:
Assess developments in relation to house prices and related issues since publication of
‘An Economic Assessment of recent House Prices Developments’ and Government’s
‘Action on House Prices’ (23 April 1998) and in particular:
● assess impact of measures in ‘Action on House Prices’ in relation to supply,
demand and cost of housing and housing land
● assess changes in affordability of housing particularly in relation to first time
purchasers since ‘Action on House Prices’
● evaluate developments in the private rented market including effects of
measures in ‘Action on House Prices’ and in the Finance (No. 2) Act 1998
● analyse developments in the housing market
● assess the implications of likely future developments in relation to house prices,
serviced land availability for the national housing programme and affordability
in relation to home ownership and private rented housing
● provide recommendations for future monitoring and economic evaluation of
house prices and developments in the housing market by the Department of the
Environment and Local Government.
11
The Housing Market: An Economic Review and Assessment
2: Key Features of Housing Market Trends: Recent Developments
in the Context of Government’s Action on House Prices
2.1
Introduction
In this chapter the recent trend in house prices is reviewed, particular attention is
focused on Dublin and on developments in the past six months since the Government
launched its Action on House Prices in April last, (Section 2.2). Current developments
in housing are presented in Section 2.3. The subject of house price affordability,
investment in residential property and developments in the rental sector are discussed
in Section 2.4.
2.2
House Prices
2.2.1
Principal Sources of Data
A wide range of housing statistics including data on house prices, house completions,
housing loans and local authority housing is provided in the Annual and Quarterly
Housing Bulletins published by the Department of the Environment and Local
Government. The bulletins are compiled with the co-operation of the lending
institutions, the Central Bank (which provides information in respect of the retail
banks) and the local authorities. The data on housing loans and house prices are derived
from returns obtained from all mortgage providers.
The Annual Bulletin contains more comprehensive and detailed information than the
Quarterly Bulletins. These analyses are facilitated by use of statistics derived from a
separate house purchase loan statistical survey operated by the Department with the cooperation of the lending institutions and the borrowers. This survey involves the
individual borrower completing, on a voluntary basis, a special form at the loan
application stage, which the lending institution returns to the Department for analysis.
In recent years the Irish Auctioneers & Valuers Institute (IAVI) has conducted an
annual survey amongst its members of trends in property values, including residential,
in the 12 months preceding. The survey results, in general, show rates of increase in
house prices that are higher than those contained in the official statistics. In part, at
least, this may reflect the inclusion of transactions not using loan finance. However, the
official statistics appear to be more consistent with data relating to mortgage loans.
Since publication of the Government’s Action Plan, two major mortgage lenders – Irish
Permanent & First Active – now publish House Price Indices, compiled from their
respective databases on a monthly basis. Both of the indices are constructed using a
broadly similar statistical methodology: they explicitly attempt to take into account the
influence on house prices of certain features such as size, house type and location.
Thus, they represent a valuable additional source of information and they are included
along with other sources in the analysis below.
12
The Housing Market: An Economic Review and Assessment
2.2.2
Overall Price Trends 1996 to Date
A key concern is whether or not the rate of increase in house prices has peaked and a
return to stability is underway. This Section analyses the most recent data with regard
to this question.
Chart 2.1 shows the pattern of developments in new house prices (for which loan
approval was granted), quarterly from the beginning of 1996 in respect of Dublin,
Cork, Galway, Limerick and for the country as a whole. Chart 2.2 contains similar
information with respect to second hand house prices.
Chart 2.1: New House prices, Dublin & Selected Other Cities, 1996-1998, Quarterly, £.
Source: Bulletin of Housing Statistics, Department of the Environment & Local Government
The main feature is that the trend in new house prices – nationally and in Dublin and
other major cities has remained buoyant. There is some indication of the trend in prices
beginning to stabilise, from the middle of 1998. On balance, prices of new houses in
Dublin have continued to outstrip those countrywide. By the third quarter of 1998 these
prices stood at a premium of 30 per cent of those countrywide and at that time were
beginning to show signs of stabilising (See below).
The trend in second hand house prices, has remained stronger than for new houses and
in Dublin in particular second hand house prices have continued to grow. By the third
quarter of 1998 these prices stood at a premium of almost 34 per cent of those
countrywide.
13
The Housing Market: An Economic Review and Assessment
Chart 2.2: Second-hand House prices, Dublin & Selected Other Cities, 1996-1998,
Quarterly, £.
Source: Bulletin of Housing Statistics, Department of the Environment & Local Government
Table 2.1 contains comparative data showing the year on year trend in both new and
second hand houses, quarterly, since the beginning of 1997, countrywide and for
Dublin, using data from the Department of the Environment and Local Government
and the Irish Permanent House Price Index. It may be seen that year on year rates of
increase in prices of new houses, as measured by the IP index were consistently below
those shown by Department of the Environment & Local Government data, until the
second quarter of 1998. Since then rates of increase contained in the IP index have been
greater. With respect to second hand house prices the trend in the IP index is
consistently below that of the Department of the Environment & Local Government to
date, with regard to countrywide data and in or about the same rate of increase for data
regarding Dublin.
This mixture of results makes it difficult to judge conclusively if a peak has been
reached in the year on year rate of growth in house prices. On the basis of the
Department of the Environment & Local Government data new house prices could
have peaked in the first quarter of 1998. The fact that the IP index is constructed on a
mix adjusted basis would tend to result in it showing lower rates of increase than a
simple index, of the type constructed by the Department of the Environment & Local
Government. However, this would not explain the ‘cross-over’ pattern, in which higher
rates of increase are observed in the second and third quarters of 1998 with respect to
new house prices both countrywide and in Dublin. Furthermore, this feature would be
expected to result in a similar pattern with respect to second hand houses, but this is
not in evidence. Apart from differences in methodology, there is another important
difference in these two indices, namely that the IP index is constructed from data on
14
The Housing Market: An Economic Review and Assessment
loan payments whereas the Department of the Environment & Local Government
series is based on loan approvals. It is possible that this difference lies behind the
stronger year on year pattern in the IP index for the most recent two quarters, since loan
payments would tend to lag loan approvals by some margin.
With respect to second hand house prices, it seems that the peak, in terms of year-onyear increases, occurred in the third quarter of 1998.
Table 2.1: Indicators of Recent House Price Developments
(Year on Year percentage changes)
New Houses
Countrywide
Dublin
DoELG
IP
14.4
17.5
13.5
19.3
10.5
10.7
10.3
16.7
17.3
24.5
22.7
31.4
1998 I
24.6
1998 II
22.3
1998 III
20.1
(p)
1998 IV
23.3
(p) Provisional data
18.1
22.5
26.3
33.8
31.7
32.4
25.8
1997 I
1997 II
1997 III
1997 IV
DoELG IP
Second Hand Houses
Countrywide
Dublin
DoELG
IP
DoELG
IP
16.6
14.9
14.3
22.9
17.9
14.9
16.1
27.1
14.1
15.0
16.2
18.8
20.8
19.6
24.4
32.6
22.3
22.1
27.0
31.9
23.4
35.6
41.1
27.3
31.9
36.6
29.2
16.1
23.2
29.2
32.8
36.9
41.7
27.4
26.9
32.0
41.7
Source: Housing Statistics Bulletin, September Quarter 1998, Department of the Environment and
Local Government. Irish Permanent Index
One leading firm of estate agents – Sherry Fitzgerald, maintains another index of house
prices. This survey is based on a sample of 157 addresses of second hand houses in
Dublin. This represents a small sample size and accordingly results may be subject to
larger sampling variability than other indices. A summary of key trends based on this
database is contained in Table 2.2. This suggests a peak occurred in the year on year
rate of increase in the first quarter of 1998, with quite a rapid deceleration occurring
thereafter.
Table 2.2: Trend in Second Hand House Prices in Dublin December 1997 –
December 1998, Percentage changes Sherry Fitzgerald
Mar ’97
June ’97
Sept ’97
Dec ’97
Mar ’98
June ’98
Sept ’98
Dec ’98
Year on Year
n.a
n.a
n.a
38.7
45.7
42.2
36.0
28.8
Quarter on Quarter
11.5
7.5
6.7
8.5
17.2
4.9
2.1
2.7
Source: Sherry FitzGerald, Auctioneers & Estate Agents
15
The Housing Market: An Economic Review and Assessment
The indices compiled by both Irish Permanent and First Active are prepared monthly.
Analysis of these data at a monthly frequency provides an additional perspective on the
recent trend, over and above the year on year comparisons discussed above, (Chart 2.3).
Chart 2.3: Indices of House Prices Monthly January 1997-December 1998.
Source: Irish Permanent Index First Active House Price Index
As may be seen, there is a very similar trend in the two indices, up to July 1998. Up to
that point there is a strong upward trend in the rate of increase taking one month with
the next. However, since then, according to the IP index, the trend in monthly rates of
increase has tended to moderate up to October, by which time the month on month rate
of increase was below 1 per cent. However, in November there was a renewed pick-up
to 2.6 per cent. The FA index records a sharp pick-up especially between September
and October, followed by some moderation through to year-end. However, while these
two monthly indices are subject to standard statistical smoothing techniques, in order
to make month to month comparisons valid, some seasonal or once-off influences may
still be contained in these data, giving rise to an erratic pattern from one month to the
next.
2.2.3
Trends in House Prices According to House Type, Location &
Characteristics of Purchaser
As regards the rate of increase in house prices according to type of dwelling, the IAVI
Annual Property Survey provides systematic data on recent and past price movements
and also distinguishes geographical trends. Table 2.3 is based on these surveys and
16
The Housing Market: An Economic Review and Assessment
shows annual percentage increases in new & second hand houses since 1996, both in
Dublin and nationally.
Table 2.3: House Price Developments Nationally & in Dublin According to Type
of Dwelling, 1996-1998 (Percentage changes)
National
Dublin
1996
1997
1998*
1996
1997
1998*
New Homes
(City or Urban)
2-bed town house
3-bed town house
3-bed semi
4-bed semi
4/5 bed detached
1-bed apartment
2-bed apartment
15
14
13
13
12
10
13
19
19
18
18
19
18
19
18
19
18
17
16
18
19
17
15
18
18
15
15
19
23
24
23
24
26
24
26
20
25
20
18
21
30
30
Second Hand Homes
(City or Urban)
2-bed town house
3-bed town house
3-bed semi
4-bed semi
4/5 bed detached
1-bed apartment
2-bed apartment
13
13
14
12
12
10
11
18
17
16
16
18
17
17
21
22
22
20
23
17
18
14
14
16
13
14
12
16
22
22
22
22
25
25
25
35
30
35
35
40
33
32
* Twelve months to 1 November 1998.
Source: IAVI Annual Property Survey, various years.
According to these data, the rate of increase in new house prices in Dublin peaked in
1997, with the rates of increase in most types of new houses in Dublin lower in 1998
than in 1997. With about the same rate of increase occurring nationally in some
categories, an implication from these data is some narrowing of the gap between
Dublin and the pattern nationally in 1998. By contrast, the rate of increase in prices of
new apartments in Dublin is estimated to have continued accelerating in 1998. The
introduction of a requirement in relation to increases in floor areas of apartments may
have been a contributory factor in this regard. As regards second hand houses the
pattern indicates continued acceleration in the rate of price increase both nationally, but
more particularly in Dublin. The most pronounced rate of increase occurs in the 4/5 bed
detached house type in Dublin. Included in this category would be once-off period
dwellings.1
1 Data contained in the First Active House Price Index up to the second quarter of 1998 show a
contrary trend to that described above, with new 3 & 4 bed house prices increasing by 40 & 49 per
cent respectively since the first quarter of 1997 compared with 27.7 and 19.1 per cent, respectively
in the case of existing 3 & 4 bed houses.
The pattern of these data is consistent with the official statistics described in Section
17
The Housing Market: An Economic Review and Assessment
2.2.2 above. It indicates that the rate of increase in new house prices in Dublin in 1998
slowed compared with 1997, across most house types, although not apartment
dwellings. The rate of increase in second hand house prices continued to accelerate,
nationally and in Dublin in particular, with the strongest rates of increase occurring at
the top end of that market.
Another National Property Survey, by the Institute of Professional Auctioneers and
Valuers (IPAV), and relating to the period January to July 1998 states that “the rate of
increase in house prices has halved nationally since the Government’s new tax
changes”. The survey provides a cross-classification of house price increases according
to house valuation and location. An extract is contained in Table 2.4. This suggests a
much more significant impact than the IAVI survey or indeed any of the other statistical
data presented earlier. This survey also suggests that apartment prices have fallen in
Dublin in the period immediately following April last. This is in marked contrast to the
IAVI survey, taken later in November 1998.
Chart 2.4: Apartment & Residential Property Investment (RPI) Price Indices 1997I1998III: Countrywide
Source: First Active House Price Index
Chart 2.4 depicts recent movements in apartment prices and residential investment
properties, based on data from Irish Permanent & First Active. The FA-Index of
apartment prices reaches a peak in the fourth quarter of 1997, followed by a 12.5 per
cent decline in the first quarter and renewed increase in the second quarter to a higher
level than previously. A slowdown is recorded in the third quarter. The IP-Index reaches
a peak, in the second quarter of 1998, with a fall off of 8.3 per cent occurring in the
18
Table 2.4: Abridged Estimates of House Price Increases reported in IPAV Survey of House Prices for the Period January-July 1998
(percentage changes)
Up to 23 April 1998
<£60K
14.5
11.2
7.8
9.8
8.9
10.0z 9.3
£60£100£170100K
170K
250K
15.5
16.9
12.2
10.3
7.5
3.4
7.6
7.0
2.9
8.2
4.2
0.6
8.8
7.8
5.0
7.2
3.3
5.0
7.0
£250- Average
500K
16.1
15.0
5.3
7.5
3.4
5.8
3.1
5.2
5.8
7.2
5.1
4.3
3.3
<£60K
10.0
7.1
2.9
5.5
0.8
1.4
0.6
£60
-100K
5.0
6.2
3.4
4.0
0.2
3.0
£100170K
4.4
4.9
3.4
1.5
0.2
£170250K
4.4
2.2
2.1
-1.3
0.0
£250500K
0.7
1.5
1.0
-1.3
0.0
Average
4.9
4.4
2.6
1.7
0.2
Source: IPAV National Property Survey, January-July 1998 (August 1998)
19
Table 2.5: Abridged Estimate of Price Increase of Apartments Reported in IPAV Survey of House Prices for the Period January-July
1998 (percentage changes)
Up to 23 April 1998
Price of
Apartment
Dublin
Leinster
Munster
Connaught
Ulster
Average
<£60K
20.0
8.3
3.8
1.3
5.8
5.9
8.7
£60£100£170100K
170K
250K
15.8
20.0
6.0
12.9
7.7
5.0
9.2
4.0
4.0
2.5
1.3
0.0
0.0
0.0
0.0
5.0
2.5
2.1
4.9
After 23 April 1998
£250- Average
500K
4.2
13.2
5.0
7.8
2.8
4.7
0.0
1.0
0.0
1.2
2.4
0.4
0.2
Source: IPAV National Property Survey, January-July 1998 (August 1998)
<£60K
0.6
5.0
4.2
1.3
1.2
0.5
0.5
£60
-100K
-1.4
5.0
-6.1
0.4
1.0
0.8
£100170K
-3.6
0.6
1.7
-0.3
0.0
£170250K
-4.0
1.3
2.7
0.0
0.0
£250500K
-2.5
1.3
1.9
0.0
0.0
Average
-1.3
2.5
0.3
0.3
0.3
The Housing Market: An Economic Review and Assessment
Price of
House
Dublin
Leinster
Munster
Connaught
Ulster
Average
After 23 April 1998
The Housing Market: An Economic Review and Assessment
third quarter. The overall trend in the RPI-Index is weaker than that for apartment
prices. To date, up to the third quarter this index does not show a peak.
According to the IP-Index, between the first quarter of 1996 and the third quarter of
1998 apartment prices increased by 81.7 per cent, in line with the rate of increase in
Dublin house prices, of 85.5 per cent. Over the same period the rise in the price of
residential investment properties has been about 50 per cent.
The IPAV survey contains estimates of apartment price developments before and after
April 1998, (Table 2.5). Again, this survey shows a more dramatic impact on prices
post April, than all other data. For example, it suggests that apartment prices in Dublin,
on average, fell by 1.3 per cent between end-April and end July, by comparison with a
rise of 13.2 per cent in the year up to end-April.
Chart 2.5, based on data from the Irish Permanent House Price Index depicts the house
price experience of first time buyers and second time buyers respectively. Since the
end of 1997 the rate of increase in house prices bought by first time buyers has fallen
behind the rate of increase paid by second time buyers.
Chart 2.5 House Price Experience of First & Other Buyers,
January 1997 - October 1998. (Base 1996 = 100)
Source: Irish Permanent Index
Table 2.6 contains data on the distribution of first time buyers according to the price of
house. Data are presented for both new and second hand houses and the experience of
Dublin and the rest of the country are distinguished. As may be seen, in Dublin 50 per
cent of first time buyers paid £90,500 or less for new houses. The corresponding price
for second hand houses was £85,000. In the rest of the country 50 per cent of first time
buyers paid £70,000 or less for new houses and £59,950 for second hand houses. These
20
The Housing Market: An Economic Review and Assessment
data highlight the importance of looking beyond aggregate average price data.
Table 2.6: All Agencies Average House (including Apartments) Price First Time
Buyers, Dublin and Rest of Country, January - October 1998
Dublin
Percentile
25
30
50
60
75
80
90
95
100
New House Price (£)
79950
82950
90500
94950
103950
108000
125950
141375
441000
Second Hand House Price (£)
65000
68000
85000
92500
112000
120775
145257
180000
730000
Rest of Country
25
30
50
60
75
80
90
95
100
60000
62000
70000
75000
85000
90000
104850
125000
250000
45000
47150
59950
65000
78000
83000
97518
118950
440000
Source: Department of Environment & Local Government
2.2.4
Trends in Residential Rents
Since 1991 there is evidence of some increase in the private rented market, especially
in Dublin. Both social and economic factors are lending impetus to the demand for
private rented accommodation, while strong investment demand for residential
accommodation, as already noted, has stimulated supply of a wide range of rental
accommodation. Amongst the important social influences promoting rental demand are
second and other home sharing relationships, other life-style factors, such as earlier
outward movement from the family home.
Availability and increased take up of rent supplementation under the Supplementary
Welfare Allowance (SWA) also reflects increases in private rented demand.
Expenditure under the scheme has increased from £75.3 million in 1997 to an
estimated out-turn in the region of £88 million for 1998. In 1991 the outturn was £14.4
million. It is estimated that the number of households in receipt of SWA rent assistance
account for one third of all those in private rented accommodation. The relevant health
board determines maximum rent levels, for the purposes of SWA rent assistance. It is
likely that these levels help to underpin market rent levels for private accommodation.
21
The Housing Market: An Economic Review and Assessment
Chart 2.6: Proportion of Loan Approvals to first time buyers in Dublin
Source: Department of Environment & Local Government
Changing employment patterns and the influence of increased immigration are also
boosting demand for private rental accommodation. It also seems likely that there is
some crowding out of would be purchasers, earning modest incomes, as a result of
recent house price inflation. Charts 2.6 and 2.7, show that the proportion of loans
granted to first time buyers in Dublin and adjacent counties fell steadily from 1994,
with stability being achieved in the first ten months of 1998. It is likely that the halting
of this downward trend was a direct result of the Government’s Action to remove
interest deductibility against the rental income of investors for tax purposes. By
reducing demand from investors, first time buyers have been able to secure more
houses, thus reducing the earlier crowding out.
Chart 2.7: Proportion of Loan Approvals to first time buyers in Kildare, Wicklow and
Meath
(10 Mths)
Source: Department of Environment & Local Government
Another feature of the most recent data is that stabilisation of first time buyers share of
loans in Dublin occurred as a result of an increase in the percentage of first time buyers
purchasing second-hand houses. This was 60 per cent in the first 10 months of 1998
compared with 58 per cent in 1997 as a whole. Consequently, the percentage of first
time buyers purchasing new houses in Dublin declined in the first 10 months of 1998
22
The Housing Market: An Economic Review and Assessment
to 40 per cent (from 42 per cent in 1997). Increased turnover in the second hand house
market, on foot of the reform of the stamp duty regime is a possible contributory factor
to this increase, along with a reduction in demand for these houses by investors.
There has been considerable concern expressed that the measure of removing interest
deductibility against rental income for personal taxation purposes, has already led to
rapid escalation in rents and in the future will result in considerable further increase.
However, data in respect of selected (but representative) financial institutions show that
some reduction occurred in the proportion of advances approved to investors in the
middle of 1998. However, the fall was of the order of only about 5 percentage points
in most cases to about 20-25 per cent of all advances, in most cases, at the end of 1998.
Thus, between one in five and one in four loans are being approved in respect of
investors.
It should be stated that there is very limited data available regarding overall
developments in rented accommodation. The principal sources used here are survey
data compiled by the IAVI and IPAV.
According to the IAVI, rents in the twelve months to 1 November 1998 rose by 24 per
cent in Dublin, with lesser increases of 17 per cent occurring in the rest of Leinster and
Munster and 12.5 per cent in Connaught. The IAVI survey notes that “To be offset
against this 24 per cent rise in Dublin rents, however, went the fact of a 30 per cent
increase in the price of Dublin apartments during the year, while second hand houses
rose by 30 to 40 per cent in the same period and new homes by 20 to 25 per cent…”
Thus the overall rate of increase in rents in Dublin, in the twelve months to 1 November
last is in line, generally, with the rise in house prices.
Table 2.7: Rent per month in 1997 and 1998 in Dublin According to Type of
Accommodation and Classification of Location
Good Location
Type of Property
Older 1-bed Flat
Modern 1-bed Apt.
Older 2-bed Flat
Modern 2-bed Apt.
Luxury Penthouse
Older 3-bed semi.
Modern 3-bed semi.
Older 4-bed semi.
Modern 4-bed semi.
Luxury Detached House
1997
£
1998
£
415
480
510
570
630
690
670
810
1450
1500
680
740
770
880
840
1075
1000
1250
1650
2200
(Wide variation)
Source: IAVI (August 1998)
23
Average Location
%
Change
15.7
11.8
9.5
20.1
3.4
8.8
14.3
28.0
25.0
33.3
1997
£
1998
£
380
425
470
500
530
600
625
725
930
1100
610
680
650
730
750
900
850
1000
1300
1650
(Wide variation)
%
Change
11.8
6.4
13.2
16.0
18.3
11.5
12.3
20.0
17.6
26.9
The Housing Market: An Economic Review and Assessment
A more detailed analysis of rental developments between 1997 and 1998 in Dublin is
presented in Table 2.7. These estimates are the result of a questionaire conducted by the
IAVI in August 1998, amongst members specialising in the rented sector. According to
these estimates the sharpest rates of increase have occurred with respect to larger
houses in good locations. In the apartment market the strongest rate of increase has
taken place in Modern 2-bed apartments in good locations.
Table 2.8 contains further survey estimates of developments in residential rents in
1998. These are from the IPAV survey and relate to the period January-July 1998.
These estimates are more in line with the IAVI estimates, compared with other survey
results contained in this survey. It shows that the fastest rate of increase in rents
occurred in Dublin, with an average rise of 8.7 per cent. According to this survey, the
largest increase occurred in the category, £400-600 pm, which rose by 13 per cent.
Table 2.8: Abridged Estimate of Increases in Rents Reported in IPAV Survey of
House Prices for the Period January - July 1998. (Percentage changes)
Apartments
Rent
per
month
<£400 £400
-600
pm
pm
Dublin
Leinster
Munster
Connaught
Ulster
Average
8.0
5.3
4.4
6.8
0.0
4.9
12.6
3.9
3.6
6.7
0.0
4.5
Houses
£600 £800 >£1000 <£400 £400 £600 £800 >£1000
-800 -1000
-600 -800 -1000
pm pm
pm
pm pm pm
pm
pm Average
9.5
2.0
1.3
1.4
0.0
1.9
5.0
2.0
0.7
0.8
0.0
1.3
6.0
2.0
1.1
0.7
0.0
1.4
8.3
6.3
4.2
6.9
2.9
5.7
14.0 10.0
4.9 2.0
3.9 2.1
4.5 2.0
3.2 3.2
4.9 2.7
6.3
2.0
0.9
2.3
3.2
2.2
7.5
2.0
2.9
2.3
3.2
2.8
8.7
3.2
2.5
3.4
1.6
3.2
Source: IPAV National Property Survey, January-July 1998 (August 1998)
2.3 Recent Developments in Housing
Trends in house prices are inextricably linked to developments in housing activity, as
they simultaneously reflect and influence patterns of change. In this section the main
trends in housing activity distinguishing Dublin and country-wide developments.
2.3.1
Trends in House Completions
The rate of house completions in Ireland, quarterly since the beginning of 1996,
together with its composition as between private, public and voluntary housing is
summarised in Chart 2.8. The pattern through 1998 follows that of previous years, with
completions tending to increase in each successive quarter. However, the trend for the
year is estimated to be stronger than in 1997, with completions in each quarter being
above the corresponding period of 1997. For 1998 as a whole, total completions
amounted to 42,349, up 9 per cent on the level in 1997. Private house completions are
estimated to be about 39,000 up almost 9 per cent. These levels of completions are the
highest that have ever been recorded in one year.
24
The Housing Market: An Economic Review and Assessment
Chart 2.8: Housing Completions Ireland, Q1 1996-Q4 1998 (Number of units)
Source: Bulletin of Housing Statistics, Department of the Environment & Local Government
Expert representatives of the house-building sector consider that these levels of output
are sustainable. Indeed, with further efficiencies and improvements in design some
additional growth is considered to be feasible. Most output is for mainline use. Output
in respect of such schemes as the Seaside resort scheme, at about 2000 represents less
than 5 per cent of total annual output of housing.
Chart 2.9: New House Completions: Dublin in Relation to Country Wide Trend,
Q1 1996-Q4 1998
Source: Bulletin of Housing Statistics, Department of the Environment & Local Government
25
The Housing Market: An Economic Review and Assessment
Local Authority house completions are estimated to have increased in all four quarters
of 1998. However, the share of local authority housing output has tended to fall.
Voluntary housing output weakened through 1998, continuing the downward trend of
the previous two years.
Chart 2.9 shows the rate of house completions in Dublin in relation to developments in
the country as a whole. On average from 1990-97, new house completions in Dublin
amounted to 28 per cent of the total, although in 1990, 1991 and 1997 the share was
below this average and in 1998 the proportion has continued to fall to 21 per cent.
The recent trend in housing completions classified according to type of unit is
summarised below in Tables 2.9 and 2.10 for Dublin and the rest of the country,
respectively. As may be seen semi-detached houses and apartments dominate
completions in Dublin. Together these two types of dwelling have accounted for about
85 per cent of completions in every year since 1992 and over 90 per cent in the first
nine months of 1998. The main development has been the general increase in
importance of apartments, with a corresponding decline in the share of semi-detached
houses. Thus, in 1992 the latter accounted for close to two thirds of completions, while
apartments accounted for a quarter. By 1996 the share of semi-detached houses had
fallen to 47 per cent with apartments amounting to almost 40 per cent. In 1997, semidetached houses share had risen back up to 53 per cent and apartments fell to 33 per
cent. In the first nine months of 1998, the share of apartments amounted to 39 per cent
of the total, the highest proportion recorded in any period since 1992. Other house
types represent very small shares of total completions.
With regard to the rest of the country a very different pattern exists compared with
Dublin. Bungalows and detached houses account for 50 per cent of completions in the
first nine months of 1998. Semi-detached houses account for approximately 30 per cent
of completions and apartments for 16 per cent. Most recent developments continue an
earlier trend in which the share of bungalows and detached houses is falling since 1996
and semi-detached and apartments are becoming more important.
Table 2.9: House Completions Classified According to Type of Dwelling: Dublin,
1992-1998, (Per cents)
1992
1993
1994
1995
1996
1997
Jan-Sept 98
Bungalow
House
Detached
1
1
1
1
1
1
1
5
4
4
5
8
8
5
House
House
Semi-Detached Terraced
61
57
55
48
47
53
51
7
5
7
8
6
5
4
Flat/
Apartment
Total
26
33
33
38
38
33
4
100
100
100
100
100
100
100
Source: Bulletin of Housing Statistics, Department of the Environment & Local Government
26
The Housing Market: An Economic Review and Assessment
Table 2.10: House Completions Classified According to Type of Dwelling:
Rest of Country, 1992-1997. (Per cents)
Bungalow
House
Detached
37
38
32
31
27
25
23
21
24
22
23
33
30
27
1992
1993
1994
1995
1996
1997
Jan-Sept 98
House
House
Semi-Detached Terraced
22
22
27
29
24
26
30
7
5
5
4
3
4
4
Flat/
Apartment
Total
13
11
14
13
13
15
16
100
100
100
100
100
100
100
Source: Bulletin of Housing Statistics, Department of the Environment & Local Government
2.4
House Price Affordability
In order to analyse recent developments in house price affordability two indices are
analysed2. These describe affordability in respect of:
● A married couple with no children and one wage earner on one and-a-half times
the average industrial wage.
● A married couple with no children and two wage earners. In this case the wage
level of the principal earner is taken as the average for non-industrial workers
while the wage level of the second earner is taken as the average industrial
wage.
It should be noted that affordability indices do not measure trends in the affordability
of mortgage holders in general over time. Rather they indicate the situation facing a
particular category of householder buying a house at different points in time.
For the single wage earning household the level of income assumed would have
satisfied the mortgage criteria of 2.5 times the principal income for a 90 per cent
mortgage in 1988. However, the sharp rise in house prices has meant that it would be
impossible for a worker on this multiple of the average industrial wage to satisfy the
mortgage lending criteria by 1997. For most couples two incomes are required to
satisfy the mortgage lending criteria at current house prices. The wage levels assumed
for the two income household would allow for a 90 per cent mortgage at current house
prices within the mortgage lending criteria of 2.5 times the principal income and once
the second income.
2.4.1
Updating of Countrywide Estimates contained in An Economic
Assessment of Recent price Developments
The earlier estimates of affordability indices were based for 1997 on estimated earnings
data and without final house prices figures for 1997. The final earnings data, as
2 The methodology used to construct the indices and a description of data sources is contained in
Appendix B
27
The Housing Market: An Economic Review and Assessment
published for 1997, show slightly stronger earnings growth than was assumed.
Similarly, house price rises in 1997 were slightly above the levels assumed in the
earlier 1997 estimates. However, in both instances the magnitude of the revisions to the
original index input is small and thus the revised estimates for 1997 are close to the
previous estimates.
The final 1997 index levels for single and two wage earner households are presented in
Table 2.11 along with the previous estimates. The provisional and final 1997
affordability ratios (i.e. the ability of the households to service the mortgage as
represented by net after tax income divided by mortgage servicing cost) are likewise
presented in Table 2.12.
Table 2.11: Affordability Index
Base 1988 = 100, New House Prices Countrywide variable interest mortgage
Index A: 1 Wage Earner
Initial
Estimate
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
100.00
76.26
71.99
74.25
72.82
91.77
105.27
99.14
94.23
84.81
84.42
Index B: 2 Wage Earners
Revised
Estimate
Initial
Estimate
Revised
Estimate
84.54
75.51
100.00
76.63
72.33
74.44
74.29
93.58
106.54
100.69
94.68
84.70
81.63
85.10
76.12
Table 2.12: Affordability Ratio : Net After-tax Income / Mortgage Servicing Cost
(New House Prices Countrywide variable interest mortgage)
Index A: 1 Wage Earner
Initial
Estimate
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
3.13
2.39
2.56
2.33
2.28
2.88
3.30
3.11
2.95
2.66
2.65
Index B: 2 Wage Earners
Revised
Estimate
Initial
Estimate
Revised
Estimate
2.65
2.37
4.57
3.50
3.30
3.40
3.39
4.28
4.87
4.60
4.33
3.87
3.73
3.89
3.48
28
The Housing Market: An Economic Review and Assessment
In the case of the one income household the somewhat higher income level in the final
data fails to fully compensate for the slight upward revision to the cost of a new house.
As a result the final 1997 figures show a slight fall in house affordability and a
corresponding slight fall in the affordability ratio.
For the two-income household, however, the somewhat higher income input is sufficient
to compensate for the upward revision to house prices leading to a very modest rise in
the affordability index and a corresponding rise in the affordability ratio compared
with the previous estimate.
Revisions to the earlier estimates for 1998 (on the basis of the most up to date
information) are much larger. Since the initial estimates of the 1998 indices were made:
1. There is now statistical evidence that the strength of the domestic economy is
impacting significantly on wage levels. Up until recently wage levels, as reported
in the official statistics, seemed to be unaffected by the demand pressures.
However, wage growth over the first half of 1998 (the most recent data available)
have been significantly stronger than was assumed in the initial estimate (which
was based on the then most recent trends). This stronger growth rate is now being
assumed to have continued in the second half of the year. Thus, the growth rate in
average wage levels has been increased from 2.5 per cent in the earlier estimate to
6.0 per cent.
2. House price inflation has been considerably stronger than assumed in the earlier
estimate. As a result the average level of new house price rises nationally for 1998
has been increased to 20 per cent from the previous 15 per cent estimate.
3. Finally, the inevitable lowering of interest rates necessitated by Ireland’s EMU
participation was delayed until close to the year-end. As a result the average level
of mortgage rates for 1998, at an estimated 7.2 per cent, is significantly higher than
that previously assumed of 6.5 per cent which incorporated the assumption of a
more rapid interest rate convergence to EMU levels.
While factor 1 above has a positive impact on affordability it is completely outweighed
by the other two factors. The combination of stronger house price rises and a delay in
cutting mortgage rates has resulted in a sharp decline in house affordability over 1998
according to these latest estimates for both the single and two wage earner households.
Indeed, house price affordability would appear to have fallen back to close to previous
1990 lows. It is estimated that the full year effect of lower interest rates in 1999, will
have some positive effect, other things remaining equal. For example, the index levels
of 75.51 and 76.12 for single and two income households countrywide (See Table 2.11
above) would amount to 79.96 and 80.41 respectively. Similarly, the index value of
65.03 for a two income household in Dublin (See Table 2.13) would amount to 68.69
as a result of current interest rates prevailing for twelve months.3
3
This is based on a 20 per cent rate of increase in prices.
29
The Housing Market: An Economic Review and Assessment
2.4.2
House Price Affordability in Dublin Compared with National House
Prices
The acceleration in new house prices in the Dublin area during 1998 has been faster
than that nationally. The latest available data indicate that Dublin new house prices
increased by approximately 30 per cent during 1998 compared with the earlier estimate
of 20 per cent. This revision to Dublin house prices has the inevitable consequence
of accelerating the decline in house price affordability for Dublin households
(Tables 2.13 & 2.14).
Table 2.13: Affordability Indices : 2 Wage Earner Household : Base 1988 = 100
Whole Country
Initial
Estimate
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
100.00
76.63
72.33
74.44
74.29
93.58
106.54
100.69
94.68
84.70
81.63
Dublin
Revised
Estimate
Initial
Estimate
Revised
Estimate
100.00
71.42
64.32
69.33
71.18
95.55
104.39
99.95
93.77
80.24
74.12
85.10
76.12
78.76
65.03
Table 2.14: Affordability Ratios : Net After tax Income / Mortgage Servicing
Cost 2 Wage Earner Household
Whole Country
Initial
Estimate
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
4.57
3.50
3.30
3.40
3.39
4.28
4.87
4.60
4.33
3.87
3.73
Dublin
Revised
Estimate
Initial
Estimate
Revised
Estimate
3.89
3.48
4.17
2.98
2.68
2.89
2.97
3.98
4.35
4.17
3.91
3.35
3.09
3.28
2.71
30
The Housing Market: An Economic Review and Assessment
3: Potential Housing Supply in the Dublin Region & Selected
Other Major Urban Areas
3.1
Introduction
This chapter assesses the current potential supply of housing in the Dublin Region and
selected other major urban areas like Cork and Galway. Some of the key constraints
and other issues, which are relevant to realising this potential are identified.
Section 3.2 contains an account of current changes being made as part of the
Development Plan Process, which is the basis for zoning land for residential
construction. Section 3.3 contains an analysis of recent trends in planning applications.
An assessment is then made in Sections 3.4 of the potential supply of housing in the
Dublin region and in certain other major urban areas. Section 3.5 considers progress in
overcoming the constraints on realising potential supply in the Dublin Region. Finally,
some supply scenarios are presented in Section 3.6.
3.2
Development Plans: Current Developments in Relation to Residential
Zoning, Servicing and Residential Densities
In summary, the position in relation to Development Plans for major urban areas is as
follows:
● New Development Plans for South Dublin, Dun Laoghaire-Rathdown have
been adopted on schedule. Dublin Corporation’s Development Plan is expected
to be adopted very shortly. Fingal County Council hopes to adopt its Plan by the
middle of this year.
● The Kildare and Wicklow County Development Plans are behind schedule,
whilst that of Meath is on time.
● The Cork City and County and Galway City and County Plans are on schedule.
The Dublin Region
The Dun Laoghaire-Rathdown Development Plan was adopted in July 1998 and
incorporated an additional 150 hectares (375 acres) of land for 3,200 units, largely on
the former route of the South East Motorway.
The South Dublin Development Plan was adopted in December 1998 and includes an
additional 475 hectares (1175 acres) {including 40 hectares (100 acres) in Local
authority ownership} for residential development which would yield a further 14,250
units at 30 units per hectare (12 units per acre). Most of these lands could be serviced
within five years, though lands proposed for re-zoning in the Oldcourt/Ballycullen area
will require additional road infrastructure. In particular, c 200 additional hectares (500
additional acres) proximate to the Dublin/Cork Railway line and a future commuter
Rail Station (in the Lucan area), which would accommodate a further 5,000 houses at
a density of 25 houses per hectare (10 houses per acre) have been included. Lands at
31
The Housing Market: An Economic Review and Assessment
St Edmondsbury c 40 hectares (c 100 acres) and Edmonstown 13 hectares (c 33 acres)
which were proposed for residential development in the Draft were not included in the
adopted Plan.
The Fingal County Draft Development Plan was placed on public display on 5th
December 1998. It indicates that subject to services, the housing land available by
December 2000 would yield 7121 units on existing zoned lands whilst the proposed rezonings would yield a further 4593 units, giving a total of 11,714 units. By 2003
estimated potential (existing and proposed re-zoned) would amount to 16,685 units,
depending on availability of services.
The Dublin City Draft Development Plan was displayed in April 1998 and its final
adoption may be anticipated in early 1999. There is a capacity for 5363 units on
existing zoned lands (4,200 units) and lands proposed to be rezoned (1163 units). By
2003, a further 4967 units can be accommodated on existing zoned lands (1185 units)
and proposed re-zonings (3082 units).
The Dublin City figures include the Dublin Docklands area which in 1997-1998, had
1855 units constructed or under construction. By 1999, a further 3146 units will be
“ready to go” in the Docklands. By the year 2000, residential units on sites requiring
infrastructural improvements will amount to 4,200 units and by 2001 a further 1885
units can be provided on sites requiring decontamination and infrastructural
improvements. This amounts to a total of 11,086 units in the Docklands.
In summary, the adopted or Draft Dublin Region Plans provide for a total of circa
24,214 units to be built on zoned and proposed to be zoned lands by December 2000
and circa 26,179 units by 2003. All of the Dublin Region Plans encourage increased
residential densities proximate to public transport corridors. Apart from limited
exceptions, none of the Plans impose maximum density limits.
Table 3.3 below contains a summary of current expected housing potential in Dublin.
The Eastern Region
County Kildare – It is anticipated that the County Kildare Plan (Part 1) will be adopted
in early 1999. The Plans for Celbridge, Maynooth, Kilcock, Clane and Kill will be
displayed separately. The Plan identifies a current land availability of 10,229 units and
assumes an additional 9780 dwelling units by autumn 2000 and 6125 additional units
by autumn 2003. Maximum densities are set at 20 dwellings per hectare (8 per acre).
County Wicklow – This is in the final stages of adoption as is the Greystones/Delgany
Plan, with Bray UDC having recently been adopted. The Plan identifies current
availability of 2434 units and estimates that lands for an additional 1744 dwellings will
be available by autumn 2000 and an additional 6885 dwellings by autumn 2003.
Maximum densities are set at 20 dwellings per hectare (8 per acre), though Bray UDC
proposed a maximum of 21 dwellings per hectare (8.5 per acre) and Greystones /
Delgany 22.2 dwellings per hectare (9 per acre).
County Meath – The Plan was adopted in 1994 and identifies a current land availability
32
The Housing Market: An Economic Review and Assessment
of 11700 units and indicates that lands for an additional 4230 dwelling will be available
by autumn 2000 and a further 2,600 by autumn 2003. Residential yields are based on
a density of 15 dwellings per hectare (6 per acre)
In the Mid-East Region, the maximum allowable residential densities in Kildare and
Wicklow of 20 dwellings per hectare (8 per acre) are at the lowest limit of serviced land
efficiency. The residential yields in County Meath are lower still. Increases beyond
these figures towards the range of 35 to 50 dwellings per hectare (14.6 to 20.8 per acre)
which has been found to be reasonable in other Authorities should be considered,
particularly on lands proximate to existing or to be improved public transport corridors.
Table 3.3 below contains a summary of current expected housing potential in the MidEast region, together with Cork and Galway.
Cork
Cork (LUTS) Area – The Corporation Plan was recently adopted and the County Plan
adopted in 1994. Neither states specific densities. There are currently lands for 8371
units available and it is anticipated that 5905 additional housing units will be available
in 2-3 years time.
Galway
Galway City – The Draft Plan is in the final stages of adoption and has increased
average densities from 20 units/hectare up to 25/hectare (8 units/acre up to 10
units/acre). There are currently lands for 5293 units available and a yield of 2449 units
in 2-3 years time with a further 2446 units in five years time.
3.3
Processing of Planning Applications
Chart 3.1 contains data on planning permissions granted for new dwellings, quarterly,
since the beginning of 1996. Chart 3.2 contains a further analysis of this data,
distinguishing between houses and apartments.
The number of permissions granted and the floor area (in 000s of M2) involved in the
third quarter of 1998 was the highest since this series commenced in 1973. The year
on year rate of increase amounted to 31.6 and 67.3 per cent in terms of number of
permissions for new dwellings and the floor area to which they relate. Quarter-onquarter rates of increase are also very strong.
The vast bulk of the increase in permissions is accounted for by new housing. The trend
in apartments actually declined from a peak in the first quarter of 1997. However, by
the third quarter of 1998 apartment permissions had almost regained the earlier peak
level of the first quarter of 1997.
33
The Housing Market: An Economic Review and Assessment
Chart 3.1: Planning Permissions Granted for New Dwellings, Q1 1996-Q3 1998.
(Number and Floor area involved)
Source: Planning Permissions, Third Quarter 1998, CSO
Chart 3.2: Planning Permissions granted for New Houses & Apartments,
Q1 1996 - Q3 1998. (Number of permissions & floor area)
Source: Planning Permissions, Third Quarter 1998, CSO.
When a regional analysis of permissions is undertaken it appears that in the first three
quarters of 1998 the proportion of permissions granted for new houses and apartments
in Dublin and the greater Dublin region (i.e. Dublin, Kildare, Meath, and Wicklow) has
been falling (Table 3.1). However, on average compared with the four quarters of 1997,
the proportion of permissions in both Dublin City & County and the Dublin region in
34
The Housing Market: An Economic Review and Assessment
the first three-quarters of 1998 is about the same. However, compared with 1996, there
has been a significant reduction in the proportion of permissions accounted for by these
two areas.
The proportionally lower number of permissions granted for new houses and
apartments in Dublin City and County, as opposed to the Dublin and Eastern Region,
may be accounted for by the difficulties of site acquisition or assembly, access and
servicing in built-up urban areas. The development of infill urban sites raise issues
(conformity with established character and density, protection of adjoining amenities,
archaeology, built form and site management) which require considered design and
management techniques. Any significant scheme in a built-up residential area is likely
to attract opposition and be granted only by recourse to the appeal process. In addition
many of the substantial sites within built-up areas which were capable of being redeveloped for housing have now been commissioned whilst the development of
significant new ‘brownfield’ sites, particularly those in the Docklands area, are yet to
come on stream or are dependant on decontamination prior to development.
Table 3.1: Planning Permissions Granted for New Houses & Apartments in 1998
(Number of Units)
Period
Dublin City
& County
% of Total
Dublin
Region*
% of total
Average 1996
2301
26.2
3376
38.5
Q1 1997
Q2 1997
Q3 1997
Q4 1997
1952
2655
1104
1637
21.7
24.6
12.7
19.0
3198
3709
1851
2295
35.5
34.5
21.2
26.7
Average 1997
1837
19.5
2763
29.5
Q1 1998
Q2 1998
Q3 1998
2441
2233
2408
22.4
20.0
16.9
3753
3198
3387
34.5
28.7
23.7
2360
19.8
3446
29.0
Average Q1-Q3
1998
* Dublin City & County, Kildare, Meath & Wicklow
Source: Planning Permissions, Third Quarter 1998, CSO.
In comparison, the development of ‘greenfield’ sites, particularly those outside of the
major urban areas, generally exhibit fewer constraints, apart from access and servicing
may require a lesser degree of technical or professional expertise for their design and
layout and are less likely to attract local objections.
A study by Dublin Corporation of all decisions made in 1997 (3205) indicated that
1234 (38.5%) which related to small scale domestic extensions were dealt with on an
average of 6.64 weeks whilst 1971 (61.5%) which related to all other applications were
dealt with on an average of 8.04 weeks.
35
The Housing Market: An Economic Review and Assessment
In the event of a refusal of permission or a third party objection to a decision to grant
permission, the application can be referred to An Bord Pleanala. In 1997, the decisions
of the Planning Authorities were reversed in 23 per cent of cases, amended in 34.5 per
cent of cases and confirmed in 42.5 per cent of cases. As an objective, the Board tries
to determine appeals within four months and in 1997, 82 per cent of cases (3625) were
decided in this period – a decline of 11per cent on the previous years figure. The
average time taken to determine appeals in 1997 was 16 weeks compared with 15
weeks in 1996 and 14 weeks in 1995. The reasons for not determining cases within
four months related to delays arising from a number of factors, including:
● the submission of an Environmental Impact Statement;
● the holding of an Oral Hearing;
● the requirement of a new public notice;
● cases which were large or involved complex issues;
● cases which were the subject of a notice under Sections 9, 10 or 13 of the 1992
Planning Act i.e. requests to provide submissions, observations or documents or
the raising of matters other than those raised by parties to the appeal or other
parties which required to be taken into account in the determination of the
appeal.
The rapid increase in the number of cases coming before the Board has continued,
reflecting the upturn in the national economy. The intake of appeals in 1998 at 4548
was 16 per cent up on 1997 (and the highest since 1983, when fees were introduced).
The intake in December at 454 was the highest of any month (since 1983). In 1998
4057 cases were disposed, up 12 per cent on 1997 (again the highest since 1983). Of
all cases determined in 1998 63 per cent were within 4 months, compared with 82 per
cent in 1997 and 93 per cent in 1996. The average time taken to determine appeals in
1998 was 18 weeks (16 weeks in 1997). Third party only appeals amounted to 42 per
cent of appeals determined in 1998 (39 per cent in 1997). In 1998 the decision of the
planning authority was confirmed by the Board in 41 per cent of cases, amended in 37
per cent and reversed in 22 per cent of cases.
The increase in the number of appeals and the decline in meeting the four-month
objective are a cause of concern and are monitored closely by the Board and the
Minister. Increased staffing has been approved largely in line with the growth in
appeals. Excluding Board members, the staffing level in 1997 increased from 71 to 85.
All additional staffing sought by the Board in 1998 has been approved, bringing the
current staffing level to 93.
In addition, the Local Government (Planning and Development) Act 1998 was enacted
in April 1998 to allow the Minister to increase the number of Board members that had
been set by earlier legislation at six, and was proving to be a bottleneck in the system.
Following the enactment of the legislation, the Minister decided that the number of
Board members should be increased by three to nine members for a period of three
years, to enable the Board to deal with the continuing rise in appeals. In the interim,
pending appointments to these posts, the Minister appointed two officials from his
Department as temporary members of the Board. Of the three new members, one took
36
The Housing Market: An Economic Review and Assessment
up office on the 30th November 1998 and the other two on 1st January 1999.
The Minister, in consultation with the Board, continues to keep the situation under
review to see if additional measures are required in the light of trends in appeal levels.
The intake of cases is expected to rise again in 1999 to 5050. The Board will, at that
stage, have the full year benefit of the extra Board members and additional staff
approved to date. The Board has set itself a strategic objective of determining 90% of
cases within four months by the end of next year.
3.4
Estimates of Potential Supply Classified by Planning Authority
An Economic Assessment of Recent House Price Developments contained estimates of
the potential supply of housing in Dublin (City & County), the adjacent counties of
Meath, Kildare and Wicklow and Cork (City & County) and Galway (City). These
estimates were based on results of a Survey prepared for the Dublin City and County
Managers in January 1998, and information provided by the other planning authorities
concerned. A summary of these estimates is contained in Table 3.2 below.
Table 3.2: Estimated Housing Lands & Yields: Dublin, Kildare, Wicklow and
Meath. (Acres of Land and Numbers of Housing Units)
Serviced Unserviced
Land
Land
(zoned/
to be
rezoned)
(Acres)
(Acres)
Dublin
Corporation
n/a
Dun Laoghaire/
Rathdown
n/a
Fingal
n/a
South Dublin
n/a
Total Dublin
n/a
Kildare
2,195
Wicklow
631
Meath
n/a
360
600
1,265
1,174
3,400
463
384
n/a
Total
Land
(Acres)
Housing
Yield
from
Serviced
Land
(Units)
Housing
Total
Yield
Housing
from
Yield
Unserviced
Land
(Units)
(Units)
n/a
13,700
7,260
20,960
n/a
n/a
n/a
n/a
2,658
1,015
2,070
4,005
9,052
12,150
38,907
21,950
6,310
n/a
5,015
13,882
14,250
40,407
4,630
3,840
n/a
9,020
22,934
26,400
79,314
26,580
10,150
20,750
Source: Table 5.5 and Appendix F – An Economic Assessment of Recent House Price Developments,
Stationery Office Dublin, April 1998
In December 1998, the Planning Section of the Department of the Environment &
Local Government, completed an internal assessment of housing lands availability for
the same areas referred to above, in addition to the Cork City Area (i.e. L.U.T.S. area
comprising the city, its suburbs and satellite towns) and Galway City.
37
The Housing Market: An Economic Review and Assessment
A number of key assumptions used, in this latest assessment, are worth highlighting,
namely:
● “For Counties Meath, Kildare and Wicklow, the quoted density of 10 dwellings
per acre (23/ha) has generally been reduced, in relation to availability in the
short term, following an assessment of sanctioned housing schemes and other
localised factors. It is assumed that an increase of 25 per cent over current
densities will take place over the coming five years.”
● “Figures for the Greater Dublin Area take account of those permissions subject
to identifiable constraints in infrastructural provision or other such delaying
factors. These considerations may mean transferring permitting dwelling units
from the “currently available” category to the next (2-3 years) time frame.
These figures have also taken account of the Serviced Land Initiative, the
beneficial impact of which will be substantially felt during 1999 and beyond
that.”
● “The seven planning authorities in the Greater Dublin Area have included an
evaluation of institutional lands, which are zoned for housing development.
Consequently, only those institutional lands with a realistic expectation of
development within the next five years have been included.”
The results of the Department’s assessment, including the assumptions highlighted
above, are contained in Table 3.3.
Table 3.3: Housing Lands Availability: Dublin, Cork & Galway
(Number of Housing Units)
Area
Dublin City & County
Kildare
Wicklow
Meath
Cork (LUTS)
Galway (City)
Available
Yield at
end-1998
39,863
10,229
2,434
11,700
8,371
5,293
Additional Gross
Available housing
Yield in next
Total Gross
Available housing
Yield end-1998-2003
2-3 years
5 years
(Assumed Density)
24,214
9,780
1,744
4,230
5,905
2,449
26,179
6,125*
6,885*
2,600*
N/A
2,446
90,256
26,134
11,063
18,530
N/A
10,188
* Assumes 25 per cent increase over current densities
Source: Department of the Environment & Local Government, December 1998.
For Dublin City & County the current available yield corresponds approximately to the
earlier estimate from serviced land. The projected gross additional yield over the next
five years of 50,393 exceeds the earlier estimated yield from unserviced and ‘to be
rezoned land’ of 40,407, by a margin of almost 25 per cent.
However, representatives of the IHBA argue that this amount is inadequate. This
conclusion is based on the following premises:
38
The Housing Market: An Economic Review and Assessment
● The underlying demand for housing in Dublin is around 12,000-13,000, not the
9,000 or so that are being supplied.
● Thus, the current available supply, of 40,000 represents less than 3.5 years
supply.
● It takes at least that length of time for developers to acquire land, planning
permission and to build. As a result, there are concerns that it will not be
possible to replace stocks of development land in Dublin three to five years
hence.
● The projected gross, additional yield over the next five years, is insufficient to
add to the net stock of available development land.
To judge from the recent pattern of development land prices in Dublin, these arguments
contain some merit. However, the current anxiety should be relieved as additional lands
become available continuously over the forthcoming five years. The process of
expansion outlined is continuous and the pattern projected for the next five years will
prelude further supply beyond.
For Kildare, the estimated current yield of 10,229 is about half the earlier estimate from
serviced land. The projected additional gross yield of 15,905 (assuming a 25 per cent
increase in densities) over the next five years brings the total projected yield to 2003
into line with the earlier estimate from serviced and unserviced land.
For Wicklow, the estimated current yield of 2,434 is only 38 per cent of the earlier
estimated yield from serviced land. Again projected additional gross yield of 8,629
over the next five years brings the total projected yield to 2003, of 11,063 to almost 9
per cent above the earlier estimated yield from serviced and unserviced land.
With regard to Meath it was not possible earlier to derive a separate estimate for
currently serviced land. The latest estimate of gross yield over the five years to end
2003 (assuming a 25 per cent increase in densities) of 18,530 is 11 per cent below the
earlier estimated yield from zoned land (both serviced and unserviced).
The latest aggregate estimates of housing yield in the Dublin region over the five years
to end 2003 made by the Department are broadly in line with the earlier estimated yield
from serviced and unserviced lands in this area. However, the estimated yield as of end
1998 falls substantially short of the earlier estimated yield from serviced land,
especially in counties Wicklow and Kildare. It is possible to isolate the reasons for the
differential into a number of components as follows:
Densities: An Economic Assessment of Recent House Price Developments assumed
a density of 10 dwellings per acre for areas such as Cos. Meath, Kildare and
Wicklow. Discussions with those County Councils have caused a reduction in the
density assumptions, substantially in some cases, e.g. the prevailing density in Co.
Meath is reckoned to be six houses per acre.
Institutional Lands: The Planning Authorities have identified some parcels of land
which are unlikely to be made available for residential development, either in the
short or medium term. It was found that some institutional lands were zoned for
residential development without detailed analysis of the institution’s own
39
The Housing Market: An Economic Review and Assessment
expansion intentions. Where there is not a realistic expectation of residential within
the 5-year time horizon such lands have been excluded.
Specified Infrastructure Constraints: The availability, or otherwise, of services
dictates whether housing lands are in the “current” time frame or whether they fall
into the medium (2-3 years) frame or longer (5 years). It was found that some
County Councils had granted permissions on the basis that particular services
would become available at a later date, i.e. contingency permissions. These mainly
related to sewerage facilities (which required upgrading or extension).
Consequently, some housing lands hitherto included in the “currently existing”
category had to be moved to either the medium or longer-term categories. Such
cases occurred in Cos. Meath and Fingal.
Other factors: There is currently an absence of sewerage facilities for housing
development in Ashbourne. While it is proposed to provide capacity (by pumping)
via Fingal County Council sewerage facilities at Mulhuddart, it will be about two
years before that is in place. That was the reason used by Meath County Council
for imposing planning permission conditions accordingly (contingency
permissions). Similarly, in Co. Wicklow the problem for Greystones/Delgany is a
proposed route giving access from the N11; it will not be available for about 2
years. This access has effected development proposals including those now
sanctioned by the Development Plan viz. Delgany, Charlesland and Farrankelly.
Proposals are contained below (see Section 4.4.3) for infrastructure developments,
which will accelerate the release of residential land for development in Dublin.
3.5.
Identification of Key Constraints on Realisation of Housing Supply
Dublin Region
3.5.1
Infrastructure requirements (water/sewage/road access)
The principal direct constraints to the servicing of land are the provision of piped
drainage facilities, adequate treatment capacity, together with the availability of water
supply and the discharge of surface water and road access. In An Economic Assessment
of Recent House Price Developments it was noted that significant blockages to the
provision of additional housing are caused by the limited sewage capacity. These occur
in the Swords/North Fringe/Drumcondra area of Dublin, whilst the availability of piped
water restricts the provision of additional housing in the Fortunestown, Lucan,
Sandyford, Stepaside, Leopardstown areas. The discharge of surface water and road
access is a constraint in the Clonsilla area. In addition it was noted that the servicing
of land for housing is not just a question of water/sewerage infrastructure. Road
infrastructure and particularly for outlying locations, public transport are also key
requirements. There is also an accompanying need for and cost of social infrastructure
items like schools, amenities and recreational facilities.
In the course of preparing Action on House Prices, consultations were held with local
authorities in the Dublin Region. These identified several key areas where poor
water services infrastructure was restricting development. Many of these schemes
40
The Housing Market: An Economic Review and Assessment
(highlighted in Table 3.5 below), were subsequently approved by the Minister for
Environment and Local Government in 1998 under the £39 million provision for water
and sewerage schemes contained in the Serviced Land Initiative. The Minister also
approved schemes over and above this core list provided by the local authorities. These
schemes are also listed in Table 3.5. Schemes identified by the local authorities that
were not approved under the Serviced Land Initiative were:
● North Pumped/Southern Pumped catchments (scheme withdrawn by Dublin
Corporation);
● North City Drainage Scheme (scheme withdrawn by Dublin Corporation);
● Carrickmines/Shanganagh Main Drainage Scheme (being advanced);
● Swords Treatment Plant (being advanced with construction to start in 2000);
● North Dublin Interceptor Sewer (being advanced, estimated completion 2004)
● Malahide Treatment Plant (being advanced estimated completion 2002).
3.5.2
Serviced Land Initiative
The Serviced Land Initiative (SLI) was introduced towards the end of 1997, with an
exchequer budget allocation of £15m. This was increased to £30m in Action on House
Prices and a provision of £5m was made available to local authorities to target (on the
same basis as the SLI) areas where roads infrastructure is a key constraint. The projects
approved for assistance are detailed in Table 3.6. The £30m provision for water and
sewerage services was subsequently augmented by an additional £9m of exchequer
funding later in 1998; giving a total exchequer provision of £39m for these services.
Approximately £7.4 million of this is allocated for works to commence in 1999 in
Dublin and the Mid-East Region. The allocation of these funds to projects in the Dublin
region is detailed in table 3.5 which shows the schemes scheduled to commence in
1999 – the expected completion date, together with details of the potential housing
yield and geographical location is also provided.
Table 3.5 shows that the schemes to commence in the Dublin Region in 1999 will
provide about 24,000 additional housing units – about 8,200 of these will be completed
in 1999, a little over half of them in the Dublin local authority areas, and the balance
in the Mid-East Region.
The Department of Environment and Local Government has put in place a streamlined
administrative system to facilitate the speedy implementation of SLI schemes. On the
basis of submissions made by local authorities earlier in 1998 four schemes, with an
estimated housing yield of 1,400 were due to start in 1998 in the Dublin region. Only
one did (and was completed) with a yield of 300 houses. The other three schemes are
now scheduled to commence in 1999.
At the end of 1998, the Department of Environment and Local Government asked all
local authorities to provide an update of the status of each water and sewerage scheme
approved under the Initiative. This information is reflected in Table 3.5. In the light of
the experience in 1998 with delays in starting schemes, it is essential that local
authorities take steps to ensure that deadlines for scheme commencements and
completions are met.
41
Table 3.5: Serviced Land Initiative Approved Schemes (Dublin & Mid-East Region)
Project Name
No. of
Houses
Dublin Corporation
“Harp” Area Drainage and Water Supply Scheme
North Docklands Water and Drainage Scheme
Pelletstown Water and Sewerage Scheme
Ballinteer Road Main Drainage Scheme
Cherywood- Loughlinstown Main Drainage Scheme
Glenamuck- Kilternan Main Drainage Scheme
Kilgobbin- Ballyogan Extension
Balbriggan Sewerage
Balgriffin/Limekiln Sewerage Scheme
Bog of the Ring Groundwater Development
Swords Trunk Watermain Augmentation
Aylesbury/Kilinarden/Jobstown
Ballycullen/Ballycragh/Edmonstown Services Improvement
Fortunestown Services Improvement
Lucan Sewerage*
Saggart/Rathcoole/Newcastle Services Improvement
Sewage Pumping Station at Johnstown Road
Ballywaltrim Lane Scheme
Dargle Road Sewer
Southern Cross Site Services Improvement
Ballymore Eustace Sewage Treatment Plant
Calverstown Sewerage Improvement
Derrinturn Sewerage Improvement
2,400
3,000
1,000
1,215
420
380
3,600
640
750
1,530
2,460
1,992
2,808
744
5,000
2,688
300
60
90
150
828
60
200
Dun Laoghaire/
Rathdown CC
Fingal
County Council
42
South Dublin
County Council
Arklow UDC
Bray UDC
Kildare
County Council
Est. Cost
(£)
1,550,000
2,500,000
1,720,000
350,000
249,000
1,016,000
400,000
325,000
400,000
1,500,000
2,500,000
3,440,000
4,110,000
800,000
12,570,000
5,890,000
300,000
259,000
130,000
35,000
1,600,000
100,000
300,000
Estimated
Start
Estimated
Completion
1999
1999
1999
1999
2000
1999
1999
1999
1999
1999
1999
2000
2000
2000
2000
1999
1998
1999
1999
1999
1999
1999
1999
2000
2000
2000
2000
2000
2000
1999
1999
2000
2000
2000
2001
2001
2001
2002
2001
1999
2000
2000
2000
2000
1999
1999
The Housing Market: An Economic Review and Assessment
Local Authority
Table 3.5 continued
Kildare
County Council
Meath
County Council
Source: Department of the Environment & Local Government
900
300
96
732
300
44
315
400
250
250
980
300
320
350
100
150
50
64
200
480
1,890
1,700
42,486
200,000
150,000
30,000
240,000
100,000
200,000
300,000
225,000
80,000
253,000
300,000
250,000
100,000
300,000
100,000
35,000
55,000
90,000
87,000
230,000
6,400,000
1,801,000
53,570,000
1999
1999
1999
1999
1998
1999
1999
2000
1999
1999
2000
1999
1999
2000
2000
1999
1999
1999
1999
2000
2000
1999
1999
1999
1999
1999
1998
1999
1999
2001
2000
1999
2000
1999
1999
2001
2000
1999
1999
1999
1999
2000
2001
2000
The Housing Market: An Economic Review and Assessment
43
Wicklow
County Council
Total
Improvements to Castletown, Celbridge
Improvements to Maynooth Pumping Station
Kilcock Water Improvement
Kildare/Rathangan Sewerage Scheme
Kill Sewerage Improvement
Morristown-Newbridge Sewage Disposal
Prosperous Water Improvement*
Athboy Sewerage Scheme
Ballivor Sewerage Works
Carlanstown Sewerage
Clonmagadden Valley Services Improvement
Donore Sewerage Treatment Plant Upgrade
Duleek Sewerage Improvement Scheme
Enfield Sewerage Scheme
Kilmainham wood Sewerage Improvement
Kilmessan Water Supply
Moynalty Sewerage Scheme
Navan Sewers Extension, Commons Road
Summerhill Sewerage Scheme
Watermain- Johnstown Reservoir to Johnstown Rd.
Newtownmountkennedy/ Kilcoole Regional Sewerage
Blessington Sewerage
Table 3.6: Non-National Road Grants to Facilitate Housing Development
Local Authority
Name of Project
Cork
County Council
Source: Department of the Environment & Local Government
Estimated Proposed
Total project
1998
Cost (£)
Grant
£200,000
£20,000
£600,000
£100,000
£300,000
£40,000
£200,000
£40,000
Proposed
1999
Grant
£60,000
£140,000
£80,000
£40,000
Proposed
Total
Grant
£80,000
£240,000
£120,000
£80,000
500
£750,000
£160,000
£140,000
£300,000
1050
700
885
£1,878,000
£700,000
£649,454
£250,000
£80,000
£60,000
£250,000
£200,000
£200,000
£500,000
£280,000
£260,000
600
400
700
730
300
1000
400
£600,000
£400,000
£900,000
£420,000
£170,000
£1,150,000
£1,600,000
nil
nil
nil
£30,000
nil
£156,000
nil
£240,000
£160,000
£360,000
£138,000
£68,000
£304,000
£434,000
£240,000
£160,000
£360,000
£168,000
£68,000
£460,000
£434,000
1320
550
2500
£755,000
£500,000
£5,000,000
£97,000
nil
£62,000
£203,000
£200,000
£688,000
£300,000
£200,000
£750,000
The Housing Market: An Economic Review and Assessment
44
Ballinglanna, Glanmire
Access Road from Sli Carrig Donn to Garryduff
Station Road, Blarney
Cork Corporation Apartments on Sharman Crawford Street and Wansford
Quay with new road and new bridge at Lancaster Quay
Dun Laoghaire / Ballyogan Road / Kilgobbin Road Improvement Scheme
Rathdown Co Co
Fingal Co Co
Snugborough Road Extension to Coolmine
Galway Co Co
Athenry Housing Development
Galway
New Roadway between Rahoon Road and
Corporation
Proposed Western Distributor Road
Kildare
Clane: Abbey Road
County Council
Maynooth: Meadowbrook Link Road
Limerick Co Co
Monaleen – Annacotty District Distributor Road
Limerick
Rhebogue Road and Anglers Walk Road Improvement
Corporation
Bloodmill Road Improvement Works
Meath Co Co
N3/R153 Distributor Link, Navan
South Dublin
R113 Oldbawn Road Widening Scheme
County Council
Waterford Co Co Tramore Ring Road
Waterford Corp
Knockhouse Road Realignment Scheme
Wicklow Co Co
Greystones Southern Access Route
Total
Length
(m)
850
1000
600
130
The Housing Market: An Economic Review and Assessment
3.5.3
Northern Fringe Interceptor Sewer
In October 1997, Dublin Corporation was given approval by the Department to prepare
contract documents for elements of the North Dublin Drainage Scheme. The North
Fringe Interceptor Sewer will cross Santry Valley and generally run along the Mayne
River as far as Baldoyle. The sewer will intercept the flows from Dublin Airport and
Balgriffin and includes a major diversion of the Santry Valley sewer from Coolock via
Malahide Road and of the Grange area via Grange Road. The objective of this scheme
is to relieve the existing drainage infrastructure, which is seriously overloaded at
present, and to cater for current and future development (residential and commercial)
in the area, including Dublin Airport. The estimated cost of this scheme is £12.65
million at 1995 prices. Development levies for spurs of the main interceptor sewer
serving residential and commercial development will be sought from developers.
Consultants for the project have been selected. Contract Documents will be submitted
to the Department in 1999. It is expected that the sewer will be completed in 2004. (See
Chapter 4 Section 4.4 below).
3.6.
Assessment of Adequacy of Current Supply Scenarios
3.6.1
Existing Pipeline Effects: Dublin Region
In November 1998, the Dublin City and County Managers updated their report
prepared in January 1998 on the availability of housing lands in the Dublin region. The
following is a summary of the current position:
Potential of lands currently available
(i.e. with no significant constraints)
Potential available by December 2000
Potential available by December 2003
Potential available after January 2004
39863 units
24214 units
26179 units
5454 units
Total
95710 units
This represents an increased potential of almost 16,400 units beyond the January
assessment.
These figures supersede those published in Appendix F of “An Economic Assessment
of Recent House Price Developments” which concluded that zoned and serviced lands
had a potential for 38,907 units, whilst unserviced lands (zoned or to be re-zoned) had
a potential of 4047 units i.e. a total of 79,314 units. The figures are updated based on:
● Additional lands zoned or proposed to be re-zoned for residential development.
● Increased residential density.
● The Serviced Land Initiative, which made additional funds available for
infrastructure investment.
The estimates are based on the following density assumptions:
45
The Housing Market: An Economic Review and Assessment
● Dublin Corporation; 185 units/hectare (75 units/acre) in the inner city and
Docklands, 55 units/hectare (22 units/acre) in the inner suburbs, 35 units/
hectare (14 units per acre) in the outer suburbs.
● Dun Laoghaire-Rathdown – an average density of 35 units per hectare (14 units
per acre), assumed for currently available lands.
● Fingal – an average density of 23-28 units per hectare (9 - 11 units per acre) to
take account of higher densities adjacent to Blanchardstown Centre.
● South Dublin – densities varying from 1-16 units per acre (up to 40 units per
hectare).
Since July 1997, a number of significant residential proposals have been approved by
the Board or by Dublin Planning Authorities including:
● 477 dwellings at Mount St Annes, Milltown, Dublin 6;
● 767 dwellings at South Lucan;
● 600 dwellings at St Lomans, Lucan
● 655 dwellings at Barrow Street, Dublin 4
● 500 dwellings at Beaumont, Dublin 9
Other significant proposals such as 1100 dwellings at Santry are in the planning
process.
In summary,
● Significant additional lands zoned for housing in the Dun Laoghaire-Rathdown
and South Dublin Development Plans and the Fingal and Dublin City Draft
Development Plans will improve the residential lands supply.
● Increased densities will give greater yields from zoned and serviced lands, both
in ’brownfield’ and ‘greenfield’ locations.
● Significant housing development schemes are in the pipeline.
3.6.2. Existing Pipeline Effects: Eastern Region
It would appear that the current potential supply of housing in counties Kildare,
Wicklow & Meath is substantially less than previously estimated. Current housing
density policies of the Planning Authorities in these counties is a major factor behind
this. In part these policies reflect infrastructure constraints in terms of water, sewerage
and roads in these areas.
Additional recommendations in relation to infrastructure, which aimed at improving
current availability of residential land for development, are contained belowin
Section 4.4.3.
46
The Housing Market: An Economic Review and Assessment
4: Assessment of Government’s Action on House Prices
4.1
Introduction
In this Chapter an assessment is made of the estimated impact to date of the
Government’s Action on House Prices. Section 4.2 considers progress achieved to date
in respect of several key objectives and the role of Government actions. An overall
assessment is contained in Section 4.3. Finally, Section 4.4 contains further additional
proposals aimed at reinforcing and supplementing action that are already in place and
having a beneficial effect.
4.2.
Progress towards Attainment of Key Objectives
4.2.1
House Price Stability
There is considerable and growing statistical evidence of a slowdown in the rate of
increase in new house prices. There are signs now also of a slowdown commencing in
the second hand market, (see Chapter 2, Section 2 above). This moderating trend has
occurred against a background of continuing strong underlying demand for both new
and second hand houses and further reductions in mortgage interest costs. There is
widespread consensus that Government actions have played a key role in achieving this
slow-down. For example, the Annual Survey of the IAVI for 1998 notes that:
“the general consensus that some of the steam had evaporated by the third
quarter have been endorsed by the recently published DOE[LG] figures for
the July/September quarter. In large measure, any reductions in the rate of
house price inflation are down to the speedy implementation of the Bacon
recommendations. Prices appeared to plateau in new and second hand
markets by Autumn and despite still strong prices being paid and continued
growth in values, the rates of increase had at least begun to level off”
Similarly, the IPAV, as early as last August declared in its National Property Survey,
January to July 1998 that:
“The rate of increase in house prices has halved nationally since the
Government’s new tax changes on interest relief for investors was introduced
on 22 April last.”
Estate agents have also quoted concrete examples of how stability is being established
in the new house market. For example:
“Three bedroom semi-detached houses in the Gallops, Leopardstown were
priced at £155,000 in April 1998 and their price has not increased during the
year. At Lutterelstown Glen in Castleknock, three bedroom semi-detached
houses were launched in about April at £128,000 and are now being offerred
at £130,000.”4
4
HOK, 22 December 1998
47
The Housing Market: An Economic Review and Assessment
There is broad consensus also that the effects to date represent only a portion of the
likely full effects of the measures taken, (Table 4.1). Thus, according to the results of
a survey of IAVI members at the beginning of November 1998, less than a quarter in
Dublin felt that the full effects had been felt by the end of November last. Over half
believe that it would take a further six to twelve months before the full impact would
be felt in Dublin.
Table 4.1: IAVI Annual Property Survey 1998: How Long do you Believe it Will
Take for the full Effect of the Bacon Recommendations to be Felt in the Market
in Your Area? (Replies as percentage of total)
National
Full effects already felt
A further 6 months
A further 12 months
A further 18 months
A further 24 months
Dublin Rest Leinster Munster
31.00
30.25
31.75
5.50
1.50
22
22
34
22
-
44
33
23
-
22
44
34
-
Connaught
36
22
36
6
The primary impact towards price stability has been achieved through:
● Reducing investor demand for residential properties through the removal of
deductibility of interest on borrowings undertaken for investment in residential
property, against rental income for personal income tax purposes.
● 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 in this way breaking the psychology of house price inflation and
expectations of further acceleration.
It is to be noted also that some estate agents consider that any further action could be
counter productive:
“We firmly believe that to interfere any further with the natural forces of
supply and demand in the new homes market could have a catastrophic
effect on house prices resulting in significant negative equity for the
significant number of people who bought new or second hand homes in the
last couple of years. The reason for this genuine concern is that I believe
that within the next 18 months the supply of new homes which will appeal
to First Time Buyers is going to increase significantly. This increase in
supply in itself will have the effect of creating downward pressure on
prices.”5
4.2.2
House Price Affordability
The issue of house price affordability is a difficult one and problems in this area need
to be elucidated carefully. The rate of house completions in 1998, at an estimated
5
Sherry FitzGerald, 22 December 1998
48
The Housing Market: An Economic Review and Assessment
41,700 is the largest ever achieved in one year. The rate of completions in 1997 of
38,842 was also a record up to that point in time. The same was true also of 1996 and
1995. Therefore, more new houses are being built and sold in each of the past four
years than in any year ever before. Despite the strong trend in new house prices, these
levels of sales are being achieved without a general deterioration in credit parameters
applied by mortgage lenders. In addition, the tendency for prices of second hand houses
to continue rising more strongly than the trend in new houses points further to
increased purchasing power for housing amongst householders. Therefore, at an
economy-wide level, sustained economic growth, with accompanying increases in
employment and inward migration flows has resulted in increased effective demand for
housing and even at current prices, there is evidence of excess demand, particularly in
the Dublin and Mid-East regions. However, for some categories of income earners, the
rise in the price of houses, relative to the growth in the income of those earners has
meant that affordability of housing to them has deteriorated, compared with the past.
For some categories of income earners the mortgage credit, which they are capable of
obtaining on the basis of current credit criteria, is not sufficient to purchase a first
home. Indices of the trend in house price affordability for selected categories of income
earners have been presented earlier (see Chapter 2, Section 2.4). These show a
deteriorating trend up to 1998, by which time the level of the index for two income
wage earners in Dublin is back at the level prevailing in 1990, before the current
economic upswing commenced. Hence, this situation continues to represent a serious
challenge to policy. Even with the achievement of price stability in house prices, that
stability is occurring at a level above the borrowing capacity of a segment of income
earners.
Shared Ownership Scheme Operated by the Local Authorities
Action was taken aimed at improving affordability of low-income earners by
improving the conditions attaching to the Shared Ownership Scheme operated by local
authorities. In particular:
● The effective income limits for eligibility under the scheme were raised to
£20,000 for single income households with appropriate increases for two
income households.
● The rent charge was reduced from 5 to 4.5 per cent for transactions completed
after 1 May 1998.
Table 4.2 sets out the number of applications received in the four Dublin local
authorities (which accounted for 43 per cent of all applications in 1997) in 1997 and
1998 (by quarter).
Dublin Corporation has confirmed that there has been a marked increase in the
number of enquiries and applications, since the introduction of the higher income limit.
There has also been a shift in the clientele applying for the scheme – with the income
increase, more and more civil servants, office workers, etc.; are eligible to apply, Total
applications, are up almost 40 per cent on the 1997 figures.
49
The Housing Market: An Economic Review and Assessment
Table 4.2: Shared Ownership applications to Dublin Local Authorities,
1997-1998 (Number of Applicants)
Dublin
Corporation
Fingal
South Dublin
DL-Rathdown
Q1
Q2
Q3
Q4
1998
1997 %Change
210
199
194
252
855
614
39
82
90
24
43
66
17
71
133
18
78
90
19
274
379
78
258
246
49
6
58
49
Houses with prices up to £100,000 can be purchased under this scheme in the
Corporation area. However, it is believed that the raising of income limits for eligibility
has contributed to the increase in house prices in that segment of the market.
Finga1 County Council has also noted an increase in the number of applications
received, although it has had to alter administration of the scheme to regulate its
implementation in its area. Among the additional rules imposed by Fingal are that
applicants are not permitted to bid for houses themselves – the bidding is done by
professional bidders (who also act as valuers). This rules out the chance of more than
one applicant bidding for the same house, thus boosting the price. The valuers can also
assess the market value of the house and refuse to pay above that level. If more than
one applicant is seeking the same property, there is no counter bidding, but lot draws
the successful candidate’s name, so that the local authority does not become involved
in bidding against itself.
Since the increase of the upper price limit from £55,000 to £90,000, Fingal County
Council has noted a marked increase, above the regional and national published house
price percentage increases, in house prices in its area within a short time. The local
authority has also taken to purchasing property itself to avoid the sudden surge in house
prices and to be in a position to supply more reasonable prices to their applicants.
Dun Laoghaire Rathdown County Council has set its upper house price limit at
£125,000, and it has noted a sizeable percentage increase in applications (60% on
1997 figures), although the actual figure remains lower than other Dublin local
authorities. The range of professions of applicants has also been extended, (as has been
noted in Dublin Corporation). There has been a drop in the numbers applying for the
rental subsidy (household income must be less than £12,000 to qualify).
South Dublin County Council has also recorded a large increase in the number of
applications received under the Shared Ownership Scheme for the second six months
of 1998, there has been an increase of 93 applications on the 1997 figure of 120 – a 77
per cent increase.
The majority of applications have been made by people at the upper income limit, and
the former lower income applicants can no longer afford any of the housing in the area
even at the lowest 4.0 per cent mortgage level. South Dublin currently has a limit of
£95,000 on house prices in its area.
50
The Housing Market: An Economic Review and Assessment
Of course, a weakness of this scheme is that it supports demand for housing without a
corresponding increase in supply. Important aspects in achieving effective results are
the extent to which sound mechanisms are employed to prevent counter bidding and
target bids at houses with below average prices.
This weakness identified in the local authority shared ownership scheme would arise
equally with any shared equity proposal, which is not linked to increased housing
supply. Any scheme or financial instrument, which would increase access to mortgage
funding for house purchase, would give rise to increased effective demand in the
market. Unless a corresponding increase in housing supply occurred, this would result
in price increases, especially in the segment of the market at which the scheme is
targeted. Therefore, the end result would be counterproductive and such measures are
not desirable while there is a shortfall of supply in the housing market.
Longer-Term Mortgages
The attention of mortgage lenders was drawn to the possibilities of offering mortgages
with longer repayment structures, say up to 35 years, with a fixed interest option for
the first 5 to 10 years to borrowers with low incomes. In fact, one institution introduced
such a mortgage product from May 1998. Some other institutions offer mortgages of
up to thirty years maturity.
It is understood that to date uptake of 35-year mortgage packages has not been high.
This reflects the fact that such products would not be attractive to many borrowers,
particularly in view of the overall level of interest cost over the life of the loan.
However, it is considered desirable that this option is available as it may help a minority
of borrowers who might not be in a position to finance a shorter-term mortgage to gain
a foothold in the housing market. Typically, the sort of borrower, which this option
might be beneficial for is a younger earner with reasonable prospects of being able to
reduce the term of the loan in due course.
Private Sector Shared Ownership Schemes
The rationale behind the proposal to consider the potential of private sector shared
ownership instruments has diminished significantly since the publication of An
Economic Assessment of Recent House Price Developments and Action on House
Prices, as the level of the rental element involved is relatively unattractive in the context
of reduced mortgage rates.
In view of the notable deterioration that has taken place in affordability during 1998 it
is considered that additional measures should be undertaken to improve the supply of
affordable housing. A number of approaches and recommendations are contained
below, (see Section 4.4).
4.2.3
Optimising Potential Housing Supply
The Serviced Land Initiative (SLI) introduced in late 1997 represents an important
initiative, which will result in significant amounts of housing land being made available
for development. As discussed earlier, (see Chapter 3, Section 3.5) the key output from
the measure is serviced land, which will accommodate over 42,000 housing units in
51
The Housing Market: An Economic Review and Assessment
Dublin and the Mid-East Region, in schemes due to be completed out to 2001. Of the
total, about one fifth is likely to be completed in 1999. Of these, a little over half will
be in Dublin County with the balance in the adjacent counties of Wicklow, Meath and
Kildare.
Higher densities, in appropriate locations, were identified as another important
instrument for achieving greater housing supply. The Department of the Environment
and Local Government has commenced an initiative to promote higher residential
densities, particularly in redeveloping ‘brownfield’ sites and in proximity to town
centres, public transport nodes and access points. In addition, a consultancy assignment
has been commissioned to advise on:
● Examining the benefits of promoting increased densities in appropriate
locations, in particular, in re-developed ‘brownfield’ sites and in proximity to
town centres, public transport nodes and access points;
● Considering the safeguards required in promoting greater residential density
generally;
● Relating international experience in promoting greater residential density and
planning measures in other countries;
● The impact of the Department’s Circular Letter PD4/98, promoting higher
residential densities;
● Developing Policy options appropriate to Irish circumstances for consideration
in the light of the foregoing and other relevant factors.
The Plans of the Dublin Authorities, which have emerged since the issuance of the
Circular contain policies promoting increased densities. The Development Plans of
Co. Kildare and Co. Wicklow set maximum densities of 20 houses per hectare (8.3
houses per acre), whilst Co. Meath estimates development yields for towns and villages
at 15 houses per hectare (6 houses per acre). However, development yields of less than
20 houses per hectare (8.3 houses per acre) would be regarded as below the minimum
threshold of land efficiency. Yields of between 35-50 units per hectare (14.6-20.8 units
per acre) would result in a more efficient use of serviced land. On lands directly
proximate to existing or to be improved public transport corridors, densities in excess
of this range would be appropriate in certain circumstances subject to controls of plot
ratio, overshadowing, overlooking, private and public open space standards and height.
Other measures have been taken to improve potential supply of housing. A reduced rate
of CGT of 20 per cent applies to disposals, which are made between 23 April 1998 and
5 April 2002 inclusive, of development land zoned for residential use in respect of
which planning permission for residential development has been granted and is still in
force at the time of disposal. A new CGT rate of 60 per cent will apply from 6 April
2002 to disposals made after that date of development land, which is zoned residential.
There is consensus amongst industry professionals, such as estate agents and
developers that this incentive will induce additional land to be supplied into residential
development. For example, one estate agency states that it estimates that:
“Approximately 2,300 acres of residential development land was sold in the
52
The Housing Market: An Economic Review and Assessment
greater Dublin area during 1997, whereas 3,500 were sold during 1998. As
a result of new zonings and reduced CGT we expect that approximately 4,200
acres will be offered for sale during 1999.”
However, it is widely commented also that the requirement to have planning
permission in place, in order to take advantage of the effects of this measure, means
that it will be eighteen months to two years before the effect of this measure is felt on
the ground. It can be argued that since planning permission is a requirement for
housing development, this lag already exists within the system. However, it is
considered that the requirement of planning permission is probably retarding liquidity
of the market for development land, amongst professional developers in a way that was
not intended when this measure was designed. As a result, there is little or no evidence
to date of any significant slowdown in prices being paid for development land, even
though there is evidence of increasing stability in new house prices. An amendment to
the operation of this measure is proposed below, (see Section 4.4 below).
Finally, at an administrative level, it was decided to increase the resources available to
An Bord Pleanala and local authorities. The aim is to ensure that the Board is able to
achieve its statutory objective that appeals can be dealt with in four months or less and
in the case of local authorities, that statutory time periods in processing planning
applications are adhered to.
The Department and the Board monitor closely the number of appeals and the Board’s
performance in meeting the four-month objective for deciding appeals.
In 1998 legislation was introduced to enable the Minister for the Environment and
Local Government to increase the number of Board members, set in legislation, and
which was considered to be a bottleneck in increasing the Board’s output. Since
January 99 the Board has a full complement of nine members. In the interim period
between the enactment of the legislation and the appointment of the permanent Board
members, the Minister had appointed two officials from his Department as temporary
Board members.
Increased staffing has also been approved largely in line with the growth in appeals.
All additional staffing sought by the Board in 98 has been approved bringing the
current staffing level to 93 (excluding Board members) (an increase on 85 at end 97 and
71 at beginning o 1997).
In 1999 the intake of appeals is expected to rise again. The Board will have the full year
benefit of the extra Board members and additional staff approved in 98. The
Department will continue to monitor the situation.
In conclusion, a number of measures undertaken to enhance potential housing supply
have been put in place and at this early stage there are indications that they have the
potential to make a significant contribution in this direction. However, it would also
appear that current supply potential, in Kildare, Meath & Wicklow is significantly
below what was earlier estimated, (see Chapter 3, Table 3.4). Furthermore,
representatives of the IHBA are firmly of the view that even the estimate of current
53
The Housing Market: An Economic Review and Assessment
potential supply for Dublin City and County, (which have been revised up marginally)
is inadequate, 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.
Accordingly, there is little free reserve of serviced land available, especially in Dublin
City and County.
The tendency for planning appeals to take longer to resolve is an additional negative
feature.
In light of these considerations some additional proposals are made designed to
increase potential housing supply in the short term, (see Section 4.4).
4.2.4
The Private Rented Sector
A criticism of the Government’s Action on House Prices by industry professionals is
that the removal of deductibility of interest on borrowings undertaken for investment in
residential property against rental income, for tax purposes has had the effect of
creating a shortage of rental accommodation. It is stated that this situation has led to an
increase in rents above what would otherwise have happened. A number of
observations in relation to these points are relevant.
Firstly, a clear conclusion of the analysis contained in An Economic Assessment of
Recent House Price Developments was that an excess demand for housing existed and
was likely to remain in prospect for some time. In such circumstances upward pressure
on the cost of accommodation (both prices of houses and rents on lettings of
accommodation) was to be expected. Indeed, this very expectation was a reason
underlying the proposal to remove deductibility of interest:
“ ….the emergence of broadly based investment interest in the housing
market has had very beneficial results in terms of broadening the range and
quality of rented accommodation. Moreover, there is evidence, in the form of
stable rental values, that changing patterns of housing demand are sufficient
to support a growing and more diversified rented sector. What is in doubt is
the need to encourage this demand by means of fiscal incentives, especially
when the revenue foregone in this direction could be focused better towards
increasing supply and choice to first time buyers who are facing affordability
strains.” 6
Secondly, it is estimated that approximately 30 per cent of mortgages were being
advanced to investors. On the basis that there were 4220 house completions in Dublin
City and County in the second and third quarters the maximum possible impact on the
supply of additional rented accommodation in this period would be about 1250 housing
units (4220X0.3). In fact, transitional relief was made available where there was a
contract evidenced in writing before 23 April 1998 to purchase such premises (or site
and construct) and the borrowed money was employed for that purpose up to 31
December 1998. (This was subsequently extended to 31 March 1999). Considering this
transitional relief it is considered that a more realistic estimate of the impact on the
6 An Economic Assessment of Recent House Price Developments. p. 88.
54
The Housing Market: An Economic Review and Assessment
growth in the supply of rented accommodation in Dublin was about 500 housing units.
This would appear to be consistent also with the pattern of mortgages as between
home-buyers and investors, (see Section 2.2 above).
Third, two surveys undertaken by industry professionals suggest that the rise in rents,
up to November 1998, in the case of the IAVI Survey, is in line with the rate of increase
in house prices in the same period. Anecdotal evidence of much higher rates of increase
has been cited in media reports. These are not to be denied. However, this is no
different from house prices, where very large increases can be pointed to individual
cases or categories. However, these instances do not amount to an overall picture.
Fourth, there is recent evidence that the capital value of some apartment complexes in
Dublin have fallen, at least since the third quarter, (see Chapter 2, Section 2.2.3,
Chart 2.5). This is not consistent with what might be expected of a private rental market
in gross under-supply and in which prospects of rental growth are firmly underpinned.
Finally, most recently there are indications also of investor demand for residential
accommodation being renewed selectively in Dublin. It is considered that a
combination of increased rental yield, in line with the rate of increase in house prices
and lower interest cost of borrowing are stimulating this renewal.
Notwithstanding these various observations, it is fair to say that the same public policy
concerns arise with regard to the affordability and supply of rented accommodation as
compared with owner occupied. In this regard, increased overall supply of housing is
the most crucial factor in achieving stability and meeting demand in the private rented
sector, just as it is in the owner occupancy sector.
4.2.5. Improving Planning & Information for the Better Development of
Settlement & Housing in the Medium Term.
In May 1997, the Government decided that Strategic Planning Guidelines should be
prepared for the Greater Dublin Area and Consultants have been appointed to indicate
Land Use Guidelines to indicate the preferred area for development by general
location, type and scale of such use. The Guidelines will address the amount of
population/households to be accommodated in the Greater Dublin Area and in
particular will indicate the preferred distribution of that future population as well as
general locations for commercial and industrial development.
This will enable a framework for investment in infrastructure to be put in place which
will guide the location of development in order to optimise the use of existing or
prospective resources. It is anticipated that the Consultants will report by mid 1999.
The Strategic Guidelines will provide an overall strategic context within which the
Development Plan Reviews of the constituent Planning Authorities would be
undertaken. This may require a review of the Development Plans for the four
Authorities earlier than the ordinary five years review period in order to harmonise
their policies and objectives with those of the Guidelines.
It is noted that a decision has been taken that The Minister for the Environment and
Local Government will ask the planning authorities to review their development plans
in the light of the Strategic Planning Guidelines when completed. Also the Minister
55
The Housing Market: An Economic Review and Assessment
intends to bring forward proposals for a statutory requirement on local planning
authorities to ensure that their development plans are consistent with any relevant
Strategic Planning Guideline.
In the context of avoiding future disequilibrium in the housing market it is extremely
important that a plan is put in place, which would identify the scale and location of
future development particularly in the Dublin and Mid-East regions, based on
sustainability principles. In particular and without prejudice to the forthcoming
strategic planning guidelines it is considered that it would be appropriate that urgent
consideration should be given to establishing the scope and requirements in order to
develop existing towns outside the Dublin conurbation, (e.g. Navan and towns in South
Kildare and County Wicklow). Clearly, a prerequisite for such development is good
quality public transport links. Therefore, it is considered that specific proposals should
be formulated at an early date for improvement in public transport facilities to locations
having the scope for growth (without adverse planning, social and sustainability
effects) and a supply of land suitable for development.
At a broader level, the housing market situation would be improved significantly if it
was possible to achieve a better geographical balance of economic activity with an
associated more even distribution of population. It would be appropriate that the next
National Development Plan, should address this issue and afford a high priority to
achieving it.
Finally, it is still considered that a comprehensive land use analysis relating to the
Dublin and Mid-East Region should be undertaken under the direction of the Minister
for the Environment and Local Government and subsequently updated at regular
intervals. It should be noted that such a Strategic Physical Plan was made for Northern
Ireland and published last December.
4.3
Overall Assessment
In the early part of 1998 the housing market was characterised by runaway inflation
and widespread panic buying of new houses. The rate of price inflation was greatest in
Dublin, but other major urban areas also were experiencing an accelerating trend.
Following submission of An Economic Assessment of Recent House Price
Developments Government responded quickly with a series of measures presented by
the Minister for the Environment & Local Government and the Minister for Housing &
Urban renewal as Action on House Prices. The Minister Finance introduced the
Finance (No.2) Act 1998, which provided for the taxation measures contained in the set
of measures.
The overall shape of the package of measures introduced were framed around the
conclusion that overall trends to date in the housing market since 1994 are the result of
a combination of very strong economic fundamentals and associated demographic and
social influences towards earlier and smaller household formation. The economic
changes involve rapid growth of personal disposable incomes, strong rates of increase
in employment and increased in-migration flows. Furthermore, interest rates are at
56
The Housing Market: An Economic Review and Assessment
historically low levels. On the other side, there are constraints in terms of bringing
supply forward. Faster and more prolonged economic growth is placing pressure on
existing road and other infrastructures, especially in Dublin, the surrounding region and
other major urban centres. Indeed some planned infrastructure developments, at this
stage, are well behind schedule. Another feature of supply, is that policy in relation to
residential densities follow earlier norms. They are low, by the standards of major
urban centres in other countries and they may be no longer optimal for current and
prospective circumstances.
In this combination of circumstances prices escalated, increasingly sharply. As they did
so pressures on affordability grew for some categories of income earners. The measures
presented were collected around a number of broad headings, namely:
● Achieving better balance between demand and supply in the short term;
● Improving the potential supply of housing;
● Undertaking Infrastructure developments and
● Improving long term planning and information.
At this stage, some nine months after the measures have been presented and
implemented there are identifiable benefits already emerging from the measures
introduced. These are the result principally of measures introduced under heading one
above. In addition, there are some positive indications also in relation to measures
under headings two and three above. Given the inherent long response time required
to generate additional housing supply, the progress achieved to date in slowing down
the rate of increase in new house prices and securing continued growth in house
completions to record levels has to be regarded positively. All the more so when it is
considered that this progress was achieved against a continuing strong economic
background, in which interest rates fell significantly further.
All indications are that over the next six to twelve months there will be further easing
in house price inflation and consolidation of the emerging stability in house prices.
However, significant challenges remain. The first is to secure greater access to housing
and availability of suitable housing for those who find the current cost unaffordable,
without causing overheating. The second relates to underpinning an adequate and
geographically diversified future supply of serviced land that can support medium term
housing requirements. Thirdly, there is need to ensure that the private rented sector can
develop and evolve across the spectrum of housing, ensuring that it meets the diverse
needs for rented accommodation. Proposals for further action to address these
challenges are set out below.
4.4.
Proposals for Further Action
4.4.1 Improving Planning & Information for the Better Development of
Settlement & Housing in the Medium Term.
● Urgent consideration should be given to establishing the scope and requirements in order to develop existing towns outside the Dublin conurbation,
57
The Housing Market: An Economic Review and Assessment
(e.g. Navan and towns in South Kildare and County Wicklow).
● Specific proposals should be formulated at an early date for improvement in
public transport facilities to locations having the scope for growth (without
adverse planning, social and sustainability effects) and a supply of land suitable
for development.
● It would be appropriate that the next National Development Plan should address
the issue of achieving a better geographical balance of economic activity with
an associated more even distribution of population and afford a high priority to
achieving it. The preparation of a National Spatial Development Strategy would
facilitate and assist with developing policy in this regard and it is recommended
that such a strategy should be formulated and published.
● A comprehensive land use analysis relating to the Dublin and Mid-East Region
should be undertaken in the meantime. This should be sponsored under the
direction of the Minister for the Environment and Local Government and
subsequently updated at regular intervals.
4.4.2
Improving Affordability of Housing
As a result of house price inflation over the past three years there are many income
earners who, would have had the capacity to finance house purchase previously but
cannot do so at current levels. This is the single most serious problem in the Irish
housing market at present.
Some believe that an appropriate solution to this problem 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. The likelihood is that the
magnitude of the problem that would be created in this way would be as large and could be
greater than the problem that would be resolved. 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 lead to a vicious
circle of downward spiralling prices, which can spill-over into wider economic recession.
The UK market of the late 1980s and well into the nineties provides a good example of such
a negative scenario and how pervasive they can become. Therefore, it is not considered that
an attempt at engineering a broad reduction in new house prices should be contemplated.
Rather, a targeted strategy focussed solely at improving affordability for first time buyers
and without negative side effects on the welfare of other homeowners’ needs to be
formulated. However, any such measure would need to be carefully designed and the timing
of its introduction determined so as to avoid contributing to an overheating of demand.
In essence therefore, the focus has to be on ways of filling the gap between the current
price of (new) starter homes and a price that is more affordable to new home buyers
who cannot finance current prices. Taking this approach of designing a strategy, which
58
The Housing Market: An Economic Review and Assessment
will fill a gap in the housing market, suggests that innovation is a key requirement of
any future strategy that is to be successful. There would appear to be scope for
achieving innovation in two directions. The first is in terms of designs and densities of
new houses that are used to meet housing needs. The second relates to innovation in the
financial products that are currently available to facilitate potential new homeowners in
buying a home. These two aspects are developed upon below.
Densities & Design
As discussed elsewhere, in Ireland housing densities are low, by comparison with other
countries. The predominant starter home in Ireland tends to be a three-bedroom semidetached house, with front and back garden. Developments of such houses require
about one acre for ten units. With higher densities and different design other
possibilities can be created. For example, using terraced developments, at densities of
16-20 per acre would result in savings in costs of housing under a number of headings,
as follows:
● Lower construction costs due to smaller area of housing unit;
● Lower construction cost due to design features, e.g. fewer gable walls;
● Savings in costs of certain infrastructure items, internal roads, drainage and
water; and
● Savings in site costs, per dwelling unit.7
As an illustration, it is estimated that total cost savings of 20-30 per cent could be
achieved off the cost of a 1,000-1,100 square foot 3 bedroom semi- by providing two
bedroom-terraced housing of 750 square feet.8 Moreover, some specialist technical
experts considered that significant savings can be achieved by design features even
without a significant reduction in floor area.
Clearly there would be risks of social exclusion and the creation of isolated suburban
developments at the bottom of the market if such an approach was pursued in a
wholesale basis. Certainly, this would not be desirable. Rather, this type of housing
would need to be integrated in wider developments to provide a cohesive mix of
development. In addition, to be effective, such an approach would need to incorporate
quality in design and construction and be undertaken in appropriate locations – e.g. at
city locations, or adjacent to high quality public transport and other amenities or as part
of a balanced mix of larger developments.
Lower costs are one matter. The extent to which any such savings get passed on in
lower prices to new home buyers is another. However, it seems clear that amongst
developers there is recognition of the important role of first time buyers in the
dynamics of the housing market. Unless that market segment is developed it is difficult
7 Higher densities would be likely to result in higher land prices. However, it is not considered likely
that land prices would rise linearly proportionate to a rise in densities. Therefore, some saving in unit
site costs would be expected.
8 This estimate is comprised of 10-15% off building cost due to smaller size of unit; 5-10% due to
design features, fewer external walls, continuous roof, savings in certain infrastructure unit costs like
roads, water and sewerage; 5% due to lower unit site costs.
59
The Housing Market: An Economic Review and Assessment
to envisage how growth in housing development can be sustained in the longer term.
Therefore, it is likely that competitive forces would lead to innovations in housing
densities and designs being exploited in a way that yields more affordable housing to
benefit first time buyers who are currently excluded from the market.
However, a key issue is the extent to which encouragement of such developments
requires to be undertaken through the planning process. At present, some Development
Plans prescribe that housing developments must contain a mix of housing types. It
would be consistent with this prescription to encourage the provision of higher density
housing and smaller units of the type described above or other similar types of design,
yielding savings in costs of the order of magnitude set out above. If these cost savings
were passed on to the end user, the result would be a significant improvement in house
price affordability.
It is possible to envisage more forceful forms of prescription being applied through the
planning process. For example, planning authorities could require that a certain specific
proportion of all proposed developments must contain affordable housing, specified
according to both price and standard of housing. It is important to understand what
effectively would be entailed by such a provision. In essence it involves a ‘tax and
subsidy’ being applied for the provision of housing at more affordable prices. For
example, let it be required that 20 per cent of the square area proposed in each
development has to be provided at a specified price and according to a prescribed
minimum standard. In these circumstances a subsidy is made available to the purchaser
of the affordable housing which equals the difference between the price paid and the
price that could have been achieved without the planning restriction. A tax, equal to the
amount of the subsidy, is paid either by the landowner, who receives a lower price for
the development land because of the planning restriction, or the developer, if he
foregoes profit on the overall development or the purchasers of the ‘unrestricted’
housing, if the developer succeeds in maintaining his overall profit margin.
However, there are a number of serious shortcomings associated with a prescriptive
approach of the type outlined above. For one thing it is quite arbitrary. The amount of
the effective subsidy (and associated implicit tax) would vary enormously with
location, rather than the individual’s capacity to purchase an affordable house. For
example a requirement to provide affordable housing defined in terms of price and
standard would entail a much larger subsidy if provided in Dublin 4, as compared with
an undeveloped suburb. Secondly, it would be administratively quite cumbersome and
inflexible. Standards of housing and price levels have to be determined that can purport
to represent an ‘affordable’ norm. A system of review, to determine what proportion of
‘affordable’ housing should be required would need to be put in place. The overall
effect could be to lengthen the time required for determination of planning permission
and delay the delivery of the very product that it is being sought to develop.
Furthermore, to the extent that such prescription is no more than an indirect mechanism
for taxing and distributing income subsidies, it would be possible to levy additional
taxes (on disposers of development land, developers, or the generality of house buyers)
and award subsidies to would be home owners much more easily and transparently
through the tax and welfare code.
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The Housing Market: An Economic Review and Assessment
Therefore, such a rigid prescriptive approach is not considered desirable.
However, there is a need to ensure that residential developments reflect current
and prospective demographic requirements. To this end, it is recommended that
all local authorities should avail of all possibilities under the Planning Acts,
including in relation to development plans, development control and policies such
as those on densities, to ensure that the demand for different house types and sizes,
to meet current and prospective demographic trends are satisfied. This would
improve the achievement of housing policy objectives. In reviewing and updating
the Planning Code, the Department of the Environment & Local Government,
should consider whether the Planning Acts need to be strengthened to support the
objectives of a modern housing policy, including the provision of the necessary
mix of house types and sizes.
Financial Innovation
As noted at the outset of this section a gap exists between the price of existing starter
homes and the level of debt financing which some income earners can secure from
mortgage lenders, considering applicable loan criteria. Another possible approach to
bridging this gap is through a more broadly based financial initiative to promote shared
ownership. There are a number of conceivable approaches to achieving this. For
example, the existing local authority shared ownership scheme might be extended to
income categories marginally above the current limits (desirably on the basis of
reduced local authority equity participation to maintain an effective price limit).
Alternatively, it may be possible to develop a scheme for provision of affordable
housing through local authorities, possibly involving private sector developers, either
on the basis of sale through shared equity arrangements or otherwise.
Another possible approach might be a private sector shared equity scheme, in which
the purchaser might finance say 70 per cent of the property with the balance (stub
equity) being acquired for a specified period by a trust or similar vehicle. Such
arrangements would have to be subject to appropriate conditions and safeguards, for
example, minimum deposit, assessment of purchasers’ ability to buy out the stub
equity, purchasers’ inability to raise a mortgage or normal terms for a house priced at
say 80 per cent of the prevailing average new house price, upper income and price
criteria, financial sustainability and prior detailed analysis of the practicability or
otherwise of the trust or other such vehicle. Finally, a similar effect, in terms of
accessibility of mortgage funding to that of shared equity arrangements might be
achieved through appropriate changes in mortgage lending criteria. This is discussed
further below.
It is recommended that in the context of sustained price stabilisation and
significant increase in housing supply, consideration could be given to the
foregoing financial options for “bridging the gap”, for purchasers whose incomes
would not enable them to obtain sufficient mortgage funding at current price
levels. However, it is emphasised that any shared equity scheme or other
innovative financial instrument, which would increase access to mortgage funding
for house purchase would give rise to increased effective demand in the market.
Unless there is a corresponding increase in housing supply, this will result in price
increases, especially in the segment of the market at which the scheme is targeted.
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The Housing Market: An Economic Review and Assessment
Therefore, the end result would be counter productive and such measures are not
desirable while there is a shortfall of supply in the housing market. Therefore it is
recommended that the introduction of any such scheme or initiative should be
contingent on the previous recommendation in relation to promoting the
development and supply of affordable housing or should be directly linked to the
provision of such housing.
An illustration of the effect of such a change is contained below for a couple with
incomes of £25,000 and £20,000 respectively is contained in Table 4.3. This suggests
that current criteria may be excessively conservative in certain cases.
Table 4.3: Illustration of Current Mortgage lending Criteria and Net Income
Current lending criteria
£25,000 X2.5
£20,000X1.0
Maximum mortgage obtainable
£62,500
£25,000
£87,500
Based on net income:
£25,000 less PAYE &PRSI for single person =
Approximately £16,200
or £1,350 per month.
£20,000 less PAYE & PRSI for single person =
Approximately £13,800
or £1,150 per month.
Joint net income (before mortgage interest relief) =
£2,500
£850 i.e. 33 per cent dedicated to mortgage repayment = mortgage of £120,000
£708 i.e. 28 per cent dedicated to mortgage repayment = mortgage of £100,000
4.4.3
Increasing Potential Housing Supply in the Short Term
Overcoming Infrastructure Bottlenecks
It is estimated that the North Fringe Interceptor Sewer, together with the provision of
additional water distribution and storage will provide necessary services to open up in
the region of 373 hectares of land for residential development. On the basis of existing
and densities it is projected that the housing yield from this will be over 15,700 units.
However, the North Fringe Interceptor Sewer will not be completed until 2004.
Table 4.4: Impact of Northern Fringe Interceptor Sewer (and Ancillary Water
Services) on Availability of Serviced Land for Residential Development
Area (ha)
No. of Houses
Dublin Corporation
Fingal
286.6
86.6
12629
3031
Total
373.2
15660
Note: based on density of 35 units/ha for rezoned land and 55 units/ha for existing areas
Source: Department of Environment & Local Government
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The Housing Market: An Economic Review and Assessment
It has been established and agreed with Dublin Corporation and Fingal County Council
that it would be technically feasible to use interim/temporary arrangements (which may
include temporary treatment) to provide sewerage services to land zoned residential,
(or proposed to be zoned residential in the case of Fingal Development Plan), at the
densities currently envisaged. Therefore, if planning permissions were granted to
proposed housing developments and suitable approved interim/temporary
arrangements (including temporary treatment) could be put in place, it would be
possible to achieve a short term increase in housing potential in Dublin of up to 15,700
houses. All such arrangements would need to have all the safeguards necessary to
comply with the highest environmental standards.
Now that agreement has been reached between the Department of the
Environment and Local Government and relevant planning authorities that,
pending completion of the North Fringe Interceptor Sewer, interim/temporary
arrangements (which may include temporary sewage treatment or pumping
facilities) will be permitted in deciding on planning applications for residential
development it is, recommended that Developers should be encouraged to enter
into dialogue with the relevant planning authorities on appropriate arrangements.
Any such temporary arrangements will be subject to safeguards in relation to
environmental impact/water quality.
It is considered that the North Fringe Interceptor Project and the accompanying
water infrastructure works amounting to an estimated £16 million should be
examined with a view to establishing if PPP arrangements could be used for all or
part of the works. Any necessary public funding required (having taken account
also of development levies) will need to be provided from public resources to be
committed to water and sewerage services over the period of the forthcoming
National Development Plan, 2000-2006. Consideration of the most appropriate
manner of funding need not and should not delay commencement of the projects
involved.
Another type of infrastructure constraint is access roads to lands zoned for residential
development. It is proposed that the Department of the Environment & Local
Government should promote an initiative, involving local authorities, to identify
with developers and others the road and public transport constraints preventing
the development of existing zoned residential lands.
The objective should be to identify and report within six months on such constraints,
stating clearly the amount of housing development, which is constrained; other
infrastructure developments considered necessary to permit development and an
estimate of the capital cost and time-scale involved to release the lands for
development.
In the course of identifying such constraints judgements should be offered as regards
the scope, feasibility and suitability of using PPP to overcome the constraint.
Improving Planning Delays
It is understood that the Bord is experiencing difficulties with recruitment of planners.
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The Housing Market: An Economic Review and Assessment
In order to assist An Bord Pleanala, it is recommended that the Minister for the
Environment and Local Government should request the Bord to present to him a
proposal, including an evaluation of the efficiency and effectiveness of current
operations and the adequacy of current resources in relation to these operations.
The objective should be reverse current slippage and return as quickly as possible to a
situation of meeting the statutory objective of determining 90 per cent of cases within
four months. Again the aim should be Report to the Minister urgently and certainly
within six months on a package of actions which will enable the statutory objective to
be secured.
Securing Optimal Residential Densities
To judge from the assessment contained in Chapter 3, Section 3.2, there is some move
to increase housing densities taking place in some Development Plans. The planning
guidelines issued by the Minister in relation to residential densities have had an
influence on changes taking place. However, the pattern is uneven and there is not a
clear set of principles against which progress to higher densities is occurring. A
consultant’s report on housing densities, commissioned by the Minister will soon be
available.
It is recommended that when it is, it would be appropriate for the Minister to
incorporate relevant conclusions and recommendations contained therein in a
general directive to planning authorities, using powers under Section 7 of the
Planning and Development Act 1982. The aim should be to provide a sound set of
principles and criteria for planning authorities to implement a consistent and
coherent policy designed to achieve greater densities in a timely way and in a
manner that contributes to sustainability. Of course it is recognised that it will be
difficult to formulate a directive, so as to ensure that the many ramifications associated
with greater densities are taken into account adequately. However, in light of the acute
situation regarding current and prospective potential supply it is considered a directive
along the lines proposed, if it can be carefully drawn would be an effective instrument
for achieving greater densities.
Tax Incentives
Earlier, when assessing the impact of reducing the CGT rate to 20 per cent for land
brought into residential development it was noted that in practice the impact to date has
been limited. In particular, the requirement to have outline planning permission in
place, in order to take advantage of the effects of this measure, means that it will be
eighteen months to two years before any significant amounts of development land are
sold to take advantage of this incentive.
Therefore, it is recommended that it would be beneficial to withdraw this
requirement. In the event that disposals of land, taking advantage of this incentive
are not in fact brought into residential development the Revenue Commissioners
should institute appropriate arrangements to recover any tax due.
The benefit of this amendment would be expected to arise in the wholesale market for
development land. Houses cannot be built in any event until planning permission has
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The Housing Market: An Economic Review and Assessment
been granted. However, developers’ attitudes to releasing and replacing potential
development land could be materially affected if there was greater supply and liquidity
in the market for development land. It is believed that this latter aspect is being
adversely affected by the prior requirement to obtain outline planning permission and
would be changed beneficially if this requirement were dropped.
4.4.4
Securing Stability in the Private Rented Sector
As noted earlier (see Section 4.2.4 above), rents generally have been rising rapidly, in
line with the trend in house prices. These trends reflect the fact that conditions of
excess demand for accommodation (both owner occupied and for rent) exist in the Irish
housing market. The optimal course to achieve a sustainable balance in this market, like
that for owner-occupiers, is to expand supply. This needs to take place at a general level
and targeted interventions are required, which focus on particular segments of the
market.
Ensuring the Legal Framework is Supportive of an Expanded Private Rental Market
There is little or no institutional investment in the Irish residential market. Much the
same pattern characterises the UK market. In continental Europe the pattern is rather
different, with long term financial institutions more actively involved in these markets.
In the UK, the 1988 Housing Act created two new types of residential tenancies. These
new types of tenancy were instrumental in changing the face of residential letting for
the first time in several decades.9 An effect was to end the pattern of both automatic
regulation of private rents and security of tenure that had pervaded previous legislation.
More recently, in 1996 the UK government saw the lack of large, institutional investors
in the residential investment market as a major barrier to the development of a private
rented sector. The 1997 Finance Act provided for the creation of Housing Investment
Trusts (HIT) as a means out of this situation. However, to date no such HIT has been
successfully launched.
In Ireland, long-term financial institutions report that the present legal framework and
the traditions associated with it militate against their involvement in the market. In the
context of a potential single investment market provided by the Euro financial
institutions from Continental Europe could find the Irish residential market more
attractive than some domestic financial institutions.
In the context of improving the environment for investment in residential
property, it is recommended that the matter of landlord tenancy legislation in
Ireland should be reviewed. One objective should be to determine if there are
aspects to this, which constrain the development of a vibrant rented sector. There
should be a focus both on barriers to investment and the matter of an appropriate
balance in tenure rights. The Law Reform Commission would appear to be the
most appropriate authority for carrying out such a review.
9 See, for example, The Emerging private Residential Investment Sector, FPD Savills, May 1998,
London.
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The Housing Market: An Economic Review and Assessment
Improving the Supply of Rented Accommodation for the Student Population
The Minister for Finance announced in Budget ’99 the introduction of tax incentives
for the provision of student accommodation.
The relief will be available for accommodation provided in the 4-year period from
1 April, 1999 to 31 March, 2003 and will allow investors to offset 100 per cent of the
costs of construction, conversion or refurbishment (but not site costs) of purpose built
third level student accommodation against all rental income over a maximum period of
10 years. This type of relief has become commonly known as “Section 23” relief.
Each project will be subject to certification by the relevant third level institution, in
accordance with guidelines drawn up by the Minister for Education and Science in
consultation with the Minister for Finance and the Minister for the Environment and
Local Government. These guidelines will deal with key elements of eligibility for the
relief including which institutions will benefit and setting out conditions relating to the
standards and location of accommodation.
This relief should contribute to the provision of student accommodation at or near
third-level institutions, which in turn will ease pressures in the general rental market in
the medium term. The relief is well targeted in that it will result in an increase in
residential accommodation provision without adverse impacts or displacement effects
on prospective home purchasers.
Developing the Private Rented Sector in the Context of Urban Renewal
Under the new urban renewal scheme, 43 towns and cities are to benefit. Designations
are based on the concept of Integrated Area Plans (IAPs) prepared by County Councils
and County Borough Corporations. These are to address not only issues of physical
development, but also wider issues of local socio-economic benefit, including training,
education and social housing. The role of preparing IAPs is pitched at county/city level
in the interests of allowing priorities to be determined.
The Finance Bill provisions allow for the entire area to which an IAP relates to be a
qualifying area for the purposes of the owner-occupier residential allowances and/or
the investor allowances for rented residential accommodation where these options may
be justified by reference to the above-mentioned criteria.
It is recommended that where either category of residential allowances is being
recommended local authorities should consider whether in the interest of the IAP,
they should be made subject to conditions in relation to the accommodation to be
provided e.g. the design, construction, size, room dimensions, type and quality of
the accommodation, the balance between houses of different types and sizes and
the amenities to be provided etc. In this regard it should be noted that under previous
urban renewal schemes only 12 per cent of residential investment was in refurbished
property.
Making Rented Accommodation More Accessible to Low Income Families
The current tax allowance for rent, for those under 55 years, applies at the standard rate
and amounts to £500, £750 and £1,000 p.a. for a single, widowed or married person
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The Housing Market: An Economic Review and Assessment
respectively. For those aged over 55 years the allowance amounts to £1,000, £1,500 and
£2,000 for single, widowed and married persons respectively and is available at the
marginal rate. It is recommended that this threshold should be revised to reflect
broadly the recent trend in rents across the country.
Involving the Voluntary Sector in the Private Rented Sector
In other countries the resources of the voluntary sector has been harnessed effectively
to assist in providing accommodation to less well-off groups in society. In Ireland the
potential of the voluntary sector to contribute to housing is underdeveloped.
Therefore, it is recommended that, on a pilot basis, the Minister for the
Environment & Local Government should invite proposals from interested and
concerned agencies in the voluntary sector as to how they can be assisted to
develop and apply their resources more beneficially to provide accommodation for
needy sectors of the community. For example, projects might be identified in which
voluntary agencies might develop, renew, refurbish or convert dilapidated, run-down or
disused buildings for the purposes of providing residential accommodation with some
assistance of public services. The main objective of this proposal is to seek to harness
the energy, imagination and commitment of voluntary agencies concerned with
developing innovative housing solutions for socially disadvantaged sectors. Such
proposals might also address the possible scope for a role for the voluntary sector in
providing accommodation for owner occupation.
67