CEO Update

Housing for All – A New Housing Plan for Ireland

The Government recently published its second progress report in relation to its plan to increase the supply of housing to an average of 33,000 units per annum. It reported that during 2021 there were 30,724 new homes commenced, the highest since 2008. In addition, over 39,000 units were granted planning approval during the 12 months to the end of September 2021.

The most important statistic, the one on which this strategy will ultimately be judged, is the number of completions, which in the year to the end of Q3 2021 was 20,903. This represents a strong start with the Housing for All plan only launched in September 2021.

Despite the frustrations expressed by several commentators about the high cost of renting and the increase in the price of houses and apartments, it is widely acknowledged that increased supply is the key to solving many of the weaknesses in the property sector in Ireland. If the demand for housing is matched by supply, this will introduce real competition among developers and landlords which should impact on house prices and rent levels.

While the increase in the cost and availability of materials, coupled with a shortage of construction staff is slowing down delivery of accommodation, the biggest challenge facing the construction industry and the Government is the lack of key infrastructure in a number of locations throughout the State.

The Housing for All progress report references and highlights the need to eliminate obstacles which are hindering the ability of the construction sector to deliver much needed homes.

“While it is clear that good progress is being made and that indicators for this year are strong, it must also be acknowledged that the provision of a sustainable housing system into the future will entail…….a strong delivery focus, rigorous management, and the ability to identify and deal with any obstacles to progress in a timely manner.”

Some of these obstacles are as follows:

  • Waste Water Treatment Capacity
  • Waste Water Network Capacity
  • Availability of Water Supply
  • Ring Road or Relief Road
  • Roundabout
  • Access road through multiple land owners to service zoned lands
  • Bridges
  • Rail Overpass or Underpass

These infrastructure projects are usually too costly for one developer to fund. Therefore, they require cooperation from other developers in that location who are ultimately in competition with each other. Additionally, this can lead to a type of stalemate or “first mover syndrome”, where no one developer will begin work on a piece of infrastructure necessary to the housing developments of multiple other nearby developers, as they will risk being left to fund it themselves. This can lead to a situation where there is no activity on residential development sites.

HISCo was established by the Ireland Strategic Investment Fund (ISIF), (which is managed and controlled by the National Treasury Management Agency), and Cork County Council. It reduces the risk for individual developers by providing the infrastructure required to support the delivery of residential development. The unique aspect of the HISCo Business Model is that payment of HISCo’s fees is only required when the units are being sold.

HISCo is currently considering infrastructure projects in 14 counties. The lack of the necessary infrastructure in those locations is currently delaying the delivery of 12,000 homes.

One of the key aims of the Housing for All plan is the provision of Affordable Accommodation for those citizens unable to purchase a home. The Government is planning to subsidise the cost of such homes by providing funding towards the cost of servicing the sites in question. HISCo could play a key role by delivering the on-site infrastructure and services required, and will wait for the accommodation to be completed and sold before seeking to be paid the subsidy. This would reduce the amount of loan funding required by a developer or a local authority when they are planning to deliver an Affordable Housing Scheme.

In such scenarios it is crucial that the lending community is prepared to work in partnership with HISCo and accept that HISCo’s fees are comparable to the payment of fees to utility companies or development contributions to local authorities.

HISCo is ready to assist with the overall objective of increasing the supply of new homes in Ireland and is encouraging developers and local authorities to discuss the infrastructure challenges currently being experienced in multiple locations throughout the State.

During normal market conditions, when you are producing a product which is in high demand, you would expect your business model to be extremely successful. Unfortunately, the Irish Residential Construction Sector is not experiencing normal market conditions. As the challenges posed by the COVID-19 pandemic begin to subside, house builders in Ireland are now faced with the problem of rising costs for essential materials. It is well documented how these are increasing on an almost daily basis due to supply chain challenges, related to the ongoing war in Ukraine and to legacy issues following on from the pandemic. Contractors are also experiencing delivery delays, adding to the growing uncertainty in the industry.

These fluctuations in material costs provide builders with a serious challenge when they try to price a job or prepare a tender. It is creating new challenges for contractors that are trying to deliver housing under a fixed price contract for a local authority, particularly when the tender was probably prepared 9-12 months ago. The same issue arises for any contractor trying to deliver infrastructure for a state agency under a Public Works Contract.

The Construction Industry Federation have strongly advocated on behalf of the sector with Ministers in the Departments of Housing and Public Expenditure and Reform. To be fair to those Ministers and their officials, this is a difficult challenge to overcome. Ultimately, the additional financial burdens will be borne by the State, and this comes after the phenomenal amount of financial support the Government provided for all those impacted by the pandemic.

Credit must be attributed to some local authorities who have recognised the pressure being experienced by the providers of social housing, and have built in an annual review of unit prices which will be linked to the Construction Cost Index.

When you also consider the number of Judicial Reviews being lodged challenging the validity of planning decisions, you begin to realise how much uncertainty exists in attempting to plan a residential development. Once a Judicial Review application is lodged then a developer must await a hearing date in the relevant court. While there is an obligation on the courts to hear a Planning Judicial Review application as quickly as possible, there is no method for a developer to calculate how long the proceedings will take.

As all Stakeholders in the Residential Development Sector in Ireland try to meet the targets set in the Government’s “Housing for All” plan, it is important that we identify any area that can be streamlined to speed up the delivery of much needed accommodation. The recently enacted  Planning and Development (Amendment) (Large-scale Residential Development) Act 2021 attempts to take the positive elements of the Strategic Housing Development Regulations 2017 and improve the Planning Decision Process. This new piece of legislation restores the primary decision making powers for residential developments of 100 units or more to local authorities. It also reintroduces the time bound appeal process to An Bord Pleanála.

Notwithstanding the impact of global matters beyond our immediate control, it is incumbent on all of us involved in the residential development industry to ensure we do what we can to eliminate uncertainty in the delivery process.