I thank the committee for the invitation to make a presentation. There are three sections to my presentation. Some of my remarks will touch on areas that Professor Drudy has mentioned.
In the past 20 years wages have increased by 22% while house prices in the Dublin commuter belt have increased by about 150%. House prices are increasing at about seven times the rate of wages. This 20-year trend has had a significant impact on affordability for first-time buyers and society as a whole. Higher rents mean that it takes longer to save for deposits. Buyers are older, must work for longer, and require two-full time salaries, and significant equity from parents or both to buy a home. Increased construction costs and building standards are not the problem.
As an overview of housing supply, in 2017 the Housing Agency suggested that to meet demand a minimum of 16,000 new homes were required in urban areas every year until 2020. According to the Central Statistics Office, CSO, a little over 13,000 scheme homes and apartments, excluding single homes, were for sale out of a total of 18,000 completed last year. Contrary to a lot of commentary, the State is very active in the new build sector but in very particular ways. In 2018, local authorities and approved housing bodies purchased or built almost 4,600 dwellings, including Part V units. Some 64% of these were purchased as new homes from the private sector. The average price paid for local authority turnkey and new build social housing authority dwellings was less than the affordable threshold of €240,000. On the other side, the National Asset Management Agency, NAMA, funded the construction of 2,500 new homes last year. Some 40% of the new homes funded by NAMA sold for more than €400,000, and 67% sold for more than €300,000, way above the affordable threshold.
Between these two figures, excluding purpose-built social housing, the State subvented more than half of all private dwellings built for sale last year. That is a huge number. Unfortunately, the State is competing with ordinary buyers in the affordable housing market while simultaneously using State funds to build severely unaffordable schemes. Just one affordable housing scheme is being built nationwide, by Ó Cualann Cohousing Alliance in Ballymun. In partnership with Dublin City Council, that co-operative is building a scheme of more than 30 dwellings, with two-bed units priced at €185,000 and three-bed homes at €219,000 including VAT and developers' profit. This scheme is privately financed and will be completed this year.
Budget 2018 saw the introduction of an affordable housing fund, which was expanded to €310 million last year. This fund is a subsidy scheme intended to give a discount of up to 40% on homes built on State land, up to €50,000 per unit. Ten locations have been selected. Infrastructure and service works are yet to commence on these sites. No homes have been delivered to date and the earliest projected completion date is late 2020. Given that construction price inflation is well over 7% at the moment, a three-year delay in delivery will increase costs by more than 20%, further impacting on affordability. Homes in these schemes may also be suitable for the help-to-buy scheme, adding a further €20,000 per unit to State costs. Is this sustainable?
Turning to public housing supply, I note that more than 90% of additional State social housing is sourced from the private sector. According to Rebuilding Ireland, of the 27,100 social housing solutions delivered nationwide from all sources in 2018, just 1,600 homes, 6%, were built by local authorities and approved housing bodies. In 2017, 4% were built by local authorities and approved housing bodies. The State is very reliant on the private sector for this.
In 2018, 18,000 new housing assistance payment, HAP, leases were created. This is a very accurate measure of the distress in the rental sector. The five-year target under the Rebuilding Ireland action plan is to create 87,500 new HAP tenancies by 2021. This would equate to one private sector tenancy in four. Last year the Department of Public Expenditure and Reform estimated that if these targets are achieved, spending on rent assistance will increase from the current spend of more than €1 billion a year to €1.7 billion per annum by 2022. This is the equivalent of spending the cost of a new children's hospital per year on rents to private landlords.
The Department of Public Expenditure and Reform also noted that it is twice as expensive to engage in rent assistance in areas of high demand like Dublin than it is to build on State land over a 30-year period. Current policy appears to be at odds with the with the Department's recommendations. Local authorities are buying and building in areas of low demand while continuing to create new HAP tenancies at scale in County Dublin. In 2018, just 634 new social homes were built by the four Dublin local authorities, including regeneration units which involve demolition. Demolitions and sales of existing stock must then be accounted for, leaving a lower net figure of additional stock.
I will comment briefly on land, which Professor Drudy mentioned earlier. In 2015, the land availability survey confirmed a capacity for about 414,000 dwellings on zoned land nationwide. In Dublin there is space for about 116,000 dwellings. We have an abundance of development land. Unfortunately, much of the current development consists of piecemeal low-density commuter dwellings, increasing urban sprawl and not maximising the potential of centrally located land.
In regard to State-controlled land, an analysis last year confirmed that, excluding land owned by other semi-State bodies such as the IDA, Coillte, the Housing Agency and CIÉ, the National Asset Management Agency, NAMA, debtors and local authorities own 17% of residential zoned land nationwide, with the capacity for more than 100,000 dwellings. Of this, NAMA controls 60% and local authorities own 40%, but that is enough State-owned land for more than 40,000 dwellings nationwide, owned by local authorities. Densities have subsequently increased from the 2015 figure due to the lifting of the height caps. In Dublin, between NAMA-controlled debtors and local authorities, almost half of all residential zoned land with capacity for more than 55,000 dwellings is controlled by the State. In Dublin city alone, almost three out of four vacant sites are controlled by the State, with Dublin City Council owning half of the sites.
Turning to land values and affordability, land price is a significant issue affecting affordability. Typically, upwards of 35% of a dwelling's sale price comprises land value and developer’s profit, although this can be a lot higher. Land price is highly volatile. A 10% increase in a new-home price translates to a 30% increase in land values. The opposite is also true, however, and land values can fall dramatically when prices soften. Land trading and speculation is a feature of the Dublin land market, with less than one quarter of residential planning permissions turning into completed units after three years.
The residual site value for land is derived from the sale prices less costs and margin. In some Dublin locations, the residual value is significantly exceeded, which suggests an inflated land market. When developers overpay for land, developments stall until sale prices increase to a level where it is viable, that is, where it is profitable to build. Developers will not build where they will make a loss. Forty years of CSO data since 1975 demonstrates that demand leads supply by approximately 12 months. The currently stalling sales levels and prices suggest a drop in the number of homes being built in the latter part of last year in certain locations. When prices fall, supply falls. The difficulty in respect of policy is that a number of policy initiatives have encouraged investors to purchase and hold large tracts of serviced residential development land for long periods. The capital gains tax exemption in 2012 and 2016, coupled with a weak vacant site levy in 2016, have contributed to inflationary pressures on land prices. Amendments have been made to the prescribed seven-year hold period for capital gains tax exemptions, which has resulted in the highest volume of land traded in more than a decade, at €1.5 billion last year. Much of this land is held by entities with no construction capacity. The State owns significant land banks but the policy is not to develop and to be almost entirely reliant on the private sector for public housing. Policies have sought to reduce standards on one side as an incentive to developers, while introducing demand-side measures to boost price, such as the help-to-buy scheme for purchasers. These have had the desired effect to improve viability and asset prices, improving balance sheets, which leads to some positive outcomes. It also makes developments viable and raises households out of negative equity. The same policies, however, lead to sharp land and house price inflation, increasing rental levels and consequential increases in homelessness. Policy, therefore, has simultaneously inflated land values and affected affordability.
One critical area that has affected prices is the promotion of alternative uses. We know that planning changes have delayed development and encouraged repeat applications and land speculation. Analysis by the Dublin Chamber of Commerce of planning applications for new apartments in Dublin suggests recent planning reforms have had a dampening impact on the supply of new apartments, added to which are the inflationary effects of new, more intensive forms of residential development being promoted by policy. Co-housing, shared-living developments and student housing are short-term, intensive and very profitable uses. In the midst of a housing shortage, the industry continues to prioritise student housing schemes. One example of this is the recent sale of a large student housing scheme in Ballymun. The sale price was €46 million for 364 bed-spaces, equating to €126,000 per bed-space. In planning terms, a unit with four bed-spaces is the equivalent size of a normal two-bed apartment and, therefore, for residential development to be as profitable as this scheme, it would need to sell for more than €500,000 in Ballymun. Currently on Daft, however, one can see two-bed properties for sale for between €150,000 and €170,000. Sites for student housing or new co-living uses are significantly more valuable than normal residential properties in most Dublin locations. Apartments will not be built unless this trend is addressed.
The vacant site levy was proposed in 2016 to penalise owners of vacant land and stimulate activity. Although introduced in January 2017, the tax is charged only from 2019 onwards for sites included on registers. The levy had been on a sliding scale, where the larger the loan that was attached to the land, the lower the levy that was due. The original maximum level was 3%, based on a 2018 land market value. Last October, to its credit, the Department of Housing, Planning and Local Government moved to make the levy more effective for owners, removing the sliding scale and increasing the levy to 7%. Questions, however, continue to surround the effectiveness of the measure in the current market. To date, just 21 of 31 local authorities have listed sites as vacant on public registers. Dublin City Council is one of the most proactive of all the local authorities and its register includes approximately 16 ha of land in the ownership of the council itself. This is a fraction, however, of the 112 ha of vacant zoned residential land owned by the council, which is on the Rebuilding Ireland land availability plan. Figures for other local authorities that have populated registers are lower again. Despite the best intentions of the Department, local authorities appear reluctant to implement the site levy and have cited a number of reasons, from lack of resources to low land values. This inertia worryingly suggests that local authorities have little resources or support from the Government for strategic land management.
The supply of public housing is heavily reliant on the private sector. This is an expensive way to meet demand because it involves paying market value for units, high site prices, expensive financing costs and developers' margins. The National Economic and Social Council and the Department of Public Expenditure and Reform have recommended that the State directly procure social housing on State land in areas of high demand such as County Dublin, and continue rent supplement in low-demand areas where prices and rents are lower. In a time of constrained industry output, such over-reliance on the private sector is having an inflationary effect on rents, prices and land values. Affordable housing schemes, which rely on discounted purchase prices, effectively subvent high prices and are prone to failure in downturns. Current policy assumes new housing output will continue to increase and has not been risk-assessed to take account of the cyclical nature of development. When the cycle turns, less money is available, which means that fewer houses will be produced by the private sector, leading to fewer dwellings available for rent or purchase. This is a high-risk strategy and there have been indications that we are at or close to the peak of the current cycle. A proper, functioning vacant site levy, implemented in a transparent and consistent manner by all local authorities, should be encouraged. Once changes are signalled in an unambiguous and timely manner, costs will be transferred back into site values. Proceeds from any site levy should be ring-fenced to provide finance for affordable housing.