Urban Regeneration and Housing (Amendment) Bill 2018: Discussion

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No. 6 on the agenda is detailed scrutiny of the Urban Regeneration and Housing (Amendment) Bill 2018. On behalf of the committee, I would like to welcome to today's meeting Deputy Wallace, Mr. Christopher Oonan, Mr. Mel Reynolds and Professor P.J. Drudy.

Before we begin, I draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.

I thank the Chair and the clerk to the committee for allocating time for detailed scrutiny of the Urban Regeneration and Housing (Amendment) Bill 2018. The Bill was introduced on First Stage in June 2018 and passed Second Stage in July 2018 where it was supported by all Opposition parties and Independents. The Government did not oppose it at that time.

I also thank both Professor Drudy and Mr. Reynolds for agreeing to act as stakeholders and I look forward to their presentations. I also thank Mr. Oonan, who wrote the Bill. The Bill amends the Urban Regeneration and Housing Act 2015, which I will hereafter refer to as the 2015 Act, which introduced the concepts of the vacant site levy and vacant site register to deal with the problem of land hoarding. At the time, the introduction of a levy and a register for vacant sites was encouraging, however the subsequent legislation to enact the levy was inadequate and full of loopholes. This amendment Bill seeks to plug some of these holes.

Overvalued development land has been having a detrimental effect on how we supply housing in Ireland for over half a century and I have experienced it at first hand. I set up my own building company in 1989 and began purchasing land in the mid-1990s. To give the committee an example of the land increases we saw during the Celtic tiger, in 1997 I bought a fifth of an acre site in Dublin for £150,000. In 2004, I bought another fifth of an acre site in Dublin for €4.8 million. In seven years, the price of development land in our capital city had increased more than thirtyfold and, unfortunately, land prices are getting back to similarly exaggerated levels. The site I bought in 1997 was in a so-called better area than the one for which I later paid €4.8 million.

The purpose of the Bill is to disincentivise landbanking and land hoarding with a view to addressing the overall problem of the price of development land in Ireland and the effect it has on the property market. The main provisions of the Bill provide stricter definitions for what constitutes a vacant or idle site, increase the vacant site levy and remove certain exemptions in relation to the levy, remove three of the four appeals allowed under the 2015 Act and provide an option for the owner of the site deemed vacant to enter into negotiations with the relevant local authority or State agency to sell the site for a percentage of its value. We received correspondence to the effect that we may be subject to a money message because of that last provision. That was included to ease the pain for people who are sitting on sites so that, rather than pauperise them, they are given an out that is financially fair if they find themselves in financial difficulty.

Section 4 of the Bill amends section 5 of the 2015 Act and provides for stricter definitions for what constitutes a vacant or idle site. Sites will now be deemed vacant if they meet the following criteria: a site where planning permission for a development has exceeded 12 months and no commencement notice for development has been issued; a site where a commencement notice for a development has been issued and 36 months have elapsed without the completion of the site in question; a site where any unauthorised use or unauthorised development is occurring; and a site which is being utilised on an authorised temporary basis for an activity other than development.

Fianna Fáil pointed out in the Chamber that the criterion for a site where a commencement notice for a development had been issued and 36 months have elapsed without the completion of the site in question might cause a difficulty because a development could genuinely take more than 36 months to complete. The phrase "substantial completion" could be inserted to capture a situation whereby people start a site but make no effort to finish it because they do not want to build out that site at that particular time. We want to catch those in the net because that is, obviously, a form of land hoarding.

Section 4 is the most important section of the Bill. The 2015 Act states that a site is vacant if the majority of the site is vacant or idle. It sounds almost Kafkaesque. This broad definition has been taken advantage by site owners and has made it difficult for both the local authorities and An Bord Pleanála to determine vacancy and I will give two examples of this at a later stage.

Section 11 amends section 16 of the principal Act and provides that the vacant site levy shall be 25% of the market value of the vacant site. The exemptions in section 16 of the principal Act have all been removed. Those state that where the value of the mortgage or other security on the site is greater than the market value of the site - in other words a negative equity situation - a zero rate of levy shall apply, or where the outstanding amount of the site loan is between 75% and 100% of the market value of the vacant site on the date of its determination, a reduced rate of 0.75% levy shall apply, or where the outstanding amount of the site loan is between 50% and 75% of the market value of the vacant site on the date of its determination, a 1.5% rate of levy shall apply. The levy of 25% is applied regardless of whether there is a loan, mortgage or security on the site in question.

The first point to note is that following the enactment of the Planning and Development (Amendment) Act 2018, on 19 July 2018, these exemptions relating to a loan or mortgage have been removed. That is a welcome action by the Government. Perhaps they listen to us sometimes after all. At the time the 2015 Act was debated, I repeatedly told the Government that no good business person has a site that is not in some way mortgaged or used as security, and worse still, there is anecdotal evidence that site owners availed of these exemptions by using different companies under their control, in essence, to loan themselves money, thus becoming exempt from the levy and this has come to fruition through the sparse numbers on the vacant sites register, something that Mr. Mel Reynolds might touch on during his submission.

This means that the main amendment now to section 11 is the increase of the levy to 25%. The levy currently sits at 3% and will move to 7% in 2020. Some may consider that 25% is too high a levy, but the goal of this legislation is to disincentivise, and 3% or even 7% will not force land hoarders to make use of their land.

As well as increasing the levy to 7% in 2020, the Government has also introduced a clause giving the Minister power to vary the levy rate by way of regulations having regard to increases or decreases in the CSO property price index and such regulations must be approved by both Houses of the Oireachtas. However, any increase in the levy rate above 7% must be subject to further primary legislation. This basically means the Minister can lower the levy but not increase it. If this Bill were to reach Committee Stage, an amendment allowing the Minister to vary the levy of 25%, by either by decreasing or increasing it, having regard to the current state of the economy, should alleviate some concerns about the rate of the levy.

Section 12 inserts a new section, which provides that where a site has been deemed vacant, the owner or owners of the site in question, prior to paying the 25% levy, may enter into negotiations with the relevant local authority or State public body, to sell the site for up to 60% of its value, as determined by section 12, if the relevant local authority or State public body deems the site viable for the supply of housing within its remit. The owner or owners of the site in question, after paying the 25% levy for year one, may again seek to enter into negotiations with the relevant local authority or State public body to sell the site for up to 40% of its value.

On Second Stage, the Minister of State, Deputy John Paul Phelan, appeared to put this option in the category of compulsory purchase orders, CPOs, but that is not the case. It is merely an option for a site owner to explore selling their site to a local authority or a State body, but importantly, both parties must agree.

In terms of examples, as I have stated, a key problem of the 2015 Act related to what constituted a vacant site. The definition simply said a site is vacant if the majority of it is vacant. This has allowed both public and private site owners to be creative when they met with a request by a local authority with regard to a site in their possession. I will give two examples of this, one in public ownership and one in private.

A site adjacent to Central Bank currency centre in Sandyford and owned by the bank was placed on the vacant sites register by Dún Laoghaire-Rathdown County Council in 2018. The site is described as being irregular in configuration and relatively flat, it covers an area of 4.67 ha and is valued at €22.5 million. The site is bounded to the north by sports pitches and to the south by the M50 slip road. To the west, the site is adjoined by existing residential development and to the east by the main complex of the currency centre. There are no structures on the site and it is zoned objective A to protect and-or to improve residential amenity in the Dún Laoghaire-Rathdown County Development Plan 2016-2022. The Central Bank appealed its inclusion on the register to An Bord Pleanála and argued that: "The site creates a security buffer enabling surveillance particularly of adjoining public roads and therefore are not vacant or idle but serve a very clear and critically important purpose and rationale for treating this part of the holding in a different manner to other undeveloped parts of the landholding which also form security buffers is unclear." Unfortunately, An Bord Pleanála accepted this argument, indicating it was bound to interpret a vacant site under section 5 of the 2015 Act. If stricter definitions were to apply to what constituted a vacant site, an argument such as this would not be successful. Making the argument that the site is used as a security buffer would fall under the category of "unauthorised use" in our Bill under section 4. This example also highlights the worrying approach of a State entity to land under their control in the midst of a housing crisis. 

With respect to the Irish Province of the Order of the Carmelites, the second example relates to a site owned by the Carmelites, valued at €21.5 million, approximately 3.46 ha in size, located to the east of Ballinteer Road. The site is largely flat with level changes to the north and is adjacent to and to the rear of the property known as Gort Mhuire, which comprises a large period property. The Order of the Carmelites argued that it had planning permission for a car park on the site and it was, therefore, not vacant. The car park in question is currently not in use and does not cover the majority of the site. Although it was accepted by An Bord Pleanála that the car park was not in regular use, it stated it still had planning permission, and added that due to the inclusion of a permitted car park area within the boundary of the vacant site, the board considered that it was appropriate that a notice be issued to the planning authority to cancel the entry on the vacant sites register. Under our Bill, the car park would fall into the category of "authority temporary basis for an activity other than development" under section 4.

These two sites, which continue to lie vacant in a housing crisis, highlight the problems with the 2015 Act. Arguing that a site is in use because it acts as a security buffer or contending that an unused car park means a site is in use illuminates the current loopholes available to site owners with a bit of imagination and it does not require much.

As always with legislation concerning private property, constitutional issues arise. This is due to the prominent place private property holds within our Constitution under Articles 40.3.30. Unfortunately, the Government constantly hides behind both articles when legislation concerning property rights is presented by Opposition Deputies. During Second Stage, both the Minister of State, Deputy English, and the Minister of State, Deputy Phelan, stated: "Previous legal advice received, indicates there are significant concerns about the constitutionality of specific provisions of the Deputy's Bill, which propose to dramatically increase the levy from 3% to 25% of the market value of a site, remove the important and fair appeals provisions in particular circumstances...". This statement would appear to show that the Ministers of State are using previous legal advice to interpret my Bill, which is never a good idea, and I note neither specifically referred as to whether advice was received from the Attorney General.

We have secured legal advice with respect to the Bill from Mr. Paul McGarry, SC, former chairperson of the Bar Council, which I have shared with committee members. I will not attempt to bring them through the advice, but the basic premise of it is that none of the provisions could be labelled as unconstitutional, and with regard to the imposition of a 25% tax on site value, Mr. McGarry states:

It seems to me that the issue is not about whether the provisions constitute an unjust attack on the right to private property. This is because the issue of valuation is linked, not to ownership, but to the concept of "development". Permission for development is granted by a local authority or An Bord Pleanála

...that value has already arguably been inflated by the grant by the State of the permission to develop or possibility to develop. Any infringement argument has to be seen in this context. Since the authorities state that licences or permissions come with the proviso that they may be interfered with in the common good (and subject to the principle of proportionality), there should in my view be no difficulty in justifying the measure.

We are all aware of the infamous money message, which under Dáil Standing Order 179(2) provides that if a Bill involves the appropriation or revenue or other public moneys, "Committee Stage ... shall not be taken unless the purpose of the appropriation has been recommended to the Dáil by a Message from the Government." It appears the Ceann Comhairle has determined this Bill requires a money message, due to the provisions of section 12. As I have outlined, the section is entirely optional and can only be exercised with the agreement of both the site owner and local authority. I ask the committee to examine this ruling by the Ceann Comhairle, as it would be unfortunate if the Bill were not to progress due to this one element, as the key provisions of the Bill - stricter definitions of what a vacant site is, removing the multiple appeals, and increasing the levy - must be implemented if the vacant sites levy is to achieve its goal of putting an end to land hoarding.

I thank the Chairman and the members for their attention and I will gladly answer any questions they have.

I thank Deputy Wallace for his presentation. I invite Professor Drudy to make his opening statement.

Professor P.J. Drudy

I thank the joint committee for inviting me. I think the Bill is a good one and an important element if we are to increase the supply of land and, hence, housing. If we increase the supply of land and housing, we will actually reduce house prices and rents. I know that may not appeal in some quarters, but I it is a very important goal for everybody to try to achieve because house prices and rents are too high.

I am not telling members anything they do not already know, but we have a crisis. To put it mildly, some ownership is difficult for people. It is beyond the reach of many young and not so young people. The housing market is not working in many ways. Supply and demand are the two critical issues. Supply is not coming on-stream fast enough. There is remarkable volatility in the market, as members will see in the table on page 1 of my submission. In 1975, 18,000 homes were built by the private sector. In 2005 that number shot up to 75,000, with many of those houses being in areas where they were not required. There were far too many, resulting in ghost estates, etc. In 2018 the number was down to 13,800. There is something radically wrong with a market where there is significant demand for housing and only a small number of houses are being built. The market is failing. There is remarkable volatility in the private sector. I am not here to criticise that sector, but the message I would like to get across is that reliance on it alone is inadequate. I have heard many Deputies and Senators say this during the years.

The data on the right hand side of the table indicate that local authority and approved housing body provision has not been much better. In fact, it has been very bad. It has dropped dramatically, from almost 9,000 homes in 1975 to 4,251. Those 4,251 homes include Part V and turnkey homes purchased by the local authorities from the private sector. The local authorities are building small numbers. The end product is that house prices have increased significantly and are badly out of line with general inflation, the cost of building and average earnings. I have a diagram on page 2 which shows how new apartment and house prices have changed. Prices are way above what they were at the peak in 2007, which is problematic. Some 30 years ago, a mortgage could be taken out by one person and on that one modest salary one could buy a house. Nowadays, that is out of the question for many young people. Something is radically wrong with this. Working couples with childcare costs struggle with the equivalent of two mortgages.

Supply is critical, but demand is also an issue. It should be obvious from Table 1 that the local authorities are purchasing turnkey homes. This was alluded to by Deputy Darragh O'Brien in the newspaper recently. It is a problem. If the local authorities are purchasing homes, they are in competition with young people, which is a problem. Approved housing bodies and other non-housing bodies are also purchasing homes. There is a problem with young and not so young people having to compete with those who should not be purchasing houses. I know that it has been the practice for many years, but the local authorities and approved housing bodies should really build rather than purchase houses. That is an important point.

The private rented sector is equally problematic. The committee knows all of the problems, including increasing and unaffordable rents, insecurity of tenure and poor standards. In fairness to the Government, the introduction of rent regulation was a very important element in trying to solve the problem. It was much criticised at the time and there was significant lobbying against it by major international companies. I am pleased that at the time the then Minister, Deputy Coveney, and the Government stuck it out and went along with it. Ideally, rent regulation should be extended throughout the country, as opposed to simply having pressure zones, but it was a good initiative, for which I certainly argued strongly a few years ago at the Oireachtas Committee on Housing and Homelessness. The other problem in the private rented sector is that a range of multinational and property developers have purchased and now control a high proportion of the houses and apartments available. They buy in blocks, which is a real problem and I am not quite sure how we should deal with it. I have no doubt that the Government is aware of it, as is the Chairman of this important committee. It certainly requires some action, although I do not know how it would be done.

There are negative consequences related to high house prices and rents which we know are completely out of line with the consumer price index, average earnings and the cost of building. They are bad for the economy, which is a central point. A high proportion of disposable income is tied up in repaying mortgage debt or rents for an extended period and the result is less disposable income to be spent on employment creating activities. There is something radically wrong with a situation where substantial amounts of people's incomes have to be spent on housing. There are very few people here who are older than me, but some young people would not understand that long ago one could quite easily have bought a house with one salary. Some people benefit. Some homeowners think they are sitting on a gold mine and very happy, but I think they are very foolish. They should think of their children and grandchildren.

Apart from the economic reasons to try to keep house prices and rents down, there are reasons of social equity and ethical reasons housing should not be expensive. It should be a home, rather than a commodity. The commodification of housing is a serious problem. Financialisation is a global issue where large finance companies and funds purchase housing which they see as a fantastic, sound asset to purchase, but they are not thinking of young people.

The other problem apart from the private sector is that there has been a dramatic decline in the construction of homes by the local authorities, housing associations and other non-profit organisations, as members saw in the table. I am sorry to say it is not good enough. We have to return to a situation where the Government has a policy of ensuring the local authorities, approved housing bodies and so on will build houses. I remember writing about this issue 15 or 16 years ago. Since 2004 successive Governments have turned to and relied unduly on the private rented sector to provide social housing. The cost is enormous, at more than €900 million. Mr. Mel Reynolds has just given me a figure for 2018 of €934 million spent on a combination of homelessness services, rent supplement, the rental accommodation scheme, the housing assistance payment scheme and so on. I have no doubt that it is well intentioned, but not one single extra long-term home is available as a result of this enormous expenditure. We should think again. It is essential that we reverse the alarming reduction in the provision for public housing. We should also move away from reliance on the private rented sector. I know that it is well intentioned, but it is foolish.

The key point is that the State can compete with the private sector if it becomes involved in a serious way, for example, by building a lot of social housing and cost rental housing. I will not go into detail. That involves building homes for the cost of construction, maintenance and so on. They are let not only to social housing tenants but to a range of tenants who are above the threshold of social housing. Social housing and cost rental can be integrated. The State owns the land and the State can do this. It would save money on the housing assistance payment, HAP, and the rental accommodation scheme, RAS, because rents would be lower for all. Subsidies would be much lower and rents would be lower for those above the threshold. I would argue very strongly for action on the part of the State. In fairness to the Government, it has accepted the idea of cost rental. The Chair will be aware of one fine scheme on the Enniskerry Road under the remit of Dún Laoghaire-Rathdown County Council. Another scheme is under way in Inchicore, also accepted by the Government. There is no doubt that the Government and the Minister are amenable to this. We simply have to move ahead on it rather rapidly.

I have referred to the importance of supply as well as demand. I will not bore the committee with the figures I have provided on land availability. Mr. Reynolds has the same information. A lot of land is available. The land availability survey of 2004 illustrated that very clearly. Various vacant site surveys undertaken by the local authorities and so on clearly show that land is a key element. The Rebuilding Ireland plan and the National Economic and Social Council, NESC, accept that land is a key issue. We must have the land or we cannot do anything. The land is capable of producing enormous amounts of housing. I will not go into the figures again, but 2,600 ha, sufficient for 116,000 homes, are available to the Dublin local authorities alone. That is a lot of houses. They are needed. We need around 30,000 homes per annum, not just 18,000 as was produced last year. There are tremendous possibilities.

I thank the committee members for their patience. It is important to acknowledge that genuine efforts have been made to date. It is no use criticising and saying that nothing has been done. That would be unfair. However, more needs to be done. Urgent action on unused land is required. As such, the purpose of this Bill is to bring forward residential development. It seems to me that land is being hoarded. Houses are being drip-fed onto the market to keep prices high. I feel very much that this Bill has the potential to make a dramatic change. There is great interest on the part of the Government. The Minister of State, Deputy English, already introduced various changes. There seems to be agreement across the political spectrum that this is very important. That is all I want to say at this stage. I will answer any questions the committee may have.

Mr. Mel Reynolds

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.

I thank Mr. Reynolds. Before we begin, I remind members that we are present to scrutinise Deputy Wallace's Bill, and we will stick to that. We are due to discuss the next Private Members' Bill at 11 a.m. and, therefore, we will inform the witnesses for that session that we are running slightly behind time. We will take questions for Deputy Wallace first in case he, too, has questions to ask the witnesses.

I call Deputy Casey.

One of the main objectives of all of us is to deliver affordable housing, and one of the most important factors when trying to do that is how we manage our land, both State and private. I thank Deputy Wallace for introducing the Bill. The vacant site levy has not worked in the way it was intended. There has been a lack of engagement by local authorities to take it seriously, there are issues with how the site selection was carried out, and some local authorities are more proactive than others. There are a great deal of aspects, therefore, that have not clicked or made the levy work in the way it was envisaged. Furthermore, it contained many get-out clauses, as Mr. Reynolds identified. Homing in on a few specific aspects, I have wondered what is causing land prices to continue to escalate. While holding and land banking is a part of that, flipping is another part and it dates back to the planning permission process. Over a period, I have wondered whether we need to reconsider what the final grant of planning permission is.

If I am a developer, it is easy and cost effective to obtain planning permission on zoned lands. A developer will have to invest significant funding to deliver construction drawings before the final grant of planning permission. The Bill defines a “vacant or idle” site as one in respect of which the period of planning permission for a development has exceeded 12 months. By the time a developer has construction drawings made, he or she could easily have exceeded the 12-month limit. While I do not necessarily disagree with it, it could be another cost for the developer which commits him or her to the site, rather than just obtaining and flipping planning permission.

The Bill also provides a definition for a “vacant or idle” site as one in respect of which a commencement notice for a development has been issued and 36 months have elapsed without completion. Developers get into trouble and various matters can slow down work. I appreciate that the Deputy has said he will examine this issue.

Will Deputy Wallace work through the logic of a landowner being able to sell a site to a local authority at 40% of its market price? However, there will be no onus on the landowner to sell it. How will that work out?

The State buying turnkey units and developments is becoming a concern of mine. Last year the Minister for Housing, Planning and Local Government gave a commitment that he would stop interfering in the private market and buying private housing units. He has stopped buying one, two or three units. Instead, however, the State is buying entire developments. It has bought one entire development of 40 houses in Wicklow town. It is buying 75 units in another development of 150 units and 88 units in a development of 100 units in Rathnew. These were all meant to be houses for people who wanted to get onto the housing ladder. Now, the State has interfered in the market and taken these houses away from potential first-time buyers and included them in its housing stock. It comes back to the fundamental principle that the State needs to take control of building its own housing and not depend on the private sector. It is becoming more evident every year that the Government is relying on turnkey developments to meet its targets. It is, however, taking houses out of the private market and actually inflating the cost of housing for first-time buyers.

When I received planning permission, I would not have had the working drawings made because I was afraid I would not receive planning permission because changes would have had to be made. Collaboration in advance of seeking planning permission would be a good way of avoiding this issue, but it is not perfect. With my builder’s hat on, insisting on all of the working drawings being made in advance would place a serious expense on the builder or developer.

Deputy Casey asked if a period of 12 months was enough after a developer received planning permission. In my experience, it was always enough. I was able to have the working drawings made in a maximum period of about three months. After receiving planning permission, I never sat on a site for more than 12 months because I was not a landbanker. I had to buy land from landbankers and paid a lot of money for it. Accordingly, I had a big incentive to build as quick as possible. For example, I bought a site of one fifth of an acre on Dominick Street for €4.8 million. By the time I had designed the site, obtained planning permission and started construction, two years had elapsed. The interest rate was 6.5% which resulted in a total site purchase cost of €6 million. It cost me the same amount to build on the site. I was paying so much money to the banks from the day I had bought the site that I could not get onto it quickly enough to have the work finished quickly enough to stop paying so much money in interest. When I was about three quarters of the way through the work, I was paying €80,000 a month in interest. It is nuts, but there is an incentive to start work. I am confident that developers who genuinely want to build will get onto a site within 12 months. However, if a developer has problems, for example, with working drawings, and cannot get onto a site for 18 months, there will be an appeals mechanism. If the problems are genuine, the developer will be listened to and treated fairly.

On the 36-month provision, it is unusual for it to happen with a development. Building 20 or 100 units can take almost the same length of time. Rather than provide that a development must be completed within 36 months, it should be substantially completed within that period. Again, there will be an appeals mechanism. It will be obvious if a developer is trying to finish the development. If anyone completes half of the work, I can guarantee that he or she will keep going because of the price of money. One would be mad to stop because it would just be too expensive to do so.

On selling a site to the State at 40% or 60% of its market price, we have tied down the definition more finely. For example, Mr. Jones has a site with planning permission to build 100 houses, but he does not feel like building them just yet because he knows that prices are going up, meaning he will make more money if he holds off. We propose imposing a 25% levy on Mr. Jones which will be a serious disincentive to hold onto a site. What if he has difficulties in selling the site on the private market? What if he is in trouble because he owes a lot of money on it and will now have to pay a 25% levy every year? That will put him to the pin of his collar.

What we are doing is like a sop to developers or landholders. We are giving them an out or an opportunity, if it suits them and if it suits the local authority, to sell for 60% of an agreed market value in year one. If they do not take it up and pay the tax in the first year, we are giving them a chance in the second year to sell it at 40% of the agreed value. Obviously, it is far more attractive for them not to pay the 25% in the first year and sell it to the local authority at 60%. Really, this is an opportunity for them to get out without being skint. It gives them an out if they have problems selling the land or cannot get the funding to build it out. Some people cannot get funding to build out projects.

As Mr. Oonan pointed out to me this morning, Dublin City Council has just prepared a report in its problems with the vacant site levy. The report points out that 162 sites were found that could have qualified except that they were smaller than the size stipulated in the legislation. I know that Senator Grace O'Sullivan tried to bring that down when the legislation was being debated. It was originally set at 0.1 ha but I successfully tabled an amendment to change it to 0.05 ha. The council has pointed out that there were 162 sites which were just under 0.05 ha, which is actually 500 sq. feet. There is an argument for bringing it down further to 0.03 ha because one could fit 12 or 13 apartments on sites that are just below 0.05 ha. Obviously, one cannot build on the entire space because that will pose public space challenges and one must adhere to the rules in that regard. However, there is an argument for reducing the site size further. Many of those smaller sites are not owned by big players who do not bother with small sites. The smaller sites are generally owned by smaller entities and they may struggle to get the funding to build on their sites. At the moment it is difficult to get funding to build out sites.

On that point, that is why I have some concern about the 36 month provision. Deputy Wallace is talking about the smaller builders, many of whom cannot get finance to build out an entire development. They are getting funding in a piecemeal fashion so that they build five or ten apartments, pocket that money and then the bank might bankroll the next five or ten apartments. That is why it is becoming attractive for the State to intervene and buy the entire development site and develop it in one go. This is about creating opportunities.

My idea with regard to the planning is to try to prevent speculators who just get planning permission. That is why I was talking about having construction drawings built into the planning application process so at least a commitment to build is being demonstrated. Deputy Wallace referred to developers who want to develop out a site but there are other developers out there who just want to get planning permission, flip sites and then move on. That is why I was talking about a two-stage planning process that includes building drawings. That is all I was talking about there.

If a developer gets planning permission and just wants to flip the site, he or she has a grace period before the levy is payable. If the developer waits for 11 months and then flips the site, does the buyer also get 12 months' grace? Do they keep flipping the site? A good, healthy stamp duty comes into play there. In that context, I paid €500,000 in stamp duty on the Dominick Street site to which I referred earlier. The Government has seriously reduced stamp duty which actually encourages more flipping of sites. I will not go into too much detail now but many of the big players avoided paying stamp duty back in the boom times. A number of different vehicles were used to avoid paying stamp duty and they were legal, unfortunately. That is a different issue.

Does Professor Drudy wish to comment?

Professor P.J. Drudy

I agree with Deputy Casey's argument about the large number of houses being purchased by the local authority in Wicklow. I am astonished at the numbers. It is very worrying.

The local authority is taking those houses away from ordinary people who are trying to buy a home.

Professor P.J. Drudy

Indeed, and a figure of 150 houses is remarkable. The local authority should be building houses. That is the only comment I would make.

Mr. Mel Reynolds

Along the same lines, what really surprised me when preparing for this meeting was the extent of State involvement in the private housing sector. Excluding the help-to-buy scheme, which further increases the number of State subvented units, something like 53% of all privately built houses that are estate homes and apartments built for sale were in some way subvented by the State. They were either funded by the National Asset Management Agency or purchased as turnkey purchases. Between approved housing bodies and local authorities, more than 2,000 privately built houses were purchased from the private sector last year. If we were building 50,000 units per year, that level would be fine but only 13,000 units were built last year. Not only is the cocktail of State policies inflating the private sector market, if one includes the HAP scheme, something like one third of all private sector tenancies are State subvented as well. An enormous amount of State money is going into housing and is inflating the private sector market. The State is competing with private sector buyers. It is very worrying, particularly as we may be heading into a stalled or a downturn period shortly. Any initiatives that are being considered should be looked at through the filter of what happens when new housing supply drops. What happens then?

Senator Grace O'Sullivan is next.

It was shocking to wake up this morning to the news that over 10,000 people are homeless in this State. Everything possible must be done to facilitate the building of more housing. Professor Drudy said that the market is failing us and Mr. Reynolds agrees. On the legislation, local authorities are telling me that the site levy is not working because they do not have the capacity to collect it. While I completely support and welcome Deputy Wallace's legislation and hope it passes through the Houses soon, how can we ensure that the levy will be collected and then ring-fenced in order to boost the supply of housing? We are totally failing at the moment. It is very depressing to sit here, two and half years into the Rebuilding Ireland programme, and see every facet of it failing. Reference was made to student housing but everywhere one looks, the system is failing. I support this legislation but I ask Deputy Wallace what can be done to ensure that the levy, which was increased from a meagre 3% to 7%, will be collected and will have the effect of freeing up land for building.

The Senator's first point on the homeless figures that were published this morning is very relevant. The fact that land is too dear in Ireland leads to expensive housing. Expensive housing leads to evictions as people cannot make their repayments because the initial price was beyond their means. When they are evicted, they become homeless. Rents are too high because property prices are too high. We have not managed the rental sector well. As Professor Drudy said, the introduction of the rent pressure zones and the 4% limit was good but the problem is that we started from a very high base. While we are only allowing a 4% increase, we did not start out at a common sense or affordable level. We started at a point when things had already gone mad. We are only allowing landlords to increase rents by 4% per year above mad levels. The bar was too high to start out with.

The main reason that residential property is too dear is land-banking.

That is the truth. I have made the point on several occasions that 30 km outside the centre of any city on mainland Europe, one will get a three-bedroom house for €160,000, and if one goes 30 km outside Dublin, one will pay double that sum for a three-bedroom house. That is madness. It is built into the land price. Ireland is one of the few countries that does not tax the gain on the land that one is sitting on and its price is going up. It is a free meal for them. As long as we allow that, we will continue to have expensive land. It also will go up and down, which is madness as well. The State should be avoiding situations where things go up and down because it leads to insecurity and to problems. In the case of housing, it leads to homelessness.

On the second point about the vacant site levy, local authorities have made it plain that they have struggled with it. Some of them have no sites on their vacant site levy list for January 2019. Some of them state that they could not handle it because there were too many loopholes in it. Our Bill addresses much of that. We are tightening it up so that it is clearer to the local authority what is and is not a vacant site. It was so clouded and vague that there were more holes in it than in a sieve and it was too easy for site owners. I pointed out two simple examples where it was so easy to argue one's way out of it by stating that a site was not really vacant and one was using it for this or that.

With regard to whether the local authorities have the resources to collect the levy, if they have not, given that it would bring in a great deal of money, how about resourcing the local authorities to be able to do it? If they do not have enough staff to do it, let us give them to the local authorities. It would be a good investment for the Government because it would get buckets of money back if it could get this levy up and running, especially at a proper rate, such as 25%. There is a considerable amount of money to be taken in by the State annually if it taxed land-banking, and the money could be ring-fenced for social housing.

Mr. Mel Reynolds

To drill down into that and put a number on it, in Dublin city centre, which is an area where Dublin City Council is very active, the local authority did its vacant site study in 2015 and knows where all the vacant sites are. There are 298 ha of zoned residential land. The value per hectare is approximately €10 million. That is €3 billion worth of land currently in Dublin city only. If Deputy Wallace's proposal is correct and it brings more land into this, for example, if half of that land was brought under the levy and the levy was raised to 20%, that would be €300 million a year in Dublin City Council alone which could be ring-fenced for affordable housing. On the flip side, the value of loans attached to the State's landbank in local authorities to which Professor Michelle Norris referred are approximately €450 million and the counter-cyclical potential for this measure to deliver affordable housing is very strong. The most compelling aspect about this for me is that this is not merely about beating somebody with a stick. It is about the State pulling back and stating that the market has gone bananas and we should harvest some of it. The State has no capital gains. It has no way to increase revenue. This is a quick and easy way to harvest some of the gain. In some locations in Dublin, site prices have gone up fivefold.

Landowners will not like it. Those involved in land speculation will not like it. As Deputy Wallace stated, developers and builders have nothing to fear here because if they intend on building, this will have a mitigating effect on price rises. If any changes to the vacant site levy are introduced in a consistent and clear way and are telegraphed in advance, the market will not mind that because it will be reflected in land values. Ultimately, what we want is to see the land market calming down.

One could find that the entire loans associated with local authority housing could be extinguished in the first year of operation of this enhanced levy. That would allow local authorities with landbanks and no loans attached to them to pass on those sites to ordinary buyers at the discounts that we are seeing Ó Cualann provide. One of the challenges in the affordable housing model is who pays for the site. If the purchaser pays for the site, it is not affordable and a local authority is left with a hole on its balance sheet, but if the local authority was able to ring-fence the levy for that purpose and pay off the loans, this is a compelling countercyclical measure that would in some way start to unpick what we see going on in the wider housing sector, which was mentioned earlier.

On the collection of the levy, Mr. Oonan has just pointed out to me that the fact that we are removing three of the four appeals will make it much easier to collect. At present, section 18 of the 2015 Act allows the site owner to appeal the demand of payment of the levy, and this is after he or she may already have appealed it. It is nuts. The Bill will make it much easier for the local authorities to collect their levy.

I thank Mr. Oonan and Deputy Wallace for the work on the Bill and Professor Drudy and Mr. Reynolds for their presentation. I apologise but I had to pop out to do a quick radio interview earlier. I have a comment and one question.

There is considerable frustration, and Professor Drudy will share this more than most because he will remember this better than some of the allegedly younger people in the room. Every time we have a housing boom, there is an extensive public debate about the rising cost of land, there is public consternation, there are debates in the Oireachtas, and many sensible proposals are put forward. Then the crisis ebbs and people forget about it. In 1972, we had the report of the committee on the price of land. In the 1980s, we had an Oireachtas committee report on the price of land. In the 1990s, we had an Oireachtas committee on the constitutional provisions on private property rights and it related to land. Each one of those reports made recommendations not dissimilar to some of what we are discussing today. People spend a great deal of time talking about them and then they are just ignored, the cycle then dips and goes again. We must deal with this. This Oireachtas has to deal with the issue of land. As Deputy Wallace will be aware, Sinn Féin is supportive of the Bill and believes it is one of the elements of it.

We do not talk enough about land and why land speculation is driving up house prices. Deputy Wallace correctly states that land hoarding is part of it, but the other big part of it at present is that decisions to change the tax code that were made by Deputy Noonan when he was Minister for Finance have created considerable incentives for new flows of capital into the country to invest in land. Deputy Wallace has done a considerable amount of work on what those flows of money were doing with NAMA and commercial properties, but now that much of the distressed assets from the commercial property crash have been bought and sold, we are seeing that money wash its way into the residential sector. Deputy Wallace's Bill relates directly to the United Nation's special rapporteur's letter to the Government and its critique of financialisation, because the reason that money can now wash into the residential sector and invest in secure long-term land is because they pay no tax on their capital gains or on their rent roll, if and when they build. If they are structured in certain ways, they do not even pay dividend withholding tax to their shareholders if they are non-resident overseas investors. We have billions of euro entering the residential property market that are completely untaxed. In the best-case scenario, they are hit with a 20% dividend withholding tax, but they still pay no tax on capital gains or on their rent roll. The idea that one comes in, buys, builds, rents and then sells and the Exchequer gets nothing should be a cause for alarm. Of course, what else would this money do but invest in land and drive up the prices. That is why Deputy Wallace is correct. The levy must be punitive because that is what we are talking about in the first instance. That is why we are right to support the Bill.

Like all of the other Bills from the Opposition, bar one or two, that we have passed in this committee, the money message will be the killer. Deputy Wallace stated that his correspondence from the Ceann Comhairle stated that it was the final section of the Bill that was the one that they felt required the money message. It would be great if the Deputy would share that correspondence with the committee for our own deliberations. I wonder if there is a mechanism. If that section was not in the Bill, does Deputy Wallace as its author think the Bill would still have much of the value? Is there another mechanism for us as a committee were we to decide in private session to communicate to the Ceann Comhairle that to proceed to Committee Stage, we would lose that part of the Bill that requires a money message? The Ceann Comhairle might say that is not in accordance with procedure. I am trying to find a way around the money message obstacle but I do not want to propose something in private session that creates a difficulty for the Bill and Deputy Wallace as its author. I would like the Deputy's view on that.

Removing that does not create any difficulty for the Bill. The reason we came up with this idea was that it would be more attractive to the Government, which does not want to put people who own land in a possible financial difficulty. It was actually a sweetener. Removing it from the Bill is not a problem for us because the intention of the Bill is not just to get people to build on land, it is to disincentivise land banking, which is the source of our expensive housing. The supply of housing in Ireland has traditionally been dysfunctional. It is not done in an even or fair fashion and we end up with mad up-down cycles. Most of the time, housing in Ireland is way too expensive. Removing the provision would not be a problem for us but I would have thought the Government would like it included. We will share the money message that will be got.

My desire is not to take it out but if it is a choice between not taking it out and having the Bill blocked because of a money message, it is something we can explore. This is not just about the cost of private housing for purchase. We now have postcodes in Dublin where even at the discount price for Part V, the local authorities cannot purchase units because they breach the €400,000 cap. We had a crazy situation a year and a half ago in Dalkey, which Deputy Boyd Barrett will remember, when the land component of Part V units was €90,000. The State was paying €90,000 just for the land component of those apartments. We also have an issue in the docks. I do not know what price was offered to the local authority but it was excess of €400,000, which is why Dublin City Council could not make the purchase. Brendan Kenny has said if this trend continues, whole swathes of the urban city centre will not be able to access Part V, which will mean we will not get the social mix that is meant to be part of Government policy. I urge members when we come to deciding in private session how we proceed that even if people think the rate of the levy is too high, we can tease out these issues if we can get to formal Committee Stage. Any move in the right direction would be welcome. We will do everything we can to support the Bill and get it through. Not unlike the Solidarity anti-eviction Bill, there is no point in speaking about these issues here if we are stymied by the money message. If we can find a way around that, it would be very helpful.

A point that needs to be made is that it is not all about the private sector. The truth is we cannot make the private sector build, and rightly so. It should not be compelled. People in the private sector will build when they feel like it. This is why there is a responsibility on the State to provide housing. We cannot depend on an entity such as the private construction sector to supply us with housing when in actual fact it is unfair of us to even try to compel it to build. People will build when they like, as they have always done, and that is fair enough. That is the private sector. It emphasises that if we want to control the housing crisis and the supply of housing, the State has to be prepared to supply more of it. If we want private sector housing to be cheaper, we must stop people banking land.

Well done to Deputy Wallace. I completely support the Bill and its objectives. I also agree with him wholeheartedly that speculation and land hoarding is a major, if not the main, contributory factor to the current housing crisis and the excessive cost of housing. The point made by Deputy Ó Broin is also very important. It is a point that is not highlighted enough, although we have done so periodically. The tax breaks available are extraordinary. When we ask the Minister for Finance to cost them and tell us how much is forgone under those tax loopholes on capital gains and rental income allowed for, he cannot even tell us, which is shocking. Given the increase in property prices since those tax breaks were put in place, it has to be in the tens of billions of euro, certainly in the billions. People have no incentive to build.

My next question is for all of the witnesses, given that I agree with every word they have said and the purpose of the Bill. Do most of the people who bought up this land have any interest in building anything at present? Mr. Reynolds has said, which is very worrying and alarming when we consider the state we are in, that we are now at the top of the cycle. Perhaps he will elaborate on this point. If we are at the top of the cycle and output is pathetically low because it is more profitable for people to sit on land or flip it, we will be in deep trouble in the event that output reduces. I support the 25% punitive rate but if people do not want to build now and this rate is imposed on them, they will not build either. Is it not most likely that they will just get out of the market? That would not be a bad thing if they had to sell it back to the local authorities under section 12. Is it very likely they will state they have made their money and decide to walk and sell back the land? Even then the local authorities would have to buy it back at 60% or 40% of current value and that would still mean the State picking up a significant Bill and the people involved walking away with large profits. Will the witnesses tease this out?

I will let in Mr. Reynolds to deal with some of the-----

I have one more question on something that occurs to me. Given land prices and values in the private sector, if some people were to build, would they not almost have to build unaffordable units that are useless to the vast majority of people affected by the housing crisis? Given the economics the witnesses have described, the only viable units the private sector could build, if it decided to do so, would be ones that nobody could afford.

Deputy Boyd Barrett has made two main points. He states if we apply a 25% levy, people will state they have made enough money out of the land and will flip it. Somebody will hold it and somebody will pay 25%. On the point that people will take the 60% offer we have included in the Bill and that provided the purchaser and local authority can agree they can do a deal, I can tell Deputy Boyd Barrett that, more often than not, if people have access to the finance, it will still make more sense for them or somebody to develop the land rather than to allow the local authority to take it for 60% of its value. I guarantee there would be more money in it if they have access to the finance. Some people do not have access to the finance but others do. People with access to the money will build rather than see the land go back to the State for 60% of its value.

On the Deputy's second point-----

It is connected to that point. If people decide to build-----

My defence on this is that I would argue the vast majority of the land we are speaking about that is banked was not bought at today's market values. For example, Hines is sitting on units in Cherrywood that are valued at more than €120,000 but it paid only €27,000 for them. The Deputy has stated people can only build unaffordable homes on those sites because they cost so much.

They did not cost a mad amount and the majority of land banked was not bought at the high prices. In 2007 there were 27 entities which, or people who, owned 95% of the banked development land in county Dublin. The only people who were actually caught in the situation, such as the one described by Deputy where it is so hard to provide affordable housing, were the builders who bought it from them. I was one of them and I have spoken previously about the site in Dominick Street for which I paid €4.8 million. The interest on the money cost me €1.2 million, which put me at €6 million, and it cost me €6 million to build. Half of the costs for such developments were land and interest costs and only half was for construction costs. I was caught in a situation where I had to get a minimum of €400,000 per unit to get my money back.

The guy who was banking the land and from whom I bought it, however, got it for a fraction of what I paid him. The likes of Hines, Cairn and so on have become the new land bankers. The REIT boys bought cheap-----

I remind Deputies to be careful of mentioning people from outside the Houses.

Okay. There are a couple of fellows I really wanted to throw under the bus but I have refrained.

To be clear, they could be men or women.

There are a lot more women in construction now.

Deputy Wallace would not throw any woman under the bus.

Right. Perhaps Mr. Reynolds will expand on it.

Just before he does, that is the point I am getting at, namely, units at €400,000. When I met the Hines guys - sorry mentioned them aloud - they said it was going to cost them €400,000 to build the apartments. I asked myself what was the point in that. Some would ask, and perhaps Mr. Reynolds could elaborate on this, whether the developers have any interest in building anything.

Mr. Mel Reynolds

I cannot speak for anyone active in the market. All I can do is see what is in front of me. With regard to the build costs, it is useful to look at the Ó Cualann housing project. It has sales prices. It is building apartments and houses on a site in county Dublin. If it gets a site, for example, at €1,000 per unit - its infrastructure cost is a little bit high at about €4 million - it can build, make a profit and sell a two bedroom apartment for approximately €185,000. It can build and sell a three bedroom house at €219,000, including VAT. With regard to the State, the value of the site in Ballymun is €18,000 but Dublin City Council is giving it to the end user for €1,000. Each three bedroom house, however, is charging €26,000 in VAT that goes to the Exchequer. The units are pretty much cost neutral.

Depending on what way the land market goes with regard to site values, if this was brought in and had an adverse effect on site values then it is good because instead of a builder buying a site at €200,000 per unit and having to sell the house at €600,000, the builder might be able to buy a site at €50,000 per unit and sell at €450,000 or lower. Once there is a margin for a builder to do it, he will do it. He can buy and sell for €400,000, €600,000 or €250,000 once there is a margin there. It is all about the land value. Land values in Dublin city currently are about €10 million per hectare based on an average density of 90 units per hectare. It is about 110 or 120 units. Dublin City Council values its land at about 80 units per hectare. If Dublin City Council was to build out at cost and sell to try to claim back its full land value, it would not be in a position to sell at affordable rates. The land subsidy is critical to any affordable or rental scheme. One just cannot do it at the current market rates.

With regard to profits, if a person entered the market in 2012 or 2013 he or she would pay no capital gains tax and would have seen a 400% or 500% increase in the land asset. If that person gets a hit at the back end, or a slap on the bum on the way out, with a 20% levy he or she will not like it but is still way ahead of the posse. The next person coming in may be looking at buying the site significantly cheaper. It is swings and roundabouts, but at the end of the day, one really needs to see land values reduced to a point where they make some sort of sense. The worrying aspect from the private sector perspective currently, and valuers are telling me, that the standard way of valuing which is the red book value of a sales price and a residual land value is no longer relevant in many locations. This suggests that the market value is way over where it should be.

May I ask one brief supplementary question because I am nearly out of time?

I have a question for Professor Drudy and one last question to Mr. Reynolds and to Deputy Wallace.

That is three questions. Deputy Boyd Barrett said one question.

It is two, but they are both the same question. On the need for cost rental council housing, with which we all agree, what is Professor Drudy's view on the issue of income thresholds for council housing? Many of us have argued that the thresholds need to be raised. Should there be any thresholds? It drives one group into being social housing people and others are above that.

All witnesses have identified the slowness in the public provision of council housing and affordable housing. Professor Drudy said that while they are amenable and they are doing some stuff, it is very slow and less than is needed. Do Deputy Wallace and Mr. Reynolds believe, as I do, that there is a connection between their slowness and an anxiety that if they were to build large amounts of council and affordable housing, available for significantly less than market prices, it would impact on the profitability of the private sector, and that they are worried about this? If the council built affordable housing on the lands at Shanganagh Castle for €200,000 and the private developer down the road was to sell the more or less the same sort of house for €300,000 or €400,000, then there is a big problem for the private developer if the council is putting up affordable housing on a large scale. I believe the council should do that, but is this the reason the council is not doing it on such a scale?

Before the witness comes in, I want to clarify that provisions on the income thresholds for affordable housing are not included in the Bill.

Professor P.J. Drudy

I would certainly be in agreement with the State building very cheap housing - if one can call it that - to be in competition with the private sector. That is the whole point - the State should be in competition in order to bring down the prices and to bring down rents. If people can purchase a cost rental home, or if they are in a local authority home, if sufficient homes are provided by the State, then the private sector would have to knuckle down and build at reasonable prices. I have no doubt it would still make profits. That is the answer really. The State has to be seriously involved. It is no use building 4,500. I do not believe the State even built 4,500 last year because much of that was built by the private sector. It is simply insufficient. The State probably needs to build nearly 10,000 homes per annum. There could be a combination of cost rental and social housing. That should be integrated anyway and I would call it "community housing". As the Deputy said, there is a stigma associated with social housing but people are really all in the same boat - the garda, the teacher, the nurse and perhaps even the Dáil Deputy could be on the cost rental home where the rent may be €1,000 or €1,300 per month compared to the current ask of €1,600 to €2,000 per month. Then one is in competition with private rentals sector also. With such competition, the State is playing the market game. While the State should not play the market game really competition is what it is all about. The State has to be seriously involved. Then I believe the problem will be solved. Prices and rents would be reduced.

In reply to Deputy Boyd Barrett's question, we are not looking at others. There is a reason why most of Europe does not have our housing problems. Most of Europe does not have such a dysfunctional manner of supplying housing and we should look at those countries more closely to see what they are at.

Land prices will drop dramatically if this legislation is passed. I guarantee they will immediately drop by more than half. That would be a start. Nothing is fixed overnight but it would be the start of things being done better.

No one is building apartments in this town at the moment because the land is too dear to buy. We were talking about this earlier. A developer could not pay more than €35,000 or €30,000 per unit building apartments today and still get his money back or make money. The construction of apartments is more expensive than housing for several reasons, mostly to do with civil engineering. What is happening in the city at the moment is that student accommodation is three times the price for the land, if not more, compared with the price for a developer who wants to build apartments. That is why no apartments are being built.

I want to know why the city council does not take the view that the land is there but that it wants apartments to be built instead of student housing, hostels or hotels. That would determine the price of it. On the other hand, if the city council continues with the view that it will sell land to the highest bidder, then we are simply going to get more student accommodation, which is too expensive for the majority of people in Ireland to avail of. Of course there is the issue of affordability, as Professor Drudy has highlighted. It is common sense. If the State is going to help with the provision of affordable housing, then of course it will bring the price down for someone who is trying to build the same housing close by.

Does Mr. Reynolds wish to come in on that point?

Mr. Mel Reynolds

This is relevant to the policy since 2012. Most of the housing policies that have come in have inflated the value of either newly built housing or land for different reasons. On the one hand they have a positive effect in terms of negative equity. The return for NAMA will improve. Land values will increase to a point where building is feasible. However, I do not think anyone has carried out a stress test or risk assessment to see what happens when it is successful or to decide at what point we stop. The position now is that it has overshot. When a car is going up a hill, the driver needs to accelerate. That is fine, but at a certain point he needs someone beside him to tell him that he is at the top of the hill or that he is going down the hill and a corner is coming up. No one has checked the policy the way that a driver would check when driving a car to see whether we are at that point, whether we are okay or whether we are over it. Now we have a situation whereby land values are high. The difficulty is that if we overpay for land today, we have to wait for prices to reach a certain point. Effectively, it amounts to sterilisation. If prices continue to rise or even stabilise at current rates, effectively we are sterilising large areas of land from development. This is because there is a major gap between what a developer pays for it and what he can sell it for. No one is going to build at a loss.

This is a painful measure and I believe it is well judged. It is an intriguing countercyclical measure in terms of policy for the reasons mentioned. Certainly, the provision of affordable housing is challenging. It is a deceptively simple model. We can say that the market will cool down and refer to the prices. However, it leaves a hole in the balance sheets of local authorities that needs to be addressed. That is the first challenge. It is probably more of a systemic threat, which is what the question raised earlier was about. Affordable housing by a private developer is probably more dangerous to another private developer than social housing because of the unconscious bias everyone has towards social or council housing. If a person can purchase a social house built by a private developer in Shanganagh for €250,000, why would he spend €450,000 buying effectively the same thing two doors down? There are challenges in the model. If we want to try to stop the car hitting the corner at 120 km/h, we need to put on the brakes. This is a brake. If the driver does not have his seat belt on, he will be in trouble. That is the first thing. Then the driver needs to turn the corner and start doing stuff with the local authorities.

I want to clarify one point. Deputy Wallace referred to the point in general. Almost 1,200 apartments are being built in Cherrywood at the moment. I fully agree with him that it is more expensive and more complex to deliver apartments.

There are no more Cherrywoods in this town.

Not a brick is being laid in this town.

Deputy Wallace was referring to Dublin.

He said "in this town". Not a brick is being laid.

Check the record. I said "in this town".

I was pleased to hear Shanganagh mentioned so many times. A proposal for Shanganagh is on the table. It went to councillors on Tuesday night. My father and I have been involved with it for two years. It will be one third cost rental. We are up to approximately 340 cost rental units. That is where we can deliver on State lands.

I have one final question for Deputy Wallace. How much time elapsed from purchasing the site in Dominick Street to turnkey status?

From the day we bought it to the time we were digging the ground, it was close to two years, as always. Then it took approximately two years to build.

We need to emphasise this point. We cannot build houses as quickly as people think.

It is much quicker to get started on housing than apartments. Housing is very much like Lego. It is far simpler. Apartments present more of a civil engineering challenge than housing. A builder can buy a site for housing, get it designed, get permission and start it in a little over a year or 15 months. Perhaps Mr. Reynolds would disagree.

Then we need to allow nine months to build.

The Chairman made a point about the Cherrywood apartments. I said there are no builders building in the town at the moment. Let us suppose a builder looks at a site in Dublin city today. The major problem is that whoever owns it wants a given amount of money for it. Much of the Cherrywood land we talked about earlier was bought for peanuts from NAMA at an early stage.

It still required major investment though.

Yes, but if I could buy for €27,000 per unit, I could happily build all the apartments anyone wants.

I was simply making the point that apartments are being built in Dublin. That is all I was saying. I am supportive generally of the Bill.

I thank all the witnesses for attending today. We have gone well over time. I apologise for that and to those involved in our next session. With the permission of members we will extend the next session to 1 p.m. Is that agreed? Agreed. Again, I thank the witnesses for their attendance and we will be in touch.

Sitting suspended at 11.45 a.m. and resumed at 11.50 a.m.