I thank the committee for the opportunity to attend this session as part of scrutiny of the Land Development Agency Bill. I will outline the policy context, then expand on specific objectives of the Bill and whether they are met. There is little detail in the heads of Bill and some of my commentary is based on statements made in this House, in the media and at public events.
The fundamental issues are housing affordability, sustainable growth and a resilient construction industry. All are critical to competitiveness and economic stability. Missteps come at high environmental, social and economic costs. All three are areas of significant past failures where Government policy calls for reform.
In 2016, the National Competitiveness Council pointed out that a well-functioning housing and construction sector is critical to the overall health of society and the economy. It warned: "The current escalation in residential property costs represents perhaps the greatest threat to Ireland’s competitiveness."
Since then the median price of a new-build home nationally has increased from under €250,000 to €355,000, or by 44%. The prohibitive cost of housing is a barrier to urban growth, which is a priority of Project Ireland 2040. Furthermore, if our cities are not affordable to families, the direct result is sprawl, which undermines the climate action plan, reduces productivity and limits opportunities for employment and education.
Last year, the National Economic and Social Council, NESC, identified land management as key but, more critically, the council pointed out that it is not only about land; it is about fixing Ireland's broken system. Land is one lever for change, but the housing system is broken.
Last week, the Economic and Social Research Institute, ESRI, informed the committee that rising house prices can be explained by disposable income, demographics, jobs being created and the cost of finance. However, unaffordable prices are also a factor of limited capacity, little competition and high barriers to entering the sector.
Housing supply tied to a speculative market in a boom-bust cycle results in overpriced housing and uncertain supply. Solving this problem requires specific action to support capacity building in the sector, to open markets to competition, to raise standards, and to support employment and training.
In this context, the LDA proposal raises a number of specific issues. On its remit, the proposed powers are wide ranging and removed from direct Government controls. It is unclear whether the LDA is bound by current and future Government policy.
On governance, commercial property development and construction involve large sums over long periods, which expose the State to significant financial and political risks. It is critical to have high levels of specific expertise, robust governance, transparency, external oversight and means of intervention.
Freedom of information is essential for ensuring public confidence, transparency and accountability. Given that lobbying legislation has specific provisions for planning because of the risks of corruption and the significant sums in land transactions and development contracts, the activities of all personnel of the LDA should be included in the statutory lobbying register.
The Bill proposes a new land registry. Setting up this land registry in another State agency with relevant expertise on a statutory basis would reduce administration, mitigate the potential for conflict of interests, and ensure alignment with best practice.
On spatial planning, the Bill includes lands in urban centres with a population in excess of 10,000. This extends to 41 towns in regional centres such as Cavan, Tullamore and Killarney, and in commuter belts such as Ashbourne, Greystones, Cobh and Skerries. Twenty seven of these 41 towns are in Leinster, with nine in Munster, three in Connacht and three in the three Ulster counties. This arbitrary classification has implications for transport, infrastructure and regional development.
I will elaborate on a number of issues, specifically those not mentioned by other witnesses. On construction reform, the Construction 2020 plan reflects on the "speculative greed, short-term thinking, poor planning and low standards" of the boom that resulted in "unmanageable mortgages, debt overhang, negative equity ... and sub-standard apartments". It recognises the "need to develop an overall strategic approach to housing supply".
This proposal for 150,000 homes is a planned investment of more than €50 billion in the construction industry. It has the potential to be transformative. However, indications are that there is no strategy for construction, other than to outsource development to large entities, as a means to lever social and discounted housing in a package of 60%, 30% and 10%.
An approach that outsources control of price, delivery speed, housing mix, quality and profit margin is high risk and it comes at a premium, as has been seen in other capital projects. Large entities that control local markets can also lead to high prices, low quality, and suboptimal conditions for construction subcontractors and suppliers.
In the current conditions, it is not sites that are unviable; traditional speculative development is unviable. This is what is broken, and it is potentially the Achilles heel of the LDA proposition because the objective of optimal use on a commercial basis for individual sites is the business of traditional speculative development.
It seeks to extract the maximum value from land through high market prices and minimal standards and is very vulnerable to market fluctuations. This is unlikely to lever reform or bring stability in output and price. Relying on speculative markets for delivery is also very uncertain. The Rebuilding Ireland target of 125,000 new homes in five years lacked the levers to ensure delivery and in the first three years only 47,000 new homes have been built, which is 38% of the target.
With regard to construction costs, where land is available and actual construction is derisked from speculative markets and high cost finance, it is affordable. This is confirmed by the figures of the Department of Housing, Planning and Local Government for competitively tendered social housing. In most urban centres production costs of €220,000 are achievable.
Solutions to the supply and affordability challenge lie in design, procurement and finance. I do not intend to comment on the issue of finance other than to say evidently €1.25 billion will not build 150,000 homes; it will build fewer than 5,000. However, housing, unlike other capital projects, can be built incrementally and seed funding rolled over by phasing and strategic procurement. State-led master planning and infrastructure can de-risk development, mitigate delays and reduce costs and finance for SME developers. Unbundling, which means making small lots for SME design teams and builders, can open new markets, raise standards, drive innovation and create more competition. Public contracts in small lots for SME builders can allow them to recapitalise, re-equip and undertake other private developments, which builds capacity in the sector. Mass procurement of building components, standardising details and investment in research can lead to efficiencies, productivity and skills. Affordable housing is defined in the Planning and Development Act. It is based on production costs, not on a discount on market value. These are more resilient and recession proofed strategies that accord with best practice in procurement, value for money and faster delivery. These market reforms and efficiencies have the potential to deliver truly affordability housing without State subsidies or reduced quality. The Land Development Agency's proposition does not respond to this opportunity. In fact, the recent redefinition of affordable housing as a discount, or subsidy, on market prices is regressive because it will profit developers, rather than improve access to housing for those on middle incomes, or incentivise efficiency in the sector.
At the rate at which we are building homes, every new home needs to be future-proofed for 100 years. Only 1% of housing stock is being replaced annually. A short term objective of commercial returns is wholly inappropriate in assessing the long-term social, environmental and economic needs and life cycle costs of new housing communities and their infrastructure needs. A €50 billion investment in housing has the potential to lever many other policy objectives, including reform of the construction sector, climate adaptation, architecture and placemaking, training and skills, infrastructure, transportation and spatial planning. However, a requirement to obtain a financial return for the State, as required by the LDA, is not compatible with affordability.
What is important is the long-term viability of cities, not the short-term opportunity of sites. Every euro of value extracted from public lands is not free; it is debt for future households. Every plot given away is a lost opportunity to provide for permanent affordability. Every deal that stalls due to unforeseeable market fluctuations is a family without housing. Ireland has the advantage of having a lot of land in public ownership ,but as the National Economic and Social Council stated, affordability should be an explicit objective. Supply of housing is not in itself a reliable or sustainable means of making housing affordable. Ireland must re-engineer affordability into the supply of housing.