Joint Committee on Environment, Culture and the Gaeltacht díospóireacht -
Tuesday, 23 Sep 2014

Commercial and Domestic Property Supply and Demand: Property Industry Ireland

Chairman

As we are in public session we shall consider the topic of commercial and domestic property - supply and demand, with representatives of Property Industry Ireland.

I welcome the following witnesses: Dr. Peter Stafford, director, Mr. Aidan O'Hogan, chair, Mr. Tom Phillips, chair of the planning and regulation committee and Ms Marian Finnegan, member of the market supply and demand committee. I thank everyone for their attendance.

I draw attention 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 joint committee. However, if they are directed by it to cease giving evidence on a particular matter and continue to do so, they are entitled thereafter only to 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 asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person or an entity by name or in such a way as to make him, her or it identifiable. I also wish to advise the witnesses that the opening statement and any other material supplied to the committee may be published on the committee's website after the conclusion of the meeting.

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 Houses or an official, either by name or in such a way as to make him, her or it identifiable.

I call on Dr. Peter Stafford, Property Industry Ireland, to make his presentation.

Dr. Peter Stafford

I thank the Chairman, Deputies and Senators for the opportunity to brief the committee on some of the supply and demand issues facing the Irish residential and commercial property sector.

My name is Peter Stafford and I am accompanied by some of PII's committee members. We have submitted to the committee, in advance, a briefing note on the state of the sector. I hope it gives an overview of some of the issues that we would like to talk about today.

By way of background, Property Industry Ireland works as a not-for-profit think tank to co-ordinate discussions among businesses which have an interest in the property market. Our member firms who lead our policy-development process cover the entire spectrum of interests and range from banks and financial institutions and asset managers to contractors, developers and builders, and property professional service providers such as architects, surveyors, engineers and planners.

Let me turn to the residential sector first. The period 2002-17 falls into two distinct eras. During the first era, which ended in 2007, we often built the wrong properties in the wrong locations at the wrong time and we are all living with the consequence of those errors. Those consequences are negative equity, ghost estates and a collapse in new building activity. The recent rise in house prices and rents in some parts of the country are a direct result of complexities in the supply chain which often makes it difficult for the market to switch back on supply to meet a recovery in demand.

The second era - up to 2017 - begins now. It is PII's belief that we need to make sure that we only build the right houses in the right place and ahead of the right time. A clear vision for success for the property sector will ensure that the errors of the past are rectified and sustainability and high standards are met. We believe we need a data-driven, evidence-based property sector so that supply and demand mismatches are identified, understood and rectified. Recent increased building standards should now be coupled with a reformed planning process so that viable and sustainable new projects are supported through the planning system and into construction and will drive employment in the sector.

Improving supply to the market will calm the market and will provide security to those who own houses and confidence to those who wish to own houses. It is the easiest way of controlling rents. Development of new houses, however, will not happen while the cost of construction and development is higher than the market price of the house. That is why, despite the growth in prices in some areas, there are still no cranes on the skyline. Two options are open to us: we can allow prices to rise or we can tackle the non-construction cost of development. VAT at 13.5%, the windfall tax on profits from rezoned land at 80%, and high local development charges all add to the cost of development and mean that in many parts of Ireland, commencing new buildings, despite any increased demand, is not yet viable. My colleague Mr. Phillips will talk about the recommendations of Property Industry Ireland for planning reform.

Since the crash, the volume of new commercial property across Ireland has dried up for many of the same reasons as in the residential sector. High costs of development and low rents, as well as an absence of bank financing, has meant little viability for new development. Vacancy rates in the commercial property sector are falling, and as employment - especially office-based employment - grows, demand for commercial property space is increasing, driving rents and lowering vacancies. Ireland has struggled in recent years to regain its international competitiveness. We attract some of the biggest and best firms to locate and invest in Ireland and we know the reason behind the attraction, but we must be careful that once we set up a tax base and invest in an education system to attract the firms, we have places in which they can work and in which their workers can live. If we cannot accommodate firms and house their employees in the locations they demand, they will simply relocate - not necessarily to a different area of Ireland, but to another country where there is space.

In our cities, including Cork, Galway and Limerick, the priority must be to support the building of offices in city centres. The infrastructure is in place and it is where the bulk of demand lies. Increasing employment in city centres will have the most immediate knock-on impact on supporting other businesses, especially in the retail sector. Four issues will drive the ability of the industry to supply new commercial property to the sector: first, access to domestic sources of finance and bank lending to support construction activity and the availability of equity financing; second, the capacity within the construction supply chain to build out large office and commercial property developments; third, the future direction of NAMA and the speed and nature of decisions on access to finance and sales by NAMA; and fourth, the speed of bringing new developments through the planning and appeals process, especially in the strategic development zones, where the bulk of development will take place in the short term.

Property Industry Ireland believes the property sector can help to underpin Ireland's economic recovery without a fear of repeating past mistakes so that all micro-sectors can function together in a wider sustainable sector. The forthcoming planning Bills, the next budget and the budgets after that will provide an opportunity to ensure we have a property sector that is well resourced and informed, working to support an economy that is sustainable and fair, and serving a society that is housed in the highest-quality built environment.

Chairman

Dr. Stafford can invite his colleagues to contribute to the discussion as it develops.

Deputy Catherine Murphy

I read the document that outlines some of the issues. I do not disagree with some of what was said. We most definitely have a serious problem with supply, which is driving up rents and making us unattractive. This week there was a news item in which some industries said they would have difficulty in attracting people in the absence of appropriate accommodation at a reasonable price. How to deal with this is the issue. I accept that there must be a return for building, but sometimes I wonder. I have examined the matter of development levies over the years. I am based in Kildare, which had quite high development contributions. We did that because it was the only available means of delivering infrastructure that would permit the development to take place.

A 50% or 75% local contribution was required towards national capital investment. However, it seemed quite obvious that the development contribution was almost factored into the cost of the building land rather than the cost of building the houses. The price of building land went down when the development levy went up, and the houses were then priced at what the market could bear. It may well be the case for people who have bought land that it is not good for it to be factored into the process because the land is already purchased. However, in the case of future land purchases the development contributions will have an impact on the cost. I am keen to hear what the witnesses have to say about the price of building land.

Let us consider all of these things in terms of reductions. I believe there will be changes to the development contributions on foot of the establishment of Irish Water. We have had a discussion about that in any case. There will be needs where there are new developments, but they cannot be funded out of the property tax because the property tax is only a replacement for what was the Local Government Fund. In fact, it is pitched at 2013 levels, which is an unsustainable level because, for example, the amount of money that has been allocated for regional and local roads is one third of what it was in 2008. That can only go on for so long before we start ruining our infrastructure. This is one element that I am keen for the witnesses to address.

The other issue relates to the planning system. I had a planning Bill debated in the Dáil and then it came before this committee. I met the officials in the Department of the Environment, Community and Local Government. Some elements of that Bill will be included in the legislation due to come before us soon. The Bill sought to rebalance the legislation from a consumer perspective. I maintain that the construction industry, particularly house-building, is divided into three parts. There are people who are very good. They go in, build it out and finish it off, they are proud of what they do and we never hear another word from them. The second group have to be cajoled into finishing work in compliance with planning permission. The third group is made up of those who should not be building at all. Essentially, the consumer is a big problem in all of this. I am keen to hear the view of the witnesses on the matter. Let us suppose someone buys a house in a housing estate but the developer does not finish it and goes off to build in other areas. That reflects badly on the industry. It breaks down trust if such people seek further planning permission. This side of the sector must be examined from the industry point of view, because a trail of destruction has been left in some locations. It is not simply about building; it is a question of building in the right locations with the right number and size of units. Furthermore, we need to consider other infrastructure that should go with this building naturally, such as transport and land use. All of these should be planned together. The industry should examine not only the efficiency of getting planning permission but also how problems that have emerged in the sector can be overcome in terms of initiatives that can be included in the planning legislation.

Mr. Aidan O'Hogan

I will address the question of building land. Deputy Murphy is correct in that future land purchases will reflect the levies as they are. Our focus in the short term has been on facilitating the delivery of supply to address the shortage, the supply that is currently needed and identification of the constraints in that scenario. In most of these cases the land is already held, some of it by NAMA and some of it by various other bodies. We are looking at what could be varied to improve the feasibility to allow these matters to go ahead. Obviously levies are only part of the equation that we have identified, but it is a big issue at present and it is a serious impediment.

The adjustment of levies may have to be just a temporary measure that allows matters to progress at a later stage and, ultimately, land prices will reflect what they are.

Tom Phillips will talk about the planning issues that were raised.

Mr. Tom Phillips

On the issue of financial contributions, I agree it is something that was going to happen in the future. At present, however, there are 31 planning authorities and 31 different types of levy. In Donegal, for example, it is €2,600 per unit, while in Wicklow it is €16,800 per residential unit, so there is a big disparity between local authorities. The development levy is only one part of the equation. Peter Stafford spoke about the windfall tax, which is a big issue. It was introduced in 2009 and it appears from our research that no money has been paid under that tax. We are seeking to have that reduced from 80% to 33%, because it is a big disincentive. It does not just apply to the zoning of land but also to the sideways zoning of lands, where there is a material contravention of a development plan. Everybody might agree that it is a good thing to do, but because it is technically a material contravention of a plan, an 80% tax is applied.

Then there are situations where there are special levies. For example, the metro in Dublin adds a levy to certain developments. The metro is on hold, but the levy is still in place. The levy is there for a 30-year period. If the money has not been spent in 30 years, it can be refunded to the developer. I can think of no other levy that has a 30-year life span. There is another special levy in Kilternan. To build an apartment in Kilternan, one pays a levy of €11,000 per residential unit and then a special levy of over €40,000. It works out at €55,000 per unit in levies. That is apart from a potential windfall tax, Part V social housing and other costs. There are many costs. That is the situation for people who have land at present. It is a tricky point.

Chairman

The Minister for the Environment, Community and Local Government made a comment recently about social housing. There appears to be a housing crisis, although it might have different manifestations at some levels. There is a huge demand for residential houses in Dublin, but not enough supply. Students are suffering and families are being made homeless. There are obviously issues with access to finance and so forth, but there was a statement from the Minister last week with regard to something similar to Part V or a reincarnation of that, with perhaps 10% on this occasion. If there was a national policy in respect of future development to retain some of the units for social housing, how would you fit that in? I know it is akin to asking how long is a piece of string, but in your informed view, would you consider that a realistic policy objective?

Ms Marian Finnegan

The challenge is to look at the total quantum that is required. Some of it will be social housing, some will be student accommodation and some will be private housing. The challenge we face at present is the complete dysfunctionality of both markets - on the new housing construction side, which we have discussed in terms of development, and on the second-hand side, which is dysfunctional because of a hangover from the recession whereby people are tied because of negative equity, bridging finance or tracker mortgages, so they are not bringing their properties to the marketplace. The entire market has ceased to exist correctly. As a result, there is an abnormally low quantity of product being put on the market for sale and, equally, an abnormally low quantity is being developed. The solution for the future is obviously to increase the total quantum, and social housing clearly forms part of that. A significant proportion in the regional centres being devoted to social housing is critical, but we must get the package right to make it viable. Just as it is not viable to build apartments in most, if not all, of the country at present, it is equally still not financially viable to develop social housing in the current structure. It will require a capital injection. That will be a challenge. It is certainly one area that must be addressed.

Chairman

You referred to domestic finance. What is your experience with the domestic banks in terms of meeting requirements for finance? It is an important part of the process.

Ms Marian Finnegan

What has evolved over the last couple of years is that while cash is still a very significant part of the marketplace, it is almost by choice. Of the transactions that took place in the first six months of the year in Ireland, 51% were with cash and the rest were with finance. That still appears to be absolutely abnormal, but the cash transactions are being driven by investors buying with cash, because the banking finance that is available is not attractive. People who sold in the last number of years, because the market fell by 50% or 60%, have come back in with cash and they are reinvesting in the marketplace. There is bank lending. There is no doubt that the banks are willing to lend and there is more competition, with more attractive financial products being made available, but they are still only facilitating half of the marketplace. The other half is being directly facilitated with cash.

Chairman

A total of 51% of all transactions are cash.

Deputy Michelle Mulherin

Mr. Phillips's final point related to development levies and the disparities with regard to having 31 planning authorities throughout the country. To what extent does he agree that where there is provision of services, infrastructure, etc., this is levied? Is he stating that, on the basis of the existence of Irish Water - which has responsibility in respect of providing water supplies and sewerage facilities - this should be dealt with in a different way and should not be levied by means of planning permission?

NAMA is becoming involved in constructing residential properties, in respect of which it has great plans, and commercial units. One of the points which has been made is that the way to plan for the future is to respond to data. What is the position with regard to empirical data? A few years ago we were informed that entire swathes of housing estates would have to be pulled down and that there would probably never be a need to construct new houses again. Our guests have explained how the market is not operating and outlined the fact that properties are not being brought onto the market. Is there solid empirical data available in this regard, not just in respect of Dublin but for the remainder of the country, including the west and to locations outside the major urban centres? What is the position and is more property required?

Another point in the context of NAMA is the existence of land banks. I am aware that land banks built up by a number of developers involved with NAMA are tied up with that organisation. Those individuals with whom I am in contact have reported that their dealings with NAMA, in the context of having these sites developed, have been very unsatisfactory. The sites in question are located in the Dublin area and they would be suitable for housing and other types of development.

There was previously a large body of experts - that is, those who were developers during the boom years - operating in this area in the past. Many of these individuals, particularly those who operated on a larger scale, became involved in NAMA, even if this was through no fault of their own. In the judgment handed down in the O'Flynn case recently, NAMA was very much chastised. Are out guests in a position to outline the experience the developers with whom they are involved have had with NAMA? We are quite restricted in terms of the type of information we can seek from NAMA. Initially, it was envisaged that a parliamentary committee would have oversight in respect of the organisation's activities. However, that has not proven to be the case and we are operating on the basis of hearsay. I would propose that some of the developers involved should come before the Joint Committee on Finance, Public Expenditure and Reform or whatever. What are our guests' views on the experts in development to whom I refer who have been brought to their knees and who are not being dealt with fairly by NAMA? I accept that might not be popular to refer to these individuals in the way that I have, particularly as anyone who was involved in property development - whether good, bad or indifferent - in the past has been demonised in recent years.

The final issue in which I am interested is that which relates to social housing. To what extent can private financing be leveraged and used to build social housing? I accept that the way in which the social housing system operates is different and that people might be able to eventually purchase their council homes. In other words, the sales involved are not immediate. What sort of scheme would our guests envisage being put in place in order to encourage private investors to become involved in the development of social housing in order that we might address the housing problem?

Dr. Peter Stafford

I will discuss the statistics and perhaps my colleagues will comment on the issues relating to NAMA and social housing. One of the legacies of the Celtic tiger is that when the crash occurred, we realised we had very poor data in respect of the property market. The Department of the Environment, Community and Local Government collects some data on house-building activity and the Central Statistics Office collects certain other data. Various agencies examine different parts of this data but it is extremely difficult to mesh it all together in order to obtain an overall picture of the position with regard to supply and demand at any one time. The Construction 2020 report, which the Government produced a couple of months ago, has at its heart an evidence-based property market. This is something that we have absolutely been calling for all the way through. We are of the view that there should be task forces, forums and committees established and that everybody responsible for collecting data on anything to do with the market should contribute to these in order that said data might be analysed in real time.

There are two practical problems. First, the data from the Department of the Environment, Community and Local Government is often very slow to be released. We do not yet have commencement notices for -----

Ms Marian Finnegan

Since February. It is now almost October, but we do not know what has commenced since February because the Department is reviewing its processes.

Dr. Peter Stafford

Therefore, when we are making our estimates for the number of houses that will be completed in 2014, at best we only have official data from February, and it is now September.

The second factor is that tomorrow, the Central Statistics Office will release house price data for August, but as Ms Finnegan mentioned, with half the transactions taking place in the cash market, these are not included in the CSO data. Again, at best we have a snapshot of what is happening in a market which is moving very quickly. The CSO is doing good work in trying to improve the basis of its statistics and this will help. If we can consolidate all of the data, this will help us identify where any supply and demand mismatches are emerging. Once we identify these, we can resolve them. Currently, we are sometimes trying to resolve these in an information vacuum. Construction 2020 creates important forums to help us do this, which is vital.

Mr. Aidan O'Hogan

I would like to come in on the NAMA issue. The principal constraint in regard to NAMA is the lack of equity these developers have. While there is finance available, they no longer have any equity. They have the skills and ability and it is clear that NAMA has already financed a number of ongoing house building developments. A number of schemes are operating successfully, but within the borrowing constraints of the NAMA legislation. Further development will emerge over time. The land banks are there and while NAMA has been looking at some of the existing borrowers, it is also looking at other developers or construction people who can deliver and are not constrained by the NAMA legislation and are outside of it. It is a challenging situation, but the biggest challenge arises where developers no longer have any equity. They have the skills and experience and it would be great if they could get the resources to get building.

Dr. Peter Stafford

Does Mr. Phillips want to speak about social housing?

Mr. Tom Phillips

I want to mention financial contributions. I believe it is right that developers should pay a levy, because development must be paid for. During the Celtic tiger years we had developer-led planning, but my concern is that we now have a push for plan-led development. I argue we should have viable plan-led development. We should have a situation where the planning system is aware of the market, because there is quite a push among my fellow planners to ignore the market, as if it is irrelevant, and to look only at proper planning. We must look at both together and ensure we have viable plan led development.

If we produce a planning scheme, the financial contributions should be tested to ensure the scheme is capable of being delivered. Certain lands have been zoned for particular purposes, but they are non viable because the financial contributions that would be payable are so large one could not carry out a viability test. Therefore, at the time of the writing of a local area plan, financial contributions should be provided for it.

Let me give two prime examples. Both Dublin Docklands and Cherrywood strategic development zones have provisions in the planning schemes for developers to contribute towards the delivery of infrastructure to ensure these developments happen. However, in last year's development levy guidelines, the then Minister for the Environment, Community and Local Government, said that development levies should be reduced by 50% in strategic development zones, SDZs, to incentivise development in these areas where a plan has been agreed as to what happens. However, in both Dublin city and in Cherrywood, the planning authorities, which act as development agencies, have increased the levies because so much infrastructure is required to make them happen. While the Minister has said that we will reduce the levies in an SDZ and make developers outside that area contribute more to incentivise development in these places, delivery is going in the opposite direction. We cannot, for example, open a book and find out the development levy in the case of every one of the 31 areas in the country. One can do this as a personal exercise, but there is no central record of the information where we can see what we actually need.

In regard to the question on social housing, a report by DKM Economic Consultants looked at how the issue of social housing could be addressed. The development market is still waiting for delivery of the planning Bill to see how it will be addressed.

One of the options DKM put forward - the public was invited to make submissions - was inclusory zoning whereby a local authority would determine where social housing was required and zone land there to incentivise the bringing forward of development schemes. Of the six options, that is a very good one. It would be good to determine where housing is needed and how its development could be expedited. This could be done by incentivising developers to develop the lands identified, not necessarily by tax breaks but by reducing financial contributions in the areas. It would make development not only attractive but also viable.

Last week, the chief executive of NAMA was quoted as having said at the meeting in the Convention Centre that NAMA did not really develop between 2010 and 2013 because it was non-viable. It is only now becoming viable for people to carry out appraisals on land. We must ask what it takes to make the delivery of housing viable. It is not achieved by going back to the old days but by making sure that the financial contributions lead to viable plan-led development. I repeat the example of Kilternan. Having to pay €54,000 to a local authority to contribute for infrastructure for one apartment makes it completely and utterly non-viable.

Senator Denis Landy

What was the price of the apartment?

Mr. Tom Phillips

It could be €100,000.

Senator Denis Landy

It could be but it was not.

Mr. Tom Phillips

I am talking about now, 2014. It is still very high. One could actually ask how much land we have zoned for development in the country but, while one might regard it as part of the equation, one would have to conclude on analysis that it cannot be developed because it is non-viable. NAMA has said it would not enter into the market where land is non-viable because it would be wasting taxpayers' money. The same is the case with developers. One cannot develop speculatively, nor can one go to the banks; even if the banks were lending, one could not get the money if the scheme were non-viable. The planning system has to step up to the plate and say we need viable plan-led development.

Deputy Michelle Mulherin

If I understand Mr. Phillips correctly, he is talking about local area plans being more nuanced with regard to development contributions.

Chairman

There is a vote in the Seanad. I call on Senator Landy to make his contribution, after which I will call Deputy Michelle Mulherin.

Senator Denis Landy

I thank the witnesses for attending. I will be very quick in making my observations and asking my questions.

On development levies, the delegation is correct that each local authority sets a development levy. However, it is the autonomous role of elected members at local level, and I do not subscribe in any way to the view that this process should be centralised. It would be taking away the local knowledge of what is required in local authority areas.

I have a couple of questions. I will not be present to hear the answers but they will be on the record. Everyone referred to the windfall tax. Mr. Phillips suggested the levy should be reduced from 80% to 33%. Will he advise us as to why he made that decision? Would he not accept there is a windfall tax because the people who now own the land are going to make a major profit when they release it on the market? This is because it is rezoned land. From where was the figure of 33% plucked? There will be profit made on the land no matter what price it is sold for, even at this stage in our economic cycle. I would like an explanation as to why a levy reduction would kick-start development.

My second question concerns derelict sites across the country. There is currently a levy on derelict sites and, quite obviously, it is not working. It is not incentivising the development of sites. The sites are a blight in every rural town and across the city. There are certainly some unsightly locations. What do the delegates believe can be done about the derelict sites other than imposing the levy?

It was suggested that local authority land be released for development. Could the delegates elaborate on their view on the release to the market of private land, not just local authority land?

With regard to dereliction, what is the proposal to deal with the issue? It seems most of his contribution to the committee today concerned the Government, local authority or State reducing taxes in one way or another to kick-start house-building. I come from a rural area where there are many builders still in operation. They were in operation throughout the recession because they built at a reasonable rate and sold at a reasonable rate.

There was a market for what they were building. In the main, the people who went out of business were those who put their prices up in the sky - prices that people could not meet - and who then borrowed on the strength of not being able to sell houses. There is still a market for people to build and sell houses if they do so at a reasonable rate. That seems to be lost in Mr. O'Hogan's contribution today and I would like to hear his comments on that. I must leave but the answer will be on the record and I appreciate the Chairman's understanding.

Chairman

Does Deputy Mulherin wish to conclude? We will then return to our panel.

Deputy Michelle Mulherin

My point concerns the development contributions. From what Mr. O'Hogan has described, if one was to make it more nuanced around the place looking at market conditions, one would still have disparity. That seemed to be an issue, yet what he described would create it.

My next point concerns zoning, as was referred to by Senator Landy. Where we are interested in zoning agricultural land, should we not be looking at a new model because we are basically enriching people? We are zoning their land, they have not done anything with that land and we need it. Should the State not in some way acquire it and say that it now has the land and will decide heretofore? It probably sounds a bit like communism but in the past, whole areas of land were zoned, the person selling it were enriched and it had a knock-on effect yet it was by virtue of councillors zoning land and bestowing a gift on people. I know the land was needed but surely there must be a better system that benefits the general public than the one we have? I know that certain things are set and we have certain zoning but I am talking about agricultural land or brownfield sites. It is just a thought or comment.

Mr. Aidan O'Hogan

Could I start with that question? We have no opposition to a tax on the benefit or value that is attached to the land through the zoning. We are not opposed to that in principle. The point we are making is that there is a disincentive because the windfall tax at 80% is so great. Even if people's land is rezoned, the level of tax is so great that it stops people selling. What we are trying to advocate, and the reason we picked 33%, is that it is the CGT rate. That is the only reason we picked that figure. It was to get to a level at which people feel it is worth their while to sell, particularly agricultural land. If people are going to pay 80% of the added value in tax, they will ask why they would bother doing that and whether it might be better to hold on to it. In particular, if it is rezoned, one is better off holding on to it. There is no incentive to sell it.

We want to flush more land into the market and that will help reduce prices and land prices by reducing that tax, which has apparently generated no revenue since it was introduced. Certainly we have not been able to get any figure from the Revenue Commissioners regarding any tax generated by this levy. Hence we are saying that we should reduce it to a significant level and the CGT level seems to be a proper one. There will still be levies so the local authorities will be getting money once it is developed.

Deputy Mulherin also asked about social housing and the funding of social housing. Unquestionably, there is or would be funding available from the private sector for social housing but it will have to be in fairly large tracts of land. It will not be available within the context of Part V where somebody is developing two or three houses. However, there would be institutional funding or funding through real estate investment trusts for, say, 100 social houses which are together but that must be managed by leasing through a housing agency or by a local authority. However, the capital funding in this market is definitely available if it is packaged in the right way. There is no question about that.

The reason derelict sites are not being developed is because it is either not viable to develop them, namely, the economics do not work, because most of these sites are in very poor locations, and I have some direct experience of this, or frequently there are problems with titles that are unresolved in many cases. Local authorities have compulsory purchase powers under the Derelict Sites Act.

However, they rarely seem to exercise those powers and, frankly, they could easily exercise them at almost no cost by compulsorily purchasing the land and re-selling it with a clean title where there is a title problem, because a CPO starts the title with a clean folio from scratch. It wipes all the defects instantly and, therefore, there definitely is scope for local authorities to get in there. By the time they have to pay for the land under the CPO, they could have it resold to a developer. If the Derelict Sites Act 1990 were fully operational under local authorities, it would have the ability to sort out many of these issues. I will leave the other issues to my colleagues.

Mr. Tom Phillips

On the issue of the windfall tax, Mr. Justice Kenny in his 1973 report talked about the betterment of land and the windfall tax, and we agree with that. The key point is that 80% was too high. It is not just about zoning agricultural land as residential land; it can be a rezoning from industrial land to residential land or land for different purposes. It does not have to be agricultural and it can have a commercial zoning use. Going sideways and not even upwards in terms of different zoning attracts the windfall tax. A material contravention whereby the local authority and a quantum of the councillors might agree it is good idea to grant permission to a particular scheme that is technically non-compliant with the development plan would attract the windfall tax. It is catching development in lots of ways. For example, a few years ago local authorities realised that too much land was zoned residential and they down-zoned it, but in the next year or two when they start rezoning land, the land that was zoned residential, bought at residential prices, down-zoned to agricultural land and then rezoned to residential because of a housing shortage will attract an 80% windfall tax. Many people say it should be zero, but we say a realistic taxation rate is 33%. This has been around as an idea since 1973. That is where we are coming from on it.

On the issue of derelict sites, one would have to look at the question of who owns them, because in Dublin city the State authorities own many of the sites. Dublin City Council and the OPW, for example, have probably the largest land banks of derelict sites in the city. We made representations to the former Lord Mayor about this. The levy is in not place at the moment. It was an idea that it should be put in place. One needs to look at why the land is derelict. Is it because people are land-banking, which would fulfil the media attachment to having a definitive reason, or is it because people cannot get the funding or the land is non-viable? There are greater issues than people simply land-banking because there are plenty of people who want to develop land but either cannot get the finance or are finding that it does not stack up.

Mr. Aidan O'Hogan

I would like to make one correction. The Senator is correct that levies are payable under the Derelict Sites Act. If sites are left derelict, they are levied.

The Senator also referred to houses elsewhere in the country and people being reasonable about the prices, but outside Dublin, the prices at which they are being sold are below the construction cost alone in most cases, ignoring site costs and so on. It is not, therefore, a matter of whether builders are reasonable in the current market; it is a question of what one can get for them, and more often than not it is less than they cost to construct new. I am not sure how the way the Senator is thinking could resolve the situation unless somebody is building a one-off house for themselves. Outside Dublin, Cork and the other urban centres, one can buy a house for far less than it would cost to build it, even leaving the site value out of it.

Chairman

What is the breakdown of construction costs nowadays for a three-bedroom semi-detached house? At one time, it was labour, materials and so on. What is the ratio nowadays?

Mr. Aidan O'Hogan

It used to be that the site would be a third of the total cost. It is difficult to express the building cost of a house now because it is relative to value, but it is approximately between €100 and €150 per sq. ft. If the Chairman builds a 1,000 sq. ft. house, it will cost between €100,000 and €150,000 to construct.

In counties Cavan, Leitrim or Monaghan, one can buy houses of 1,000 sq. ft. for €50,000 or €60,000. This is way below the construction cost and takes no account of the cost of the financing, site costs and levies for development. That is likely to continue. We will see those prices increase significantly this year once people have confidence that prices are moving. Whether one pays €50,000 or €55,000 for a house is not the issue, because when one goes to build a new house one is talking about €110,000.

Chairman

There is a recovery. The talk in the past couple of weeks has been about avoiding another boom-to-bust market. There is also the focus on homelessness and other aspects of housing. There is a natural appetite to avoid what happened in the past. Does Mr. O'Hogan envisage that the market will be positive in a couple of years' time?

Mr. Aidan O'Hogan

I think it will be good. Much of what is happening is the result of concern among people that if they do not get into the market the houses will not be built and prices will become unsustainable. Recently we saw people queueing to buy houses, but in reality there was no need to queue because, while there is some demand, it is not that crazy. Ms Finnegan will suggest that even in recent months, as more and more houses have come onto the market one can see the price rises decelerating a little bit. People are concerned that they will not be able to afford a house. The certainty of delivery, even if it were 18 months to 24 months ahead, would do a great deal to calm the market. Potentially, prices will continue to rise over the next four or five years, but at a much more graduated rate than they have. In the next two years, when there is very limited supply, we are likely to see an unusual level of growth.

Ms Marian Finnegan

I will also comment on that point. All we are advocating is that we address the supply-and-demand imbalance. A normal functioning marketplace will address that itself. Our concern is that the market will take too long to address it, simply because of the constraints that are there, and as a result prices will rise too dramatically in a short period. In the 12 months to June 2014, prices in Dublin were up by 21.5%. That said, the stock available for sale in January was at the lowest point ever. In January 2014 there were just over 3,000 units advertised for sale in Dublin, while in the previous 12 months there had been 10,000 transactions. One should have at least one year's supply and ideally two years' supply. The market should have had 20,000 properties advertised for sale, but it had 3,000, so prices rose by 2% a month, which, given the context, was not an exceptional level. It was undesirable, but we must take into account how low the stock was. By July the quantum of available properties had gone up by just 1,000 units. When we did the survey again in July there were 1,100 units available for sale. Prices are now rising by 1% a month rather than 2% a month. If one get the supply balance correct, the market will function normally. The challenge is that people are now focusing on this, and there have been ridiculous media headlines about queues when three people are in a line to buy a house. That is nonsense. It is not what makes the market.

We need to establish how many houses are required in Dublin and the mid-east in the next ten years. How many houses will be required in Galway, Cork and Limerick? For much of the rest of the country, there is no issue. Prices will not change that significantly in much of the north west or the south east because there is ample product. There are local economic challenges and it is not a market that will suffer from a supply-side shortage in the short term. We should be planning for the future; it is not a problem for this year or next year. However, in the regional centres where IDA Ireland has done a phenomenally good job, where local economies are doing much better, we have a significant shortage of product. We have not been building units and we have not been supplying them on the second-hand market. Unless we do something to change that pattern, we will have price inflation of 20%. The other part of that equation is that, as a hangover from the recession, half of the available properties are buy-to-let-type properties, but three quarters of purchasers want to buy a home to live in. They do not always meet the same requirements. There are many buy-to-let properties available for sale. People are looking to buy family homes, and therefore when a family home becomes available the price rises dramatically. Forty people come to view the property and suddenly that is all over the newspapers. We are trying to address that situation. Rising prices will bring some people out of negative equity and will allow their properties to come to the market. Rising prices will address a great many problems. It will make development more viable and we will begin to build more, but in the short term, prices will rise and make our economy more competitive. We are looking at key locations, albeit from a nationwide perspective. We are looking for development in the key locations to prevent this spiralling of prices.

Deputy Ruth Coppinger

I apologise for missing the delegates' presentation due to having another meeting to attend, but I studied their document.

Deputy Michelle Mulherin spoke about a communistic solution to the housing crisis, but I think it was with tongue in cheek. We have a housing emergency which has never been so acute. Some 100,000 families need homes, but the solutions being put forward not only by the delegates are token and would not deal with the issue. Their document indicates that it is expected there will be 8,400 completions in the private sector this year and obviously very few of those units will be allocated for social housing. That number will not go anywhere towards dealing with the housing catastrophe. During the height of the boom 80,000 houses a year were being built, yet all the Government and the agencies are talking about is the provision of a few thousand units a year in a piecemeal fashion when we know that if the necessary resources were provided, the housing crisis could be solved much quicker.

At the weekend we heard that container homes were being put forward as a solution for people who were homeless; meanwhile, on the other side of the spectrum, the price of mansions is rocketing, in Dublin in particular. The pattern is not uniform throughout the country.

I served as a councillor in Fingal for 11 years. I sat through discussions on many development plans; there was probably more development in that area than in any other in the country. Planning permission has been granted for the building of 17,000 houses in the area, while land has been rezoned for the building of 30,000 plus houses. The availability and zoning of land are not the problem in many cases. The dysfunctionality is evident from practices in the banks and the actions of the developers who are still reeling from the results of their speculation. I do not see any resolution of the problem unless the State plays a massive role, although I do not think that is the opinion of the delegates, but the only way we will solve the problem is by public intervention.

I do not believe the private sector has an interest in the provision of social or affordable housing. In their document the delegates seek tax breaks in terms of VAT and a windfall tax to incentivise developers, but it was the availability of tax breaks that led to the last bubble. Developers were given huge incentives and we all know what happened as a result. In terms of public and social housing provision, the delegates speak about the provision of 1,100 extra units per annum. In terms of giving developers tax breaks, under a model that was in place in the 1930s and 1970s, thousands of social and public houses were built every year. What has happened is that there has been an ideological opposition to the building of public and social housing by successive Governments, leading to a situation where there has been a collapse on the supply side and people are finding themselves on the streets, including two pensioners whom I saw in their nightclothes.

What the delegates are advocating is a continuation of the same policies, but there is an emergency and the Government must intervene to invest and build social and affordable houses. It would be best to allow councils to do this, not housing agencies which are new to this and also have a private sector ideology in that if one is given a house, it is like being given charity, rather than having an entitlement to a house. Councils built houses before and they should be allowed to build them again, but, unfortunately, they are not allowed by EU and troika rules to borrow money. This is one of the most inhibiting factors in solving the housing crisis. It is not being highlighted by any of the housing agencies, many of which are being given grants and paid by the Government; therefore, they do not criticise it. A crucial factor is that councils be allowed to borrow money, but this has been ruled out under EU rules.

Since the Deputy mentioned communistic solutions, certainly the private sector is not particularly interested in providing social housing but only houses for profit. In fact, some are happy with the shortage of housing because it is a chance for them to sell houses they have on their books.

Mr. Aidan O'Hogan

We would be delighted if the State were to intervene and provide social housing. Our policy would be 100% behind that. We genuinely believe it is the only way to solve the problem, particularly in the next few years, as it needs a huge intervention. Even in the private sector, if 20% of the volume were social and public housing it would still be a drop in the ocean relative to the need. If we have given the impression that we are opposed to that, we absolutely are not, but we have had to recognise the constraints that are being imposed on the national Exchequer. If that solution could be provided then we would advocate it tomorrow morning and would be delighted if it happened. It would be wrong to assume that the private sector is not interested in providing social housing. I think it would be interested in providing anything as long as it can get some return. I do not mean an excessive return but one that allows the industry to be financed and to get some return on its investment. The private sector and the construction sector would be delighted to go into that sector, and there is definitely capital available in the private sector that would fund it. There are the logistics of grouping it and making the size viable in terms of the investment required, but it would be completely wrong to think that Property Industry Ireland would not be supportive of that policy. We would be 100% behind it; if the Government can get the money we would see that as a major part of the extension.

Deputy Ruth Coppinger

It is not written down here.

Mr. Aidan O'Hogan

We have to recognise the national constraints on the record. We would be 100% behind it.

Deputy Ruth Coppinger

That is fine.

Dr. Peter Stafford

By way of context, Exchequer funding of social housing in 2009 was €1.5 billion, while this year it is €300 million. We cannot switch on that tap and get back to €1.5 billion; therefore, we must look creatively to see what we an do. Our presentation opened with the idea that we are in a housing crisis and that the crisis in the housing market has lasted longer than the Second World War, in the sense that we went from crisis to crisis. The challenge now is to rebuild and put together a programme that ensures that the mistakes of the past never happen again. Our previous budget submission, entitled "Towards a National Property Strategy," highlighted the need for a strategic approach to decide what the success rate appeared to be for the housing market, for building social housing, for communities and for planning. One of the ways in which Property Industry Ireland tries to stimulate a debate is to look at the different models that are available. That is what we are trying to. We recognise that there is a crisis that needs to be solved; the difficulty is solving it in an absence of money.

Mr. Aidan O'Hogan

May I refer also to the windfall tax? Members are looking at it from a slightly different point of view from us. We are not opposed to the windfall tax, but the quantum of it is a disincentive for people to release land. We are anxious to see more land released into the market which can be developed, so that if it is rezoned it will be released. If one is a farmer and one's land has increased in value from €10,000 per acre to €100,000 per acre, one has an incentive or an added value of €90,000. As the tax rate currently stands, one will pay €70,000 of that in tax. That does not make any sense. Any farmer would ask why he would sell the land.

Deputy Ruth Coppinger

There is a lot of land already zoned. That is not the problem.

Mr. Aidan O'Hogan

It does not apply. This is only in respect of land that may need to be rezoned in the future. We may need to try to get more of it, which would help to reduce the overall price of land. We suggest that it should come down to a third. Roughly, one third of it is taken. It is with great reluctance that we have advocated any tax reductions. We are very conscious of what the tax incentives did. The same applies to VAT. We are suggesting that it be reduced from 13.5% to 9%. We have seen what that has done in the hospitality industry. We reckon that if 10% to 15% more houses are delivered as a result, it will be more than self-financing.

This will be more than self-financing. The people on whom it impacts most are first-time buyers. It is in that sector of new housing that this has its biggest impact. It would be honest to say that we are trying to look at sustainable models. However, as the Deputy stated, there is a crisis and it needs some facilitation to drive the market in the short term. All we are seeking is the means by which we can oil the wheels in order to have this delivered.

Mr. Tom Phillips

The windfall tax was introduced in 2009 under the NAMA Act and it went straight from 0% to 80%. It was not incrementally increased all the way from 20% to 80%; it came from nowhere and was immediately imposed at a level of 80%. We are not seeking a tax break, what we want is an equitable tax. Many people would like it to be reduced to 0% but we are suggesting that it should be reduced to 33%. We are not seeking a tax break, what we are pursuing is a balancing or a correction of the tax. In 2009 this appeared to be a good brake on the system but it has not worked and the proof of the pudding is that it appears to have brought in no money. All it seems to have done is act as a disincentive.

In the context of planning and social housing, the Department of the Environment, Community and Local Government is exemplary. It has a major workload with which to deal - including implementing the recommendations relating to the Mahon tribunal, establish the office of the planning regulator, etc. - and has only a limited number of planners on its staff. One of the Department's other duties is to oversee the position with regard to Part V social housing. Between 2000 and 2011, some 3.5% of all houses, excluding one-off dwellings, were social and affordable houses. Part V did not deliver 15%, it delivered a much smaller percentage. It would be useful, from our point of view, if the introduction of the planning Bill could be expedited. There is a great deal of ground to be covered by that legislation and the position with regard to Part V social housing is only one aspect. If it could even be done in stages and if Part V could be expedited rather than there being a need to wait for all the other items to be dealt with simultaneously, this would at least provide some certainty.

We know that affordable housing has been taken off the table but social housing is still in play. It is very difficult to advise someone who wants to develop land exactly what the position is likely to be. This is because there is an expectation that a planning Bill is going to be introduced but this eventuality always appears to be three or four months away. If we could obtain an indication with regard to when the Bill is going to be introduced, this would provide some certainty to the market. When it appears, the Bill will then provide us with a way of working out how we can deliver social housing. I agree with Mr. O'Hogan to the effect that we are supportive of the delivery of social housing. However, we must be able to see, from our point of view, that it will be viable and that there will be ways of delivering it. We are not talking about tax breaks, we are seeking an equitable tax situation.

Chairman

I thank our guests for attending. I accept that they do not have a crystal ball and cannot tell us the way forward. However, the interaction we have had with them is very important in the context of what we propose to do. We will hopefully be meeting the Minister in late October or early November. The issue of homelessness is of critical importance to the committee, as are the other aspects of general housing policy. The position in this regard has never been static and it has changed continually, sometimes for the worse. The exchanges the committee has with the people from the various sectors are extremely important. I thank our guests for their input and for engaging in a very robust exchange of views. They are free to go.

Mr. Aidan O'Hogan

I thank members for their time.

Deputy Ruth Coppinger

Housing is the most critical issue for this committee. Is there a facility whereby we might invite representatives from Dublin City Council to come before us in order that we might discuss with them the proposal relating to containers and the placement of people-----

Chairman

I suggest that the Deputy write to the clerk officially in respect of that matter. We discussed an issue in this regard when we dealt with correspondence earlier. As a result, we are going to invite the Minister to come before us, as a matter of priority, in order that we might discuss housing and other issues relating to the Department. If the Deputy wishes to put forward a particular suggestion, perhaps she might send an e-mail to the clerk and we will then deal with it as correspondence at next week's meeting.

The joint committee adjourned at 4.24 p.m. until 2.15 p.m. on Tuesday, 30 September 2014.