The committee is joined from the Irish Council for Social Housing by Mr. Pat Doyle, president, and Ms Tina Donaghy, vice president. We are also joined remotely by assistant professor Orla Hegarty from University College Dublin, UCD. The opening statements have been circulated to members and with their permission, we will take them as read. Has Ms Hegarty prepared an opening statement?
Inflationary Costs in the Construction Industry: Discussion
Ms Orla Hegarty
I have an opening statement.
If Ms Hegarty wishes to read her opening statement, she is more than welcome to do so.
Ms Orla Hegarty
I thank the Chairman and the committee members for the opportunity to attend this session, the purpose of which is to look at construction costs and inflation in the context of housing delivery and affordability. We might ask if costs are increasing, and they are, but the important questions are whether costs are making housing unaffordable and what can be done about it.
Tender prices reflect what the market will do the work for and they are a factor of the market conditions, economic cycles, risk and sentiment. The latest Project Management Institute, PMI, report states that construction firms continue to face severe delivery delays due to material shortages, shipping issues, the war in Ukraine and Brexit. The Society of Chartered Surveyors Ireland, SCSI, reported tender inflation of 13% in 2021. The Office of Government Procurement, OGP, has introduced measures to manage contract inflation.
Materials are just one part of a tender price so although the SCSI index shows tender prices 80% above 2010, it is noticeable that it is only 30% or 40% above 2007 levels for non-residential work. The EUROSTAT construction cost index shows labour and material costs are not significantly higher than 2007. However, it is a lagging indicator. The Central Statistics Office, CSO, wholesale index shows that the prices of materials are very volatile, with significant inflation in some materials.
More broadly, the problem is uncertainty. Risk is being priced into tender prices and this can include risks such as the pandemic, Brexit, availability and transport of materials, energy costs, labour, skills shortages, capacity constraints, procurement practices, regulatory policy, delays in utility and infrastructure, and risk allocation in contracts.
Are costs making housing unaffordable? According to the Department of Housing, Local Government and Heritage, hard costs are approximately €183,000 for a three-bedroom house and €210,000 for a two-bedroom apartment. A material cost increase, therefore, of 10% across all materials would add approximately €10,000 to a typical new home. From 2010 to 2022, the median new house price rose 9% nationally from €247,000 to €270,000. However, in Dublin it increased almost 50%, from €305,000 to €450,000. Outside the city, private developers are currently selling new three-bedroom homes from €235,000 and the Department of Housing, Local Government and Heritage and local authority records confirm this order of cost. Although inflation is an issue, building materials and regulatory standards are not what is making housing unaffordable. The development costs, the soft costs, can add up to €200,000 in speculative development, compared to costs from €30,000 in contract build that would be more typical in the public and non-profit sector. Speculative development is very high risk and means high costs. The National Economic and Social Council, NESC, calls this a dysfunction and states that affordability should be an explicit objective, that the supply of housing is not in itself a reliable and sustainable means of making housing affordable and that Ireland must engineer affordability into the supply of housing.
What can be done? In 2010, the EU Commission stated that land price inflation alone cannot explain high house price inflation since land prices represent between 17% and 30% of house prices. Construction cost inflation cannot explain it either because it was relatively low in the years leading up to 2020. Taxes, levies, fees, finance and marketing costs have not surged. Therefore, high inflation values may be partly explained by an increase in margins which may indicate insufficient competition. To address this, focus must shift to stabilising the housing system. The solution is not to be found in supporting inefficiencies with high subsidies. Capacity building and competition can raise quality, lower prices and temper the boom-bust cycle that is so damaging to employment, skills and the wider economy. It also has an impact on future capacity.
Capacity constraints in the provision of infrastructure, water and utilities are also a problem and causing delays. Overly complex procurement, financing and approval systems, particularly in the public sector, are adding cost and risk. Recent regulatory change in both planning and building control have been inflationary. In late 2015, the Department of Housing, Local Government and Heritage had a policy objective to reduce standards, aiming at two-bedroom apartment sales prices of approximately €200,000 to €260,000. By early 2018, the Department had increased that to an affordability range of between €240,000 and €320,000, and by 2021, the benchmark for apartments in the new affordable housing scheme in Dublin was raised to €500,000. As the Dublin market shifted from assets valued on 25 to 30 years of mortgage payments to the rental sector, where asset prices are assessed on 50 to 60 years of high rent, the price doubled.
In 2018, Department of Housing, Local Government and Heritage stated that construction costs for a two-bedroom apartment in Dublin could be reduced from €205,000 to €158,000. Yet, within three years an industry report claimed that the all-in cost of an urban two-bedroom apartment in Ireland is €450,000 to €615,000. These industry estimates are not substantiated or independently audited, and are not supported by independent data. Some property sector reports have made unevidenced claims of a very high cost base without acknowledging that it is the high-risk, high-cost speculative business model that may be unviable rather than the construction cost of homes and apartments. Dublin City Council published costs for recent schemes without highlighting that the majority of its examples were for non-standard procurement with particular technical requirements and on complex sites.
In urban areas, planning changes for high-density, high-rise and reduced apartment standards have in general added to construction and finance costs. Previous standards recognised that six storeys is a sustainable density and is cost-optimal for residential development. This scale of building is both easier to finance and phase, and safer and more liveable for residents. Under Housing For All, no housing is planned in Dublin city for households earning over €36,000 and under €80,000 per annum. In fact, two thirds of all new homes in Dublin city are to be fully publicly funded or heavily subsidised, with the other one third only affordable to very high earners. In this context, the difference between the Exchequer paying production costs and market prices in Dublin alone may be in excess of €4 billion, and higher again if public housing is leased. This has wider implications for the economy, competitiveness and sustainable growth.
Housing policy is undermining some climate and energy policies. When city housing is unaffordable, as it is planned to be, and unsuited to families, it results in a push to the commuter belt. In 2021, for every new house built in Dublin, almost two were built in commuter counties because the demand is for affordability and space. City housing for families is not currently a policy objective, even though half of all households have children. In the pursuit of low costs, apartment standards for space, amenity and safety, including fire safety standards, have been cut. The drive for speed and lightweight construction in the short term has not been adequately assessed against the long-term investment and the need for new housing to be climate resilient, safe and sustainable for the next 100 years.
Issues with supply chains and energy costs are outside of immediate control but a broader economic analysis and active risk assessment of housing policy is now critically important. Policy responses of nudging viability with piecemeal interventions have been very damaging. Housing standards needs to be evidence-based, holistic and with a long-term view. Many lobby-driven interventions are not evidence-based and have had unintended and negative consequences.
Procurement policies and practices are adding to risk, cost, delay and the administrative burden. Bundling, outsourcing and unquantifiable risk allocation are disincentives to tendering and competitive pricing, particularly in the public sector. These practices also militate against capacity building, skills and more sustainable employment practices.
The residential construction sector has not been supported to recover from the crash and has limited capacity and skills, both in design and construction. Pressures of skills and capacity risk substandard and non-compliant work. Now more than ever, quality controls need to be more independent and more robust. Time is of the essence: cost control should be devolved to those with expertise who are best placed to actively manage risk. That is to cut out delays and the further impact of inflation.
New housing has to be the right supply, in the right places and at the right price. It must be affordable to both the residents and to the Exchequer. It is not sustainable or scalable to subsidise high market prices, to load new homeowners with a second mortgage or to be over-reliant on international speculative investment that is delivering to niche markets.
As the Irish Government Economic and Evaluation Service, IGEES, has stated, the current housing delivery system is a land trap where sites tend to be acquired by the most optimistic with the highest expected sale prices and so property tends to be developed close to the margin of viability. As sales prices rise, so land values increase. Land values do not drive sales prices; high sales prices drive up land values and these higher values are baked into to land valuations immediately. This is the land value trap. When costs increase, as now, the margin is lost, and it may be too risky to develop and development may stall. In 2016, that margin of viability was around a sales price of €250,000 and now, in Dublin, it has doubled. That is not due to inflation in building materials.
Deputy Steven Matthews took the Chair.
I thank Ms Hegarty. I apologise to Ms Hegarty, Mr. Doyle and Ms Donaghy for my late arrival. We now move to members. We will take seven-minute slots, which is for both the questions and answers.
I will start with Ms Hegarty. While I want to get to discuss the costs she spoke about, I want to correct a point. She stated that "Under Housing For All, no housing is planned in Dublin city for households earning over €36,000 and under €80,000 per annum." We are talking about affordable housing there. The latest Dublin City Council housing report shows that on top of 10,000 social homes that are in planning, construction or whatever already, there are almost 5,500 additional affordable homes. That is a combination of 1,800 affordable purchase, more than 2,600 cost rental and roughly 700 through Part V provision. Ms Hegarty might come back to that afterwards. I am not trying to bombard her here but I think it is a really important fact. A big objective of Housing for All is to deliver affordable housing in spite of the challenges with cost inflation. If we can come back to that before the report is read into the record, or even after the meeting, that would be important.
Inflation and its cost is a real struggle for us to get our heads around. We are constantly battling the idea of trying to deliver affordable homes and legislation to use State-owned lands and remove or reduce the land costs. Ms Hegarty's advice to us is that the taxes and levies are being kept to a minimum so there is not really room there. Then there are the inflationary elements that are captured. There is a myriad of indices but the CSO one is really stark. It shows steel inflation at 50% to 60% with timber and wood at 50% to 100%, yet Ms Hegarty concludes that it is not cost inflation that is causing the increases. Even considering the various indices, materials have to be a significant factor. Is there anything at all that can be done? Can anything be done to change the methods or processes of building or the materials? What percentage does risk and uncertainty add to the cost?
Ms Orla Hegarty
To clarify the Dublin City Council housing provision, I am basing my breakdown on the housing needs demand assessment that was done by the Department of Housing, Local Government and Heritage, as well as the affordable criteria that the Department published. That is to state that effectively the affordable housing scheme is a subsidy that goes between the market price and the amount that people can borrow. At the sales price rates that are in Dublin now, when you remove the subsidy available and divide the rest by what a mortgage can achieve, you are effectively looking at households earning over €80,000 in order to have the mortgage to get them to the level where the affordability subsidy will bring them up to market prices. I would stand over the figure I gave on that. The affordable housing that is planned for Dublin will be very heavily subsidised, probably in the region of €100,000 or €150,000 per unit. Depending on whether it is on public or private land, in the majority of cases it will effectively be a second mortgage for those homeowners on that scheme into the future.
On some of the other costs, I would not say that they are minimised. They are real costs. VAT, professional fees and so on are real costs.
Changing methods of building or materials would be the wrong way to go at it. Reducing standards in the short term just creates a long-term problem. There is a lot that the State could do around procurement. If the Senator looks at some of the material costs she just quoted, the price people are paying is a factor of industry capacity in some ways. If you are looking at 200 windows or bathroom suites for a housing development you will get one price and if you are looking for 2,000 you might skip the queue and get a better price. The State is in a position to look at procuring building materials at scale, particularly components, the vast majority of which are imported. I am thinking of things such as bathroom or kitchen fittings, windows, doors or heating systems and those kinds of high-value items that could be procured at scale and possibly standardised in some housing schemes. You are effectively being a smarter buyer rather than somebody buying low quality. That is a better way to look at it. That is not something that has been considered. Given that the State is looking at a high level of provision in the coming years, it is in a very good position to do deals across Europe on procurement of materials because it would be guaranteeing a supply chain to producers and would likely get good prices because it would be de-risking that industry for the producer in that country into the future. That is one small suggestion of what could be done.
On the cost of risk and uncertainty, it is very difficult to say what percentage it represents.
In preparation for today I spoke to four people directly involved in delivery: one in a local authority, one in private practice, one in an approved housing body, AHB, and one in a co-operative. Some of my comments are drawn from some of their level of involvement at the moment. When people in construction talk about risk, it is multiple factors but it comes down to the fact that if people are asked to price work and to commit to that price in a construction contract, which is generally over quite a considerable time of maybe one, two or more years, they need to make an assessment of market conditions in the future. They need to make an assessment of whether they can get subcontractors to do the work and at what price, whether there will be delays on materials and whether there will be difficulties in the supply chain. Much of that pricing and risk is a factor of the terms under which they are being asked to sign a contract. When people, particularly in the public sector, are being asked to take on a lot of risk for price certainty, which has been the policy in public procurement for about the last 15 years, they must allow enough in their price now that they will not put themselves out of business during the course of the contract and then be able to meet those contract terms. If that risk is managed better, and in construction that means there is more latitude in the contract for negotiating risk as it arises rather that allocating it at the beginning, keener prices will be achieved. The more likely a contractor is to be able to renegotiate if there are particular difficulties, material changes or inflation in the future, the keener the price will be at the beginning. However, that is not how most public contracts are set up at the moment.
I thank Ms Hegarty.
I thank Ms Hegarty, Mr. Doyle and Ms Donaghy for their presentations. Starting with the Irish Council for Social Housing, the committee would be interested in what our guests are hearing from their members about what is happening on the ground at the moment with respect to both what I call own developments, usually Part 8s but also turnkeys, and Part Vs. I am referring to projects that are on site at the moment or potential developments for which the council is in the beginnings of negotiating, especially for turnkeys and Part Vs that may not be commenced yet. What is the picture? Is there a difference between Dublin and outside it? I am very much hearing there are significant challenges outside Dublin of a different nature than the ones we are used to hearing in here.
The second issue is the Housing Finance Agency's, HFA, interest rate hikes. Obviously, some of the council's members were very critical of those and we were all quite surprised when they happened. I think the position of the HFA is it is a little more sanguine and thinks the council's members have the capacity to absorb them. If Mr. Doyle and Ms Donaghy could talk the committee through that, it would be helpful.
Turning to Ms Hegarty, and we may have a chance in this round, but if not, we will come back in the second round, much of what she has said, none of which I disagree with, is from my understanding very appropriate to the dynamics in Dublin and to a lesser extent in Cork. When I talk to SME builders who are building a lot of what are essentially turnkey developments for the AHB sector outside the cities, their model of development is not as speculative and therefore the impact of costs and material inflation is more significant for their viability. I would appreciate Ms Hegarty commenting, if she could, on those types of projects. I am not talking about the big speculative ones she is referring to in the main but rather the dynamics as to how cost-price inflation could be having an impact on housing supply, especially for the social housing sector but also for the affordable housing sector outside the city. Her points about developments, particularly in Dublin city, are well made.
Mr. Pat Doyle
I thank the Chairman and members. Last year the Irish Council for Social Housing delivered about 3,800 units. That was up 14% on 2020. New units made up 75% of the total. We have been meeting our targets and growing our numbers every year, year on year. Under Housing for All, social housing will be 40% to 50% of the overall targets, and given the direction and trajectory over recent years, we consider ourselves to be very much in line to meet that at the time.
Much of what has been said by the previous speaker is what is now facing our members. The uncertainty is the biggest thing. I believe the council will hit the targets this year and will get the appropriate number of Part Vs and so on, but looking at how long it takes to gear up, we have concerns about 2023, 2024 and hitting those targets. The reason for that is the uncertainty. It has been mentioned already that it is down to those tendering to price in the risk. If we had been here last year, none of us would have seen the risks that have emerged from 24 February onwards. Many people who are currently delivering on fixed-term tender projects and builders or developers I talk to say they are doing this for nothing. Some of that is true and some is not, but they have been really squeezed now. That has made people nervous and uncertain about whether they want to commit to a fixed-price tender.
I apologise for cutting across but is the council noticing any variation with fixed-price contracts where there is tendering for its own direct delivery versus prices for turnkeys versus Part Vs, or is it the same across the three delivery streams?
Mr. Pat Doyle
I believe it is kind of the same across-----
Ms Tina Donaghy
The Part Vs are fixed price because those prices were negotiated some time ago based on that planning gain at that time, so they will be delivered. There is a big reluctance on what the Deputy called the turnkeys, which we would call a new-build development agreement. We have developers who have opportunities who are bringing projects to the market that would not otherwise come to the market, but there is a reluctance to engage until there is some sort of certainty around some evidence-based flexibility on costs as they progress. I suppose it is the fear factor Ms Hegarty mentioned, the uncertainty and pricing in the risk. They cannot do that from the outset because that would just scare the horses, the local authorities will not engage and the projects will not be viable. There is this circle of one problem after the other. We are in what anyone could describe as a perfect storm with regard to costs. We will have it with projects under our control as well. I am about to go to tender on a Part 8 development in which we have been in very lengthy negotiations to achieve, and what I hear is there is a bit of interest in tendering. However, on the flexibility around fixed price, the Government contracts committee for construction, GCCC, contract only allows for fixed price. There is no flexibility. All that risk and all that uncertainty is built in from the outset.
I apologise for cutting across again, but is it Ms Donaghy's understanding the council's members will have access to the burden-sharing mechanism the Minister for Public Expenditure and Reform, Deputy Michael McGrath, has introduced? Has the council got the technical detail of that yet? In there sense of whether that is going to work or not?
Ms Tina Donaghy
We do not at this stage. That is under the public works contract, PWC, and our GCCC contracts are fixed price. There is no flexibility. The Department has offered a flexibility in any contracts that were entered into prior to March of this year where we can go back and put in a revised application and the costs can be reviewed again under the capital advance leasing facility, CALF, and price and availability system.
Again, as this is important, is Ms Donaghy saying there are certain types of fixed-price contracts where there will be a flexibility but there are other kinds of contracts that the council signs with contractors where there will not be?
Ms Tina Donaghy
Not where we are concerned.
Mr. Pat Doyle
The ones that are in the second half of delivery.
Yes.
Mr. Pat Doyle
For projects that were granted in 2019 and 2020 that are currently in the final stages, many of those developers are saying they are now doing it at cost because it has all been eaten up, and there is no flexibility in those ones. That is going to make others nervous coming forward. We have been told by the Department that we will get access to the information and there will be some flexibility and cushion built in on new ones, but it is about getting that message out there. Like housing providers talk to each other, developers talk to each other, and the ones currently on the ground delivering are being squeezed because of what happens, so it makes everybody nervous to price going forward. Some people have said they will not be entering into fixed pricing. Some people on the turnkeys have come back and are looking to renegotiate that now and are threatening to pull. It is just very risky at the moment, and that creates an uncertainty. That makes everybody just slow a bit. As it is slowing a bit, the concern we have is around 2023 and 2024 and the targets for 2024.
It is kind of like a big ship. It takes a while to speed up. If it slows at all, it takes another while to catch up. We are doing everything we can to look at what Ms Hegarty was talking about, with new models of working and new methods, including modular housing and factory builds. We have been looking at some of those costs. One is still dealing with labour costs, timber costs, imports and energy costs. All of those costs are there. To answer the question about the Housing Finance Agency, I am the president of an organisation with more than 270 members. I know the committee had a number of members in. I have to speak for all members. The interest rate hike was in line with interest rate hikes elsewhere. There was nothing abnormal about that. The speed and communication of that may be a matter for reflection. It was certainly a reasonable hike. It was in line with what was going on in other markets. People were taken aback by how quickly it moved. It seemed to move ahead of some other announcements. When they were made, it was in line with them. We will have to get used to that.
Our members have asked us to raise the issue of building endurance into the schemes in the future, including payment and availability, rental and capital advance agreement schemes. Maintaining properties to a certain standard and meeting loan repayments all requires flexible, moving payments. We have been promised a review.
We have spent ten minutes on that slot. There will be time in the second round.
I thank the witnesses for being here to share their insights. I will start with Mr. Doyle and Ms Donaghy. They summed up matters when they talked about uncertainty and how, this time one year ago, we could not have foreseen this level of uncertainty. It is encouraging that, against that backdrop, they are confident they will hit their targets for this year. I commend them and their teams on that. I appreciate that, next year and the year after, there will be further uncertainty. How do they feel we can help to provide them with the opportunity to meet those targets? In their opening statement, they called out the review of the capital advance leasing facility, CALF, in Housing for All being moved from the fourth quarter to the third quarter. That is welcome. What are they hoping or expecting to see when that comes forward? Do they think there will be much to help to set them up for success ahead of next year?
I was particularly interested in appendix 1 of the document provided by Ms Hegarty. She outlined a few recommendations and a number of actions that she feels can be taken which would have big impacts. One related to State-led master planning, both of housing developments and of infrastructure. Is she talking about strategic development zones? Does she see them naturally linking in with Project Ireland 2040 or does she feel that there is a disconnect? If we connect things better, would that have an impact? She also talks about the unbundling of projects. She is offering smaller tenders to potentially smaller builders. From the perspective of practicality or an administrative process, would that slow progress down? Would there be a risk? If there is not any administrative burden, having public contracts in small lots sounds feasible. What would Ms Hegarty categorise as small lots? She also called out mass procurements. Large builders obviously have much more capability to engage in that and therefore much more ability to build economies of scale into tendering and pricing operations. How can the Government help to deliver that opportunity to smaller providers? There are many questions there.
Mr. Pat Doyle
I will ask Ms Donaghy to answer the question. The Deputy asked what we can do. One thing we might consider doing, which I have not had a chance to put to the Minister, is something that has been done in the UK to renovate derelict sites and bring back properties. The VAT rate has been reduced. If one is bringing back a derelict site or old building, the VAT rate is reduced to 5%. There is no VAT in some jurisdictions where a development is 100% social housing. That would in some ways reduce the burden and the cost. It would counteract some uncertainty if people knew that did not have to be paid. Will Ms Donaghy address the CALF?
Ms Tina Donaghy
We want to reduce the cost to the Exchequer. We want to make what we manage more sustainable in the long term, because we are in this for the long run, as Ms Hegarty and some Deputies mentioned. We want our homes to be on the marketplace for 100 years. We hope the stresses and difficulties we are experiencing at present are short term. To alleviate them, we might need to look at lengthening the financial model on a short-term basis, such as the CALF and the payment and availability schemes.
Deputy Ó Broin mentioned the challenges with the HFA's increase in interest rates. It caught some of our members unaware because they had no headroom. I had a €22 million project on the cusp of starting. It was just awaiting project approval. Everything had been lined up. We were hit with an interest rate hike. I was lucky to be in the position of having a bit of headroom. I was at my maximum rental for that area, which is not that high, but I had not maximised the CALF. It allowed me to increase the CALF by a very small percentage, of 1% or 2%, which covered the interest rate. That is where many members were caught. It is a difficulty. We do not want this to happen because it slows the process. We have to feed back to the developers and builders that the process has been elongated. Time has been added, which increases uncertainty and cost. The developer has to price it in. It is about better engagement.
I do not think we will cover them today but there are many alternatives we can look at. We need to look at alternative contract forms such as PPC 2000 which is more of a partnering contract. We need to talk about supply chain management and to engage with larger developers who have larger buying capacity, if they are prepared to sign up to a longer term deal where we can have repeat business and fixed key performance indicators that will reduce costs, terms and time. There are obvious things we can build in. Our system is very rigid. We have a GCCC or a new build development agreement with the contractor. At times, we to hold them to account. We ask them to tender and operate on an open book basis with us. We want the assurance that what we are getting value for money and it does not just run away, because it must be sustainable. We can use various approaches that would give us greater confidence that we are getting the best deal we can, as well as to build some resilience into our system and not allow the costs to run away with themselves.
Ms Orla Hegarty
Two questions were asked and I will deal with the second one first on master planning, strategic development zones and economies of scale. Some of these are getting into planning issues. Strategic development zones are a way of unlocking land. The comment I made on it was in the context of the Land Development Agency and other policies on the development of larger sites in Dublin such as O'Devaney Gardens and Oscar Traynor Road, where the procurement policy has been to do a very large, very high risk deal with one developer. This takes an extraordinarily long time and is high risk since one is putting all the eggs in one basket with regard to quality, price and whether it is a success. Unbundling the sites into smaller lots spreads the risk and brings in competition. More important, it is not only competition of people trying to get the work finished quickly on their lot and getting another lot. This model has been used successfully on the Continent.
It also gives competition in the labour market and that will tend to favour better employment conditions. What has not been talked about here in some of the procurement policies is that they tend to favour poor employment practices because, by favouring lowest price and giving work to the lowest price all of the time, it tends to damage employment terms and apprenticeships and training and lead to bogus self-employment and those kind of issues.
Generally, in terms of the larger sites, the important thing to remember is we do not really have big builders. We have a few big development companies but we have lots of small builders. In fact, somebody as a large entity getting a large contract is merely managing hundreds of smaller contracts. The construction industry is made up of sub-contractors and sub-sub-contractors. Effectively, the procurement process for each project is individual. It is a supply chain that is built on-the-fly with people as they are available and having more people up the chain and a larger entity is really adding another layer. It may not be bringing value to the proposition at all. Traditionally, house builders brought a lot of value. They were people who were skilled and experienced in the construction industry. I refer to the pre-crash house builders who brought a lot of value to the process because they had a lot of relationships with sub-contractors and suppliers and they were doing multiple deals across multiple projects. That was how they engineered the value and the profitability into their business. We are increasingly seeing people who have a management structure and maybe are bringing finance, but do not have that value to bring across managing a supply chain, and they themselves are, in fact, tendering out to the market.
There is a lot - it is difficult to describe it now - in there in procurement policy. I suppose it goes to the earlier question from Deputy Ó Broin as well on procurement. Construction is inherently risky and the procurement process is effectively complex. In order to manage that, we have so-called "traditional procurement" whereby there is a contract in place that manages that risk and it tries to balance the risk on both sides so that the contractor has certainty of being paid for the work they do, that unexpected things will get paid for if they arise and that the person who is the commissioning body at the top of the chain has certainty that they will deliver and that they have the tools to enforce good quality and various other mechanisms. Construction contracts, traditionally, are complex with a lot of levers for those changing conditions.
We effectively in the public sector now have less sophisticated contracts - that has been so in the past 15 years - where they attempt to transfer risk early on. We say to the contractor that the contractor should make allowance for all of these things that might happen and price it in at the beginning, and if it arises, we do not want to look at variations or additional cost, and it is the contractor's problem. The difficulty is the conditions in the past 15 years have probably masked the danger in that. We have had a period of fairly flat inflation in construction, labour and materials and we have had adequate capacity in the industry to keep expanding in the past few years so that people were available to do the work. In terms of people who took on contracts then, they had certainty that they could find people to do the work and they had certainty about the future price of materials and, therefore, they could to some extent price in that risk. We now find ourselves in conditions where it is different. The industry is at capacity in a lot of areas, the risks have increased and we do not have a contract mechanism that is sophisticated enough to manage a lot of that. We also have centralised controls in terms of approval of costs. The purse strings are held in the Department of Housing, Local Government and Heritage and in a lot of cases that is what one might call micro-managed to some extent in that people have to spend an inordinate amount of time getting approval and going back looking for a certainty that just is not out there. A delay of-----
I am sorry to interrupt Ms Hegarty but I am up to 11 minutes or 12 minutes on that slot.
Ms Orla Hegarty
Apologies, I was answering two questions.
I want Ms Hegarty to come back to that point because it is important. For the sake of fairness, I need to keep to the time slots for people. We were up to 12 and a half minutes on that slot but there were some interesting points in it. The next slot is a Green slot and I will take that.
I am sorry I did not get a chance at the start to put the meetings in context. This is the second meeting we have had on construction costs. The first meeting we had was purely on construction costs. In the second meeting, we want to look at the impact of inflation on construction costs. We hope to publish a report on that. Ms Donaghy stated there are areas that she probably thought we might not get into today but I assure her we are open to these suggestions and any of the research that Ms Donaghy has done, or any credible suggestions at all. We are willing to ask for consideration of those and I ask her to not feel constrained in any way to discuss any part of affordability in construction today. It is key at the end of the day, if we manage to produce 33,000 houses or 40,000 houses per year, or whatever it is, that they are affordable for people. That is the critical point.
I will ask a question on refurbishment, over the shop accommodation and bringing derelict properties, either formerly residential or formerly commercial buildings, back into use. The Peter McVerry Trust is doing quite a lot of work in this area. We had a committee report published and it was suggested that there were costs with refurbishment of the second and third storeys of commercial buildings that were making it prohibitive in many cases because there were a number of different stages that one had to go through with accessibility certificates or where it might require a conservation architect, etc. What is Mr. Doyle's experience of it in the Peter McVerry Trust?
Mr. Pat Doyle
I thank the Chairman. I am glad he brought it up. I will keep it to ten minutes.
We have developed a particular skill, I suppose, in the Peter McVerry Trust, as have other members. The Sophia Housing Association is doing some work in this area as well. I have to speak for other members too. We have developed a particular skill in relation to derelict and second-hand properties and commercial buildings and the transfer of them. There are many challenges in it, but the benefits, for example, are that one is reusing existing resources and they have 80% less impact on the carbon footprint than going to a greenfield site and starting again. It is like the old recycling model of reduce, reuse, recycle. There are great benefits there.
There are other benefits because many of these buildings are central to towns and villages the length and breadth of the country. Kilbeggan, for example, could barely support the commerce in the town but, under the planning laws a number of years ago when they were building new residential units at the edge of the town, the ground floor needed to be commercial. We were able to apply to take five disused shop units - in fact, they had never been used in that development - and turn them into nine one-bedroom apartments. They were able to be done, affordably, quickly and simply within planning. The challenge was to identify them and get a hold of them and in the preparation of the work because one is looking at fire exits, disability access, etc.
Going up to two-storey buildings, that is fairly doable as well. For example, we have taken a number of old banks and old, two-storey monasteries. We have taken a number of old schools where there was amalgamation of, maybe, three schools in an area and there was an old school. We were able to convert them. We currently have four pubs in four different counties that will bring in 18 units. It is small in terms of the numbers the Chairman is talking about, but those will never go back to being pubs. It is good for the environment and good for the town. It is breathing life back into the town and gets rid of dereliction. In one of the towns, this was a landmark building and every child passed this dereliction on the way to school every day. Now it will be social housing and homes for families.
Can I ask-----
Mr. Pat Doyle
When one goes onto the third floor, that is where one starts to hit the higher costs in relation to disability access, fire safety and lifts. In Townsend Street, for example, we took a three-storey old tenement that was closed for years. That meant going out the back, building new lift shafts and adding on glass atriums to build the lifts. That is where one's costs increase.
I appreciate that in respect of accessibility. Last week, we talked about universal design, houses and wheelchair-liveable homes in the context of adaptable construction. The groups represented were of the view there were certain practical issues regarding some of the second- and third-floor buildings, because of their limited size, existing staircases etc. There should be full accessibility, however, where building is starting from scratch on a greenfield site and where work is being undertaken on the ground floors of commercial properties.
Regarding the work being done by the ICSH, how can we encourage more builders to get into this space? If the ICSH has been able to do this and has found it a viable approach that can be done affordably, then this type of work would probably suit small builders rather than large commercial building outfits. What do we need to do in this space to make it more attractive? The census figures are coming in and possibly 160,000 homes are vacant. We would of course have to break that figure down. Some of these homes are perfectly liveable. They may be holiday homes and people might be working from home. What does Mr. Doyle suggest we could do to assist the ICSH and others in this regard?
Mr. Pat Doyle
If we take a town like Monasterevin, we undertook a survey there on behalf of Kildare County Council. We came across 204 vacant homes. When we took out those houses included under the fair deal nursing home scheme, those that were the subject of a dispute and those owners who were just not interested, we were then down to about 24 or 30 houses. Having the keys to 24 or 30 houses in every community and town like Monasterevin, however, could get us to the required numbers of homes. It will not be possible to get the numbers in one go, but it will be possible-----
Regarding those people who are just not interested, is it possible that we could apply some leverage in that regard?
Mr. Pat Doyle
Yes, and this might be where it would be worth considering the use of compulsory purchase orders, CPOs, and similar mechanisms.
Or taxation measures.
Mr. Pat Doyle
Yes. Carrot-and-stick approaches could be used. The vacancy tax could be increased. If we leave out all those properties I mentioned, there were 24 owners interested and ready to go. The Government schemes are in place. Those are particularly appealing to small builders. In Athy in County Kildare, and I keep talking about County Kildare because I live there, we were able to bring back into use several prominent disused buildings and that work was done by small builders. The aspect we must look at here is the VAT rate. If these are purely social projects and we are revitalising disused buildings, getting rid of dereliction and helping the environment, then many boxes are ticked. In this context, there should be some type of reward or leverage in respect of reducing the VAT rate.
This is being done from an AHB perspective. Regarding private developers wanting to do something like this, they must of course have a level of profitability built-in. Would it be a viable and profitable enough proposition to attract them?
Mr. Pat Doyle
The grants in the repair and lease scheme amounted to €40,000, up until the current Minister. We lobbied, as did others, and we got that amount increased to €60,000. This makes it affordable. I do not think it makes it profitable. Does this make sense?
Sure. For others to be attracted to undertake this type of work, a level of profitability would be needed.
Mr. Pat Doyle
Yes, that would be needed as well. All the schemes I am talking about are doable with two-storey buildings. Regarding tackling third storeys and above, we need changes. Regarding the project I mentioned in the context of Dublin City Council, for example, and no disrespect is intended to that body, we had to make every floor and every level accessible. It was required that 100% of the occupancies were accessible in respect of disability, ageing and other similar issues. The work was undertaken on that basis. I am not sure whether we need that level of occupancy to be possible all the way up, because that increased the costs and the technical work required. It is also extended the length of the project. In schemes where it would be possible to stipulate that 66% of occupancy was fully accessible in the context of disability, we would surely think that would be doable. If we were to go to any European capital city, every small space available is being used.
Yes
Mr. Pat Doyle
We were also knocking two old units into one in those schemes I referred to. People were getting space and light. Costs increase though when it comes to providing accessibility right to the top of a building.
Many materials were on site already in those cases. New building materials were not being brought in-----
Mr. Pat Doyle
Absolutely.
I wish to bring in Professor Hegarty because she has a great deal of expertise in building regulations, but I will come back to her on my second round of questions. I call Deputy Richard O’Donoghue.
Mr. Doyle is saying there should be 0% VAT on social housing and 5% VAT on renovations.
Mr. Pat Doyle
Yes, that is what it is in other jurisdictions.
Okay. Regarding social housing in Limerick, such a policy would discriminate against many people. The reason is we cannot even build social housing because we have no infrastructure. The Land Development Agency, LDA, was referred to a few minutes ago. It is only looking at locations within a 15-minute proximity of Limerick city, which includes Croom, Adare and Patrickswell. Everything else is counted out. This leaves out more than two thirds of County Limerick. There is no sewerage capacity in Dromcolliher, Hospital, Kilfinane or Askeaton. Therefore, bringing this measure in, with all the best will in the world, is not going to build social houses in County Limerick because there is no capacity.
Then we have people who want to build houses themselves. Those supplying their own sites, sewerage capacity and water supply and building their own houses are paying 13.5% VAT. Those people are no burden on the State at all. On one hand, then, it is being suggested we should have a 0% VAT rate on social housing, while on other hand, these people who are no burden on the State should continue to be charged a VAT rate of 13.5%. Those building an average house of 2,000 sq. ft in the countryside, which is a nice-sized house there, pay approximately €40,000 in VAT. Mr. Doyle wants people living in the towns and cities to pay a VAT rate of 0%. Even then, this could not happen in Limerick because we have no infrastructure.
Regarding Croom, I spoke to a developer on the way here this morning. He is waiting on Irish Water to provide a water supply. When we had representatives from that company before this committee, they gave us guarantees that things would be put in place for phase 1 of this development of 56 houses in Croom. Those are being held up. We were told those houses would have a water supply and that contracts would be in place in this regard for the first quarter. The contracts have been signed by the contractors, but there is still no water supply. This site is 15 minutes from Limerick city and 56 houses are being held up. There are also contracts for 24 houses and 12 houses and they also cannot be built because there is no infrastructure. This initiative we have been discussing will benefit people where there is infrastructure, but it will not benefit the people I represent in Limerick.
Another point mentioned by Mr. Doyle, and one I agree with, was living over shops. An undertaking was mentioned where four or five shops that were never used were removed and the buildings done up. We stopped that in a couple of towns in Limerick. We want to rebuild towns and villages. In one of the locations I referred to in Limerick, taking out the shopfronts that were not being used would have meant we would have been left with only three shops on the main street. We had more housing, but we could not then encourage people to come back in to open sustainable businesses. Even though we were going to have extra footfall, we were not going to have any businesses. The situation was encouraging people to build shop units outside that town. Shops would have been taken from the main street and brought out to the outskirts of the town. I agree that people should live over shops. I do not agree, however, that shopfronts should be taken away. I believe everything should be done on the second and third storeys in this regard.
I should have mentioned at the outset that I am a building contractor. I was on the site this morning before I came up. I am on sites all day, every day before I come up to Dublin. I can see first-hand the weekly price increases. I got a letter last week notifying me that the price of insulation produced by Kingspan was going up by 25% on 1 July. The situation is out of this world. Last week, I said that prices in Limerick were at approximately €180 per square foot. Now, they are close to €200 per square foot.
Another thing is the cost of trades. For the first time, I had a stall at the Charleville agricultural show last weekend. Many young people told me they could not afford to do their apprenticeships or to go to work. Those included apprentice blocklayers and plasterers. Young people of all ages, and many girls and young women, came up to me. It was not only those young people and their parents who were talking to me but also younger children aged 13, 14 and 15. They were now feeling the pinch because they could see their parents feeling it. Now, these children are starting to feel it as well. They were at an agricultural show.
A total of 98% or 99% of the machinery there comprised fossil fuel vehicles and machinery that was made using fossil fuels.
That brings us back to building. Housing for all must mean housing for all. We cannot exclude social housing or people who want to buy homes. We cannot discriminate against people. We need to build a lot more social housing. I want to build social housing and rebuild our towns and villages in Limerick. My hands are tied because of the lack of vision from previous governments which have not invested in infrastructure. We have Croom and some capacity in Kilmallock, Newcastle West and Adare. After that, we are gone. Over two thirds of people in County Limerick have their hands tied, so to speak, which means social housing cannot be built there.
As I said, I am a building contractor. A person contacted me yesterday regarding five houses in a town. The person contacted the local authority to tell it they would build the houses and come to an agreement, but the local authority told them it has enough houses. We have a housing crisis. I have received four phone calls from people who have said they told local authorities they would build houses for people with special needs. They have sites to build on, would come to an amicable fee and build housing, but local authorities have told them-----
Does the Deputy have a question?
Local authorities have told the people they do not want their housing. How can we have housing for all if we do not have infrastructure?
Mr. Pat Doyle
I hope we can be of some value to the Deputy. We represent the Irish Council for Social Housing. For us, it is all about social housing so I ask the Deputy to forgive me if we have not talked about other housing. I am well aware of the needs of those who are working full-time, perhaps have two jobs, and yet still cannot afford to buy or cannot find somewhere to buy. For the purposes of the council, we are involved in social housing.
The trust is refurbishing four units in Askeaton in Limerick. We are developing 12 units in Mallow Street and are turning an old pub in St. Joseph's Street into four apartments. We are doing that work on existing sites. There are more such sites out there where we could use the existing infrastructure. If we allowed a reduction in the VAT rate to 5%, as happens in other jurisdictions, to incentivise people to reuse what is already there, that might very well give us the infrastructure we need.
We face the same frustrations at times with the ESB and Irish Water. The development in Mallow Street involves an old Office of Public Works, OPW, building with infrastructure in place, and we are turning it into 12 units which will provide social housing to people in Limerick city. We recently signed for 12 units in Charleville. The infrastructure is already in place for most of the units we are signing for. We are bringing units back into use.
I am glad the Deputy gave me an opportunity to come back on disused commercial buildings. I fully support and agree with him. There is no way that the Peter McVerry Trust or any social housing provider wants to decimate towns and villages by taking out what little commercial activity they have. In the example I gave in Kilbeggan, we would not touch the main street. The main commercial activity in areas like Kilbeggan will remain untouched and people can continue to shop there. My point referred to commercial units on the edge of a town that have never been occupied. If they were occupied, they would compete with businesses in the town centre. Turning such buildings into nine units of housing brings more footfall into existing units.
I have a few questions for Ms Hegarty and one for Mr. Doyle. He referred to 204 vacant units identified in Monasterevin and said that only 24 owners were interested in development. Regarding breaking down the other vacant units in terms of fair deal, disputed and, in particular, those who are not interested, can he expand on the non-interested cohort?
Mr. Pat Doyle
I have that information and can pass it on to the Chair. There were three areas. The first was fair deal. The second involved disputes or legacy issues that could not be decided. In a small number of cases, nobody knew who owned a building and we relied on An Post and others to help with that. We have a breakdown of all of that information. The third cohort comprised those who were not interested, and that is where we need a carrot and stick, as the Chair said.
It would be useful to get those data to have insight into what the position is. I thank Ms Hegarty and the Irish Council for Social Housing for coming before the committee. In her statement, she identified the land value trap as a major issue in terms of why construction often stops and we have a stop-start approach. That approach involves huge costs and major skills losses. What measures does she think are needed to address the land trap value cost? It seems to be a particular feature of the Irish housing system. Does the same happen in other jurisdictions? What is her take on that?
Ms Orla Hegarty
There is absolutely nothing wrong with private developers buying land and adding value to that land, and that being a legitimate business. We have no issue with that. It is a model we have used very properly in the past.
I would draw a distinction between such a model and an over-reliance on it, whereby it can serve, and function for, the private market. It tends to follow the ups and downs of the economy and a boom-and-bust cycle whereby the industry will produce a lot and then stall because conditions change. We will then see a decline in building, followed by an increase. That often involves a seven-year cycle.
An over-reliance on that model means the whole situation is precarious in terms of delivery. Traditionally, the public sector evened out that process by ramping up investment in the public sector in a downturn, which maintained employment in the construction industry and meant the State got keener prices when the market was good. When the private sector picked up again, the State could wind down its investment and construction workers and, importantly, skills could be retained because people would work through the cycle.
In principle, there is nothing wrong with the speculative market. However, we now have particular conditions whereby there is an over-reliance on this model and limited capacity. There has been no effort to build capacity in the residential construction sector since the crash. We have not rebuilt the native small builder sector. There have been high barriers to entry. It is been very difficult for such builders to get finance and land. That means it has been difficult for builders to start building.
The Deputy referred to smaller and more regional builders, turnkey operations, and the comment that houses would not be built if it was not for the State stepping in and buying them as turnkey properties. The reason they would not have been built is because smaller developers find it very difficult to get finance. That has been a barrier. In effect, rather than procuring housing through contracts which have mechanisms for dealing with inflation for builders and all of the things that traditionally would have been in place to help the current situation, the State has gone for a model whereby it will agree a fixed price at the beginning, be it on a Part V, turnkey or other such arrangement. That was all very well when the conditions were stable, but it is not working when they are not.
We need more sophisticated mechanisms to manage that because builders have real costs. Keeping people on their knees or putting them out of business is not the way to re-establish a national residential construction sector. The sector has to be supported to regrow and ensure people have good terms of employment, apprenticeships and skills training. Putting builders into high-risk situations with fixed-price contracts and tenders where the lowest price wins the bid is very damaging to the sector in terms of quality and employment. It is also risky in terms of how the cycles go because, as the Deputy can see from the feedback earlier, small builders are being pushed into very high-risk conditions due to the fact we do not have contracts for them which have the mechanisms to manage the situation.
I thank Ms Hegarty. I can take from that that the weakness of the public sector side of delivery as a counterbalance and counter-cyclical part of housing delivery is a key issue. The access, or lack thereof, of small builders to finance for land is a key structural weakness that needs to be addressed, as well as other ways to support smaller builders, and that is a key part of delivery.
In her opening statement, she said the drive for speed and lightweight construction in the short term has not been adequately assessed against the long-term investment need for new housing to be climate resilient, safe and sustainable for the next 100 years.
I understand that lightweight construction includes using more wood-framed construction, for example. There are potential environmental benefits to using these materials. Will Ms Hegarty expand on her concerns in order that I can fully understand them?
Ms Orla Hegarty
To provide some context, there have been several rounds of changing regulations, particularly for apartment standards, since 2016. I have very serious concerns about the changes to the apartment standards. This is not just in terms of space being squeezed. It is also in terms of public health and safety. As an example, in the build-to-rent sector now a two-bedroom apartment has 20% less a volume than it would have had under the early regulations. This is a public health issue in terms of the pandemic, people's health and ventilation in buildings. We have also changed the standards whereby apartments are located down both sides of a single corridor in a hotel style. This means that cross-ventilation is no longer possible in the majority of apartments. Travel distances to fire escape stairs have been increased. Lobbies have been removed. Kitchens have been separated from central corridors and bedrooms. All of these cumulative changes have not been adequately assessed in terms of the longer-term implications.
In terms of the lightweight construction, there needs to be more of a balance. Policy is being driven by speed and cost, without really stepping back and saying that whatever we invest in housing now, and it will be considerable, has to be in housing that we will still have in 100 years' time and that will still be sustainable and usable in 100 years' time. Many of the decisions are being made on spreadsheets, almost as accountancy, on where costs can be shaved or where a week or two can be taken off the construction. We live in a climate that is very vulnerable to water ingress and deterioration of fabric. It is very damp. We are not used to denser housing in terms of fire safety. We have a poor record where we have had denser housing.
We are now moving to hyper-dense housing without balancing the requirements for it. In some cases we are moving to lighter construction, and I include timber-framed terraced housing in this, without an adequate assessment of whether we have robust enough quality controls to ensure that it is safe and well built. More broadly, in the rush to deliver numbers, perhaps sight is being lost of the main objective. Any new house built will have to stand for quite a long time and the mortgage relating to it will have to be paid back over a long period. We do not want to risk a situation where we are still paying for some of these houses when the buildings are no longer habitable.
The points on timber frames and fire safety are valid. Unfortunately, there are examples where it has not been done properly. I would not have full confidence that all of the lessons have been learned yet.
Ms Hegarty referred to six storeys being cost optimal. With regard to reasonable density, a very strong argument has been put forward by others, including Lorcan Sirr and the Irish Home Builders Association, that sometimes it is better to have duplexes with a ground-floor apartment than four-storey apartment buildings. In these three stories very reasonable density can still be achieved. It can also be more cost-effective which means it can be more affordable. What are the views of the witnesses on the three-storey duplex model and the six-storey apartment model? Is there a strong case that we should be looking at three-storey buildings with duplexes if four-storey apartments are not affordable to build and, for the slightly higher options, we should be looking at six storeys?
Ms Orla Hegarty
Sometimes that is called the missing middle. It is actually the most sustainable.
We will come back to this. We have gone over by ten minutes. Ms Hegarty's submission contains a very good graphic on the evolution of space. We can discuss it as part of the reply to Deputy O'Callaghan's question.
I thank the witnesses for their comprehensive presentations. I will run through my questions quickly. Mr. Doyle made some very interesting points on developments that were priced in 2018 and 2019 being impacted by inflationary costs and pressures. I am aware of some social housing projects that were priced and have not gone ahead. Essentially, the developers involved have pulled out because they cannot afford to build. Does Mr. Doyle have indicative figures or lists of developments where this is happening? Does he have the number of developments and social housing units impacted? I am aware of one case in Dún Laoghaire where the builder pulled out.
Both witnesses identified that this goes beyond the inflationary costs of construction and I am interested in teasing this out. It goes more into cash flow and financing. This is something arising for builders, developers and home buyers. Do people have access to money? They could afford to pay back loans but they are not able to get them. Builders are having cash flow problems. Developers feel that the risks involved in certain developments are too high. What changes would the witnesses make? What proposals do they have on financing and cash flow to free up these blockages and problems?
To come back to the costs arising from connections, especially Irish Water connections, is there a particular problem or blockage that Mr. Doyle can identify? Are the costs associated with it prohibitive? Ms Hegarty made some interesting points on house price increases and the regulatory impact. I went to the links in the footnotes to see if I could click into them. Will Ms Hegarty send them to me? There are quite a number of footnotes in her submission. It would be handy to be able to click on the links to get an idea of the context of where they are coming from.
Mr. Pat Doyle
I am aware of only one project in the current scheme where the builder has got into trouble and will not complete the project in view of the current costs. By and large, we hear that most people who won the tenders are delivering on them. They are concerned and giving out, but they are delivering. We do not have a big list of defaults. What we have been working on with the Department for new and upcoming tenders is that there will be a cushion whereby people can go back and seek unforeseen costs. Most people are delivering. The bigger issue, as I said earlier - I am not sure whether the Senator was here - is with regard to planning for the 2023 and 2024 pipeline and whether people will commit to a fixed tender price when there is so much uncertainty. This is the challenge. We are delivering and our members are not reporting any lack of delivery.
Irish Water costs are a challenge. There was one particular project where changes needed to be made and a second application had to be made. The costs changed between the first application and the second application. Everybody is aware of the cost. We are not having as many problems as one of the Deputies mentioned earlier with regard to Irish Water connections now because there is a representative from Irish Water on the high-level working group the Minister has put together and it is working. We probably need the same level of representation from the ESB for connections as we do from Irish Water. Irish Water will make its own case, but I would say, and this is anecdotal, that the costs for Irish Water and ESB connections are very high and add significantly to the overall costs of a project.
We need to eliminate this thing where you are penalised if changes are recommended by engineers or if there have been unforeseen changes to the site. I do not think some of the costs were justified. You were always making a fresh application, and it was a different rate from what you had previously. We need to watch that.
When it comes to finance, many developers and people can only get the finance they need if it is a CAS or CAS-funded project with an approved housing body. That goes back to what the Deputy from Limerick said to the effect that social housing schemes people may be able to get the money because they have the backing of a Government scheme, but small builders who would, in years gone by, on a site on which they would have built three units, made a profit on one and put that into the next site, are not getting the finance. Our other speaker has said that as well. We need to give greater access to finance for those smaller developers and builders to build one, two or three houses on the edges of towns and villages.
Ms Tina Donaghy
On cash flow and funding, we need to probably market to a greater level the works of Home Building Finance Ireland, HBFI, and its availability to provide cash. It can be a fantastic resource. Where other funding is not coming forward, HBFI has funding and the relevant mechanism, but is not that well known. I have spoken with our marketing people and said to get it into our next conference and do a bit of marketing. We engage with small builders and landowners and if they can engage directly with HBFI in a separate commercial transaction and agree on terms, while they have a guaranteed contract with us, it is a way of bringing product to market and getting funding, but we need to press that home. HBFI has increased exposure recently but it is still not enough and these are desperate times. We all know privately, individually, personally and commercially that lenders do not just lend money any more. They assess risk and they do not want to be in the business. If banks could get out of doing mortgages, they would not do them. That risk management around lending has been the case for a long time. We have a great relationship with the Housing Finance Agency regarding how it services into our sector and provides loans. HBFI should concentrate on social and affordable housing. There is work we could all do to improve that.
I thank Ms Donaghy. That is a really interesting and good point.
There was a question to Ms Hegarty about sending on correspondences.
Ms Orla Hegarty
I can do that.
That is good. I am waiting for Deputy Ó Murchú to return from the Dáil, but can we go back to the question Deputy O'Callaghan asked about apartments. The evolution-of-space graphic Ms Hegarty has is interesting and shows starkly where we were in 2020 in terms of apartment sizes. I have often heard statements that people do not want to buy or live in apartments. It is often seen as a transitional thing. It is all about home ownership and the three-bed semi. That is no wonder when we have apartment standards of the type that are in place.
Ms Orla Hegarty
There are complex reasons for people's reluctance to buy apartments. One is that our space and general standards are poor. Second, we have a poor history of safety and build quality with apartments that has not helped. We have not had an objective of more dense housing that is suitable for families, though half of our households have children. The apartment standards we have, including those that were downsized in the context of studios and very small homes, are geared to a certain age cohort who are probably not in those buildings most of the day, are working and need somewhere to sleep. They are certainly not geared toward family living or people who spend more time at home, such as the elderly or those with disabilities. That is a major disincentive.
The problem is that the policy has favoured two types of housing, neither of which is really sustainable. One is commuter-belt housing for families at low densities, which means that people are driving, it is damaging the environment, eating up agricultural land and demanding of new infrastructure. The second is hyper-dense, inner-city apartments. Dublin City Council had more sustainable apartment standards that looked to accommodating a broader range of people over the long term in liveable buildings, but we have now moved to incredibly dense buildings. It is the same density as Shanghai on some sites. It is difficult to live in those buildings at such a northerly latitude where you do not get daylight and sunlight and ventilation is difficult. You are living very close to neighbours because the space standards are so low.
What is sometimes called the missing middle is a sustainable density that is neither of those. It is about making inner suburbs with buildings that have a density of between three and six floors, that are geared not to one demographic but to a broad range of demographics in mixed communities and that are family friendly. The latter means that there are amenity spaces. At that density, you can support public transport and have shops and schools close enough for people to walk. That model is common. People would be most familiar with the Netherlands having that type of density where planning is carefully managed. Unfortunately, neither of our models, the dense apartments we see in SHDs or the commuter-belt housing, constitutes a sustainable housing future.
Ms Hegarty's view is that we are not taking a sensible approach in terms of density. We have two extremes. We are still doing a lot of low-density, unsustainable development, as well as poor-quality, high-density developments with which there are numerous problems. We should be landing generally on three to six storeys in most areas. That would make sense in terms of having a good-----
Ms Orla Hegarty
With decent space standards.
You would have good standards plus a good level of density for providing infrastructure and access to public transport to meet our climate change objectives. We could achieve a huge amount in that range in most areas. That is Ms Hegarty's view.
Ms Orla Hegarty
People have confused high density and sustainable density. Much of the new development has gone to the other extreme. People have also confused height with density. You do not need height for a sustainable density. Prior to the deregulation, Dublin, for example, had between six and nine storeys permitted in most of the city, which is probably about the right range for liveability and optimising construction costs. At those kinds of densities, you can phase a development more easily, build in slices and occupy the building. A difficulty with the very dense new SHDs is they are incredibly difficult to finance because they cannot be phased. By removing stairs and lifts, it makes it very difficult to phase the development. That means hundreds, notionally, of complete ready-to-occupy units that cannot be occupied until the rest of the building is finished. The developer then has to carry the finance costs for much longer for all of those units. All these things, rather than reducing size and cost, were done simplistically and have added to cost and made development more risky on those sites.
That is a fascinating aspect of this. We could talk about it for hours. I might come back to it in a while.
Gabhaim buíochas leis na finnéithe. I thank the witnesses and apologise for coming in and out while carrying out my important role as a super-sub for Deputy Gould. I am a poor imitation of a Corkman.
I will follow up on some of what has been said.
I find it very interesting that height is not necessarily density. Every local authority is speaking about compact growth and almost every developer is adding a little more height so he can take something off to then be able to get what he actually intended through. We all know the difficulty that we do not necessarily have the planning piece in play for the type of homes we would like to be delivered, without even getting into the numbers. That is one thing.
Has the relationship with councils changed in the last while? My local authority in Louth at one stage almost deferred all building to AHBs on the basis that they could draw the money down more easily and the council was not going to be encumbered, as the council saw it, with having to stump up the money for maintenance because the local authority had an insufficient budget for that. In the last while, however, it has got its own targets and I am told in some cases it is pushing some of the AHBs away and is seeking to take that on itself. In fairness, that is okay. Once we have the funding streams for maintenance in place, I would be delighted with that. I believe there is a wider issue around estate management, but I will return to that piece.
They all have said that fixed contracts is the difficulty. I think Louth local authority's build for social housing this year, between AHBs and itself, is to be 650. We heard it was going to be 400 and then one of the councillors told me the other day, and I met the director of services two weeks ago, that it could be 300. They said it is not so much that people cannot get workers but that they cannot get supplies. Again, nobody wants to take on contracts. What are the witnesses' view on the tendering systems? The Construction Industry Federation, CIF, has spoken about Fédération Internationale Des Ingénieurs-Conseils, FIDIC, contracts and I believe there is another contract too.
I have asked enough questions. They would probably take 45 minutes to answer but I ask the witnesses to do their best.
Mr. Pat Doyle
The local authorities have targets now. The Land Development Agency, LDA, has targets and the approved housing bodies have targets. However, the targets have risen hugely in response to needs so there are enough to go around. The main thing is that we are not in competition with each other and that we are not chasing the same site, development or turnkey. That would be counterproductive.
There is something I forgot to say. I am sorry to interrupt, but I am terrible and I always do it. The fear there always was with AHBs was the fact that down the line, the AHB owns the asset. What happens at that point in time? It is something that arises regularly at council meetings.
Mr. Pat Doyle
I can only speak for our approved housing body. We have approximately 1,000 units and we operate in Louth, Limerick and so forth. We are not empire building anyway. On many an occasion over the years we would look at a site or a property and the council would say it is already looking at it, or we might say we are looking at it and the council might say that Fold Ireland is looking at it and it is more advanced in doing that, so we would pull back.
The local authorities have their targets. They are very familiar with our targets and our pipeline. They know where we are operating and where we plan to operate. The challenge for the future is that we need to know where the local authority is operating and where its pipeline is going so we do not all accidentally waste time looking at and investigating similar developments. Time will tell on that but there is something of a challenge there now because we now have the local authorities, the LDA and ourselves. We need to make sure it is not a competition and it is not about who gets the biggest portfolio. We are growing units and we have made a significant contribution. Our members have 50,000 units across the length and breadth of the country.
The one thing it is safe to say the councils will not be going after is the specialist units for Housing First, the specialist units for disabilities, the specialist units for seniors and the specialist units for Travellers. That is where they will need our help. Even this week the Irish Council for Social Housing together with the Department co-hosted a meeting on Traveller accommodation. In my opinion what we will see in the targets for local authorities in the next year will be in the general units. Is it fair to say that Ms Donaghy?
Ms Tina Donaghy
Yes. What we have now is a more streamlined approach across the supply chain of social housing right from the top. The local authorities have a tracker. All the housing bodies engage and we have a protocol with the various local authorities in whose areas we want to work. It is a process whereby we apply and say what our capacity is both in terms of ability to deliver and the financial capacity. We put in a bid for what we can deliver, whether it be five houses or up to 100 houses. It is up for renewal at present and we are working collectively with the local authorities to get the new protocol in place, and the Housing Agency is co-ordinating that.
Then there is the tracker. If somebody came to me with a site today and the person was at the Peter McVerry Trust with the same site, as soon as I telephone the local authority it will tell me that the Peter McVerry Trust was there first and it has an engagement there. We do not want to compete with developers, housebuilders and landowners. That will only end up pushing up the price. Likewise, the local authorities call the shots because they are the sanctioning authority for all our funding through CAS, CALF and the payment and availability, P and A, agreement. They have to sanction everything that we do. There is absolutely no way we will be competing with them. If they have the finance and want to take the units on, we have to let that go because they are our bread and butter and are bigger than us. We work very well with the local authorities. We engage with them and make sure that what we are delivering is what they want, is going to meet the needs of the people on the housing waiting list and can enhance the communities in which we operate.
Housing is our main gig; that is all we do. We can bring forward a very professional housing management and maintenance service that is dedicated to and bespoke for the client group with which we are engaging. We work very well with the local authorities and we are happy to look at any opportunities they may want us to look at, for example, if they think it is specialist they will ask us to look at it because it is not really for them. Likewise, if it is a Part V or something they want to do themselves, that is fair.
Across the board, Ms Donaghy is saying they are competing but they are not competing.
Ms Tina Donaghy
No, we complement. We do not compete.
Well put.
Ms Tina Donaghy
We complement what they do; we do not compete. In many local authorities housing was totally wound down for a number of years and-----
I saw where they opted for the housing bodies. Basically, they said the AHBs could get their hands on the finance quicker than they could, so it all happened faster.
Ms Tina Donaghy
Absolutely.
Now, there is an onus on them. They have more resources to do this and they want to do it. However, they are doing this in the middle of not having enough of a maintenance budget to deal with the housing they have.
How long do I have left, Chairman?
About a minute, but we can probably do another round.
Obviously the big need to fill is that we do not have enough units, and that gives us no wriggle room to be able to deal with necessary issues as regards transfers and so forth. The witness spoke about dealing with specific cohorts and so forth where the AHBs may have needed additional resources. An awful lot of people blame local authorities and say they have not delivered for them because somebody ends up living beside a difficult neighbour, to put it nicely. However, the fact is the local authorities cannot access the resources. They do not have a set of rules which they can determine with regard to estate management and the like. The AHBs can to a greater degree and even, not that I am calling for this, go down the road of eviction where it is necessary. If the local authorities do so, those people will stay on their books, for want of a better term. Does Ms Donaghy think there is a need for any change? My view is that there is a lack of resources to deal with the huge issues we have. It can create real difficulties and people can be unfortunate with who is living beside them.
Ms Tina Donaghy
I have worked in housing all my life. One of the most challenging areas of housing is housing management and I take my hat off to people who do that job daily. It can be very frustrating. In Ireland, there is a reluctance to use the ultimate sanction of eviction.
That is an area to which we do not want to go. We want to support tenants to remain in their homes. That would be the initial approach. In the approved housing bodies, we have dedicated professions. Housing is a profession. The people who work with us are trained into that profession-----
You cannot make up for mental health services and addiction services. Unfortunately, this is a more difficult job than it was 20 years ago.
Ms Tina Donaghy
Absolutely. I understand that. We have specialists who do that. Mr. Doyle can probably talk about that in a greater detail than I can, because they-----
I will come back when it goes round again, because we are now up to nearly 11 minutes for Deputy Ó Murchú. I will move to Deputy O'Donoghue. Then, I will take the second Green Party slot and then we will go into the third round. We will have time then for a couple of more questions. Deputy O'Donoghue if we keep it seven minutes then we all be happy.
That is no problem at all. Ms Donaghy said that Home Building Finance Ireland, HBFI, needs to be publicised more and there needs to be more engagement in it. I would be happy to look at that on behalf of people who approach me for housing and who went to local authorities who have said that they are not interested in the area. I would be interested in getting contact details for that. Were Ms Donaghy to email me afterwards with the details, I could engage and then I could help people. This could be a way of bringing in housing. It might be a way of getting them into the housing market. I would be delighted to help in that way myself. It will also help cash flow.
Mr. Doyle mentioned Askeaton and the refurbishment of four existing units. They have been waiting for 33 years on an upgrade on the sewerage system in Askeaton. It is supposed to be in 2026, that is the next time. What is there at present is broken. I compliment the Irish Council for Social Housing for doing up the building in Askeaton but it is being connected back to the existing broken system. It is an environmental problem in itself. We have that in all other areas as well.
On the issue of bringing older buildings back into production, Kilmallock has 14th-century listed buildings. However, there is one conservation officer in Limerick. He has only so much time to go out and to visit these buildings. For people try to bring buildings back into production in the likes of Kilmallock is a costly experience. I actually worked on the credit union in Kilmallock recently. It took us two years to complete it with conservation in order to bring it back into production. I would love to see the likes of Kilmallock rebuilt and going back into production. There are many buildings there that uneconomical to rebuild. However, I would love to keep the street structure and to modernise the back of them. Once they are not an iconic building, I would like them to be brought back in a more sensible way. This is so they will work for the people and get people and footfall back into the towns and villages in the likes of Limerick again.
I would like to hear more about HBFI and about how it can help people from a financial point of view. Can the witnesses explain the process of HBFI, if we had-----
Ms Tina Donaghy
I am not a salesperson for HBFI, which is a Government initiative. It is a funding stream from the Government. It is to directly fund small builders, contractors and developers to produce more housing. I do not arrange fees or anything with them.
Yes, I understand that.
Ms Tina Donaghy
My funding comes from the Housing Finance Agency. I am more than happy to talk about that. On the issue of HBFI, the Deputy would need to speak directly to that body with regard to its system. It-----
Can you provide the details to the Chair?
Ms Tina Donaghy
We can send the details.
It might be one of our working suggestions that we invite Housing Building Finance Ireland before the committee. Anything that we can do to add to the supply of housing and the financing of housing would be of benefit to all.
It would help us, because many people are coming to us at the moment. We were talking about it with the Minister for Housing, Local Government and Heritage, Deputy Darragh O'Brien, in the Dáil last week. He said that never had as many applications gone through planning as have done so in the past 12 months. He is actually right but not even a quarter of them will be built. That is my worry as so many planning applications are going through. Much of the surge in planning was from the change in the planning laws. Everybody was looking for planning, no matter where they were. They were trying to get it back in.
The issue of rising of buildings arose in a discussion I had on site this morning. I had it with a quantity surveyor this morning. There is the matter of rising of buildings to a third storey. People imagine that when a first storey and second storey are done, the third storey will be much cheaper to put on. The only basic costs that you are actually saving in this situation is on the foundation. Everything else has to be covered, such as fire regulations, concrete floors and it depends on what you are going on. The higher you go, the more expensive it gets. The lower you are, the cheaper the build. Once you pass the second storey you are into a different world. Again, the more we can do to help people to finance that side of it, the better. Many buildings could be built if the proper financial packages and if the right agencies were put in place. I want a situation whereby if a local authority states it does not want a particular building and if a certain agency is looking for it, it will feed back into the housing people. If Ms Donaghy can give me the information, I will go back out and encourage the people.
Mr. Pat Doyle
I thank the Deputy. The Irish Council of Social Housing has 50,000 units. Every year, we do a community awards scheme. We look at best practice and what our members are doing in best practice. That is available on our website. It is worth five minutes on that website, because some of the awards that have been won over the last couple of years have been for the very types of buildings that the Deputy is talking about. They have been bringing back old convents and old monasteries. The Peter McVerry Trust itself brought back an old Dominican priory in Athy, for example. There was a community hall chapel there, and we brought that right back.
Under the social end of things, you have to go tender. Within the tender scheme, you have to have a grade 2 conservation architect. The architect that we use, for example, was the architect who rebuilt St. Mel's Cathedral in Longford when it had been destroyed. I think that was the biggest capital project that had been ongoing during the recession at one stage. Millions of euro went into it. On the social end, we have to have those competencies within our team for the very reasons the Deputy outlined, such as that counties like his own only have one such officer. What they want to do in respect of the applications is to be sure that everything has been covered and that they are only reviewing it, rather than managing it.
Old convents, old churches and many of those buildings are now being brought back. Sophia Housing, which is one of our members, has been really good on that. We have being doing a lot of work on that. Tiglin did a bit of that in Wicklow. Clúid is doing a bit. There will be members on the phone tonight saying, "You never mentioned me", but if you go on our website, you will see them. That is what we need to do. Even this week alone, I spoke to two religious orders about the possibility to re-use their old building. That will require us to pay attention to the environment and to conservation.
I will take the next slot. This point leads me to return back to Ms Hegarty. Mel Reynolds attended the committee and spoke about the difficulties in second and third-storey refurbishments in terms of streamlining building regulations. This is not about reducing standards but about streamlining the process so that one does not have to go through three separate hoops and, if there is a failure at any one of them, that will set the project back to zero. Does Ms Hegarty have any views on how we make the regulations simpler and the process less expensive, without reducing standards?
Ms Orla Hegarty
I am supportive of streamlining regulations and the regulatory process for the reuse of existing buildings for housing. In fact, it has been approximately five and a half years since I first appeared before this committee on this issue. I was also here for pre-legislative scrutiny on a Private Member's Bill in relation to it a couple of years later. This issue has therefore been around for quite a while. There are technical solutions that are pragmatic and worth doing. Again, it is important that we have strong, independent quality controls on that process. It would not be feasible to demolish every building that exists. Many buildings have been successfully occupied for 100 or 200 years in this country. They should continue to be occupied. We can also re-occupy many of the buildings that are underused. There was mention earlier of the vacancies that have come up in the census. However, that does not count buildings that are not in residential use. There are upwards of 30,000 commercial addresses that are vacant.
These could successfully be converted with the right regulatory framework and controls, which have previously been a barrier to the over-the-shop and other schemes.
At those committee sessions, we saw figures from UCD or Technological University Dublin - I cannot remember which did the research - suggesting that there were probably up to 4,000 units available between the canals in the upper second or third floors on commercial streets. Why has it not been done? If this were simple and affordable, it would have been done a long time ago. Are those regulatory issues a barrier?
Ms Orla Hegarty
They are a significant barrier. The figure of 4,000 available spaces for apartments in buildings between the canals came from the Dublin City Council planning department a number of years ago, so some of them may have been reoccupied since. These buildings can be turned around quickly. The infrastructure is there. More importantly, they are integrated into communities and already have services. People would have public transport, local shops and access to schools in many of these areas as opposed to waiting for new infrastructure to be built for suburban areas in the commuter belt, meaning they are much quicker to turn around. This relates to the capacity constraints we have discussed in the construction industry. The same number of people can turn around existing buildings much quicker than they can build new ones. In this way, we could use the available capacity in the construction sector much more strategically to turn around buildings properly. In some instances, it would address crisis areas on the social housing waiting lists. Given that families are favoured, many smaller households of one, two or three people are at the back of the queue for social housing and would be suited to this type of housing.
Many of those units would be ideal for the one- or two-bedroom housing that is in such demand. At one of our sessions, Mr. Odran Reid from Technological University Dublin said that it was not just about the quantum of units being brought back into the sector, but also the economic benefits that doing so would bring to towns and villages, restoring life and vibrancy to those that had been hollowed out. Why is it not being done, though? We have been discussing this for years. We know the vacancy figures and that they do not take into account spaces on second and third floors. Is the issue down to the multiple ownership of these units? Is it down to traffic management? Is it down to the bespoke nature of the work involved, with greenfield construction being easier? How do we stop these being the reasons?
Ms Orla Hegarty
It is part of the larger policy context that I mentioned, in that the construction industry has not been supported to recover. At this meeting, we have heard the words "builder" and "developer" being used interchangeably. That speaks to people's confusion around this issue. Building and development are different businesses. When the State goes to procure a school extension, hospital extension or new library, it does not approach a developer. It approaches a builder. Builders do not have to get finance. They build under a contract, are given a specific set of instructions, there are mechanisms for price variations in materials and there are mechanisms for delays. Builders are paid monthly as long as they deliver and the work is done as instructed, meaning that they do not have to finance anything beyond their own equipment and overheads. That is how the State procures buildings everywhere except in housing. In housing, it supports the speculative development sector. This is a policy decision to seek cost certainty and outsource to developers. Developers take on finance for the development, may not be paid until the end or over a long number of years, and have control over quality, which is why we have had quality issues in the past. Often, they also control what they deliver, where they deliver it and into which market. This means that there is a great deal of uncertainty at State level about what it gets back from a housing programme, given that it cannot control the development.
This over-reliance on developers rather than builders means that the State is paying high finance costs. This has to be questioned, which relates to my suggestion of a full economic analysis. To my knowledge, there has not been an economic analysis of Housing for All to examine even simple matters like the cost of finance under these various mechanisms, all of which have the intention of outsourcing to the development sector and supporting the property sector rather than the construction sector, which are two different sectors, to recover.
As the committee will have heard from the ICSH, there is significant complexity in the funding mechanisms and approval processes, all of which is adding delays. Instead of having a year-long approval process through the Department of Housing, Local Government and Heritage, it would be much better to give the people at the coalface in the approved housing bodies and local authorities who know the mechanisms of construction delivery a contingency of 10% or 15%, approve the process and let them manage it. By delaying for six months, there is probably tender inflation of 10% on some of these jobs, yet we are getting no extra quality for that increase.
We need to draw a clear distinction between builders and developers. Builders will be available under good contract terms. The problem that builders have currently is that the contract terms transfer too much risk and there is too much uncertainty in that. Let us have more clarity around risk allocation and better mechanisms for managing risk through the contracts. I think-----
I am sorry, but I have to interrupt Ms Hegarty because my time slot is up. Next is Deputy Ó Broin, followed by Deputy McAuliffe.
Deputy McAuliffe has not spoken yet.
I appreciate that. There was a group outside Leinster House and I wanted to attend to them.
I thank the witnesses for appearing before is. I was here for the meeting's beginning but missed its middle, so I apologise.
One of the principal issues around the cost of delivery is that it impacts our ability to deliver – that is stating the obvious – and particularly the affordable part of Housing for All. The social housing programme is what it is and the numbers are starting to be delivered, but the real question is around the ability of local authorities and approved housing bodiess to take on the new tools under Housing for All to deliver local authority-led affordable housing. I would like to speak about this structure and how we might reduce costs and inflation.
There are two sites in my area - sites 12 and 14 in Ballymun - on local authority lands. Under Housing for All, they will be developed by Dublin City Council for affordable purchase housing. They will all be available to people with incomes of above €36,000 or, if they have larger families, €42,000, but the question that arises is whether their prices will be within the €80,000 that Ms Hegarty, in light of previous developments, has estimated will be the income that someone borrowing from the council will need. Each of the two sites involves 100 houses and no apartments and one would hope that both of them will be simpler than O'Devaney Gardens or the Oscar Traynor Road site. If each unit's construction cost to the builder comes in at €400,000 and the subsidy from the State is up to €100,000, the borrower would require €300,000. Obviously, the borrower would need a deposit of €30,000. The combined income to purchase that home, be it a two- or three-bedroom house, would be €77,000. If the construction cost was €300,000, the combined income required would only be €51,000. That is a significant difference. The State is providing public land to the homeowner and €100,000 per unit, which is a massive subvention, and the local authority is developing it. How much more can the State do to make housing affordable on these sites when such vast amounts of public money are going into making them affordable? These are small, uncomplicated sites. The purchase price might even be below the building cost, given that one can purchase homes in Finglas and Ballymun for €260,000, €270,000 or €280,000. The cost of building would be above the market price and we are providing a subsidy of €100,000.
How should we persuade approved housing bodies to start delivering on these figures? They should be responsible for delivering affordable purchase housing for social mix purposes if nothing else. If the construction cost comes in at €300,000, the council will be providing affordable homes for people with incomes of between €36,000 and €80,000.
If it comes in higher, the council will not. It is a fair assessment. In the context of an entirely public transaction, where could we save on the costs?
Ms Tina Donaghy
It is the million-dollar question and it is one for which we are all trying to find a solution. There are very few moving parts in a construction contract. There is land, build cost and run costs, which include design and consultancy fees, etc. We can control one of those with State land, so land cost is out of it. The other two elements are construction costs and run costs.
We could have cookie-cutter fixed design and have that as what we want built, and that would be replicated in many areas. I do not totally agree with that, and we could have a bit of a mix because we want to build attractive and desirable homes for people to live in. We can pin down the design and land, so really that just leaves construction costs. That is about having a partner. Ms Hegarty spoke about house builders and developers versus builders. Maybe it is time we bring in a number of them and put proposals to tender. We could indicate the set designs and we know what is needed for a three-bedroom semi-detached property or a two-bedroom terrace. We could indicate the size and ensure it meets the standards mentioned by Ms Hegarty; we should build to those and not cut standards. We could ask parties to tender to that on a competitive basis or negotiate on how much it would cost to build such properties on an open-book basis.
Moving parts would reduce and we can also talk about getting funding, including through HBFI. Ms Hegarty has suggested breaking down the number of units so instead of building 100 at a time, they could be broken into smaller tranches. Perhaps they could be done in tranches of 30 so we could pay over stages or builders could be paid as units are released and sold in various tranches. There are obvious ways of doing this.
Is it fair to say that is not really at a policy level but a project management level?
Ms Tina Donaghy
They would be at a project management level but the local authority's hands are tied in terms of procurement. The decision-making process can be difficult for them.
I agree.
Ms Tina Donaghy
We work really closely with them. Sometimes it is much easier when we work collectively; we can move at a faster pace. That is not because of any inability or lack of experience in the staff, who are excellent, but because of the approval process and getting to the committee or full council stage and getting the funding in place. There are definitely things we can do.
Mr. Pat Doyle
The €300,000 is doable. We had a project in another location on fully serviced State land it was between €275,000 and €295,000. That was very recently.
Was that with or without the €100,000 subsidy?
Mr. Pat Doyle
There was no €100,000 involved there but it was fully serviced State land.
That would have brought it in between €175,000 and €195,000.
Mr. Pat Doyle
No, it was coming in at €295,000.
The serviced sites have merged into the affordable fund. Okay.
Mr. Pat Doyle
Another local authority site in another area, rebuilding stuff knocked to the ground, was between €275,000 and €295,000.
That is encouraging.
Mr. Pat Doyle
That was probably prior to 24 February.
Ms Tina Donaghy
It comes down to risk as well. We are looking at asking local authorities or approved housing bodies to speculate as well. Do not get me wrong because they and we want to get involved in that space and provide affordable housing for rent and purchase. It is that whole risk element as well. There is a big push for the new model at this time but these are the worst conditions we could have had over the past ten or 15 years.
I am anxious to let in Ms Hegarty.
Ms Orla Hegarty
To my mind, the bottom line is if housing must be delivered at scale, at what level can it be delivered so the majority of people can meet their own housing need without subsidy. That is how I would define affordable housing. Unfortunately, affordable housing, both in policy and the Land Development Agency, has been defined as a subsidy to bring prices up to a high market level. That is not scalable because the money will run out before need is met.
If we want to talk about what level the State could have housing delivered at, I agree that a price under €300,000 is doable for three-bedroom houses and two-bedroom apartments. In order to do that, it must be the objective, and it is not currently the objective. The current objective is to keep market prices high so investors are attracted to Ireland and subsidise the gap. We need a rethink in that regard. I have done a fair amount of analysis on costs over the years, particularly costs from local authority-----
In the context of the two specific sites and the numbers I mentioned, there is very little in there for speculation or developer profit. I do not understand how that comment could relate to the two sites I referenced.
Ms Orla Hegarty
Sorry, but I am not familiar with those two sites.
I suppose they would be similar to any Housing for All sites where properties would be built under the affordable purchase scheme. That is where the land is owned by the State and the process would go to market to see how many units could be built and for what amount. If that comes in at €300,000, the maximum subsidy is €100,000, so the price per unit would be €200,000. For that price, earnings of €51,000 would secure the property.
Ms Orla Hegarty
My understanding is that model of State land is part of the affordable housing scheme in Housing for All but the affordable housing scheme on private land would be the majority of it. That would be a different mechanism and, effectively, the purchasers would have a second mortgage that would be payable in future.
In Dublin city, the majority of available land is public rather than private. I come back to the point about there being no plans for affordable purchase for people earning €36,000 and €80,000 in Dublin city. Those sites I mentioned, which are being developed by Dublin City Council, would deliver units at earnings of €51,000.
Ms Orla Hegarty
I accept that. I am not familiar with the two sites. I have been using the-----
There are other sites in construction as well. They are in Kildonan and many other sites planned by Dublin City Council that will form public housing on public land. They are all part of Housing for All. The worry is that inflation in construction costs will evaporate the affordability we have built in. I accept Ms Hegarty's point on the €100,000 subsidy and how sustainable it is. The alternative is to leave housing unaffordable but we are not willing to do that. We want builders to build in partnership with approved housing bodies and local authorities on public land to deliver the cheapest possible housing. Effectively, Housing for All delivers below-cost housing on public land. It is what we are doing.
Ms Orla Hegarty
I accept that and I did not reference those specific schemes. I suppose we are talking about two slightly different things. The Deputy is talking about sites where people who can get a €200,000 mortgage may be able to buy their own home. More broadly speaking, in Dublin the intention is that people will be paying over €300,000 and there would be a public subsidy on top of that, particularly when it comes to apartments. I can reference schemes like those at O'Devaney Gardens and Oscar Traynor Road in that regard.
I am very familiar with the schemes at both O'Devaney Gardens and Oscar Traynor Road, and to be fair, they are from before Housing for All. They were developed by the previous Government and they did not have the €100,000 subsidy or the affordable purchase fund. The biggest problem at O'Devaney Gardens and the reason we could only deliver 80% public housing on the site was that the Government of the day was not willing to fund public housing on that land. The difference in Housing for All is that it is willing to fund public housing on public land.
We will move on to the third round of questions.
I will pick up on Deputy McAuliffe's point because this is an important discussion. Dublin city will have a problem both on affordable cost rental and affordable purchase under the affordable housing fund. Deputy McAuliffe outlined price ranges and if we go to the suburbs or the project mentioned by Mr. Doyle earlier, they are generally out of inner urban Dublin sites in various ways.
That is how you get those. If you look at the tender prices Dublin City Council has been receiving for its social housing projects of schemes of more than 50 or 100 units in Dublin city, you would be lucky to get €400,000. In fact they are coming in at €420,000 or €450,000. Those two sites mentioned will be very interesting to watch because if they are not coming in below €400,000 then we have a real challenge. Likewise with cost rental. This is more relevant to the housing bodies. Currently we cannot deliver cost rental anywhere in urban Dublin because the all-in development cost of those apartments is so high. Even with the cost rental equity loan we cannot do it. It is currently not possible, being subject to ongoing negotiations between an approved housing body and the Department and Dublin City Council for O'Devaney Gardens. The real issue is why in the past couple of years before cost inflation was a matter of discussion, the tender prices that AHBs and Dublin City Council within the canals were getting were so much out of kilter with areas elsewhere, albeit further out from the canals and closer to the suburbs. If we cannot get those hard costs inside or close to the canals, not just to €300,000 but down to the €270,000s, €260,000s or €250,000s we will not be delivering anything that is affordable for people either to rent or purchase. That is an important question.
I have a couple of quick comments and then some final questions. On Home Building Finance Ireland, HBFI, I have spoken to many small and medium-sized builders who say not only can they not get access to loan finance but even when they get offers, it is too expensive. It has shifted its approach to financing large institutional investors rather than the small and medium-sized builders for which that fund was designed. Not only should the Irish Council for Social Housing, ICSH circulate information to members, I think members should be part of that growing lobby of people in industry saying that HBFI should have added value of the small and medium-sized builder sector and until it does that, it is not doing its original mission. It is way off course. I encourage the committee to do that. On competition, I do not think any of us is concerned about competition between the approved housing bodies and the local authorities for social housing because the relationships are so well established. Some of us may be critical of some local authorities we think find it easier to give more work to the AHBs but that is a separate battle. The concern we have, and Mr. Doyle alluded to it, is the increased competition that will come from Project Tosaigh particularly when the pressure is on to deliver targets, and Cost Rental Equity Loan, CREL. That is the difficulty. It would be much better if there was a single State agency in each geographical area that everything was filtered through, without being overly bureaucratic. As the pressure mounts to meet the targets particularly in respect of turnkeys - they are still a large part of delivery, I am not complaining about that - we could get competition albeit from the cost rental side because the LDA will be able to spend more per unit than ICSH members will be; that will be a problem. If we want the ICSH sector to get into mixed tender developments with social and affordable rental and maybe some special needs in there as well, it will want some of those bigger schemes and the LDA can outbid. I am not asking for an undiplomatic response but I am just putting that on record.
In regard to the speciality housing, I am not suggesting that for example the model the Peter McVerry Trust has at the moment, that kind of pepper-potting particularly of ICSH Housing First, is a problem. It is not and it works very well. However, in speciality housing, as we get to larger-scale developments we need to have greater mixture. That means a mixture not just of what traditionally was called special needs housing. That is going to require a single point of approval in the Department to make ICSH members' lives really easy or for them to be able to sit in alongside a local authority or another AHB to manage it. Currently I understand that is really tricky. We have to tackle that.
My questions are to Ms Hegarty whom I also invite to come back to the earlier question that was asked. I think her critique of the speculative level of the large developers in our big urban centres is fair. I do not think it applies to the same extent outside of Dublin and inner city Cork. Has she any observations on that? In regard to Mr. Doyle and Ms Donaghy, I hear Mr. Doyle's remarks on VAT but in some senses VAT in the public sector is circular. You have to charge it but you get repaid by the State for it and it repays itself for it. Would it really make that much difference? If I thought it would, I would be interested in it, but it is a circular payment. How does Mr. Doyle think that would make life easier for the non-profit sector? That is the first question. On the payment and availability agreements, there was a review. Do we know where the review was done? Has there been any engagement with the sector or are we still waiting? As I have said at this committee before, my view is it should be from cost recovery. It should never be pegged to market rents. It costs X. You need X plus management and maintenance, plus sinking fund. That is the payment and availability. All I am saying is that its full cost recovery should be the model, whatever it is. Is there any update on the review?
Finally, Ms Donaghy mentioned two acronyms. We hate acronyms in this committee so we will ask her to explain them, as they sounded very interesting: PVC2000 and GCCC I think she mentioned in terms of different contract types. If she can either explain them to me or give some information to the committee I would be interested to hear. To come back to Ms Hegarty, it is the same question. I refer to that contractual complexity of which she talked, and more sophisticated contracts. Obviously one of the issues that give rise to nervousness when people like me hear that is how to prevent cost overruns. The one good thing about the incredibly over-bureaucratic management of costs in the social housing sector is we do not get overruns. There are cost ceilings above which you cannot go. I am open to making our contracts more flexible so long as we do not get into the difficulties that other public sector bodies have with albeit more complex projects in terms of egregious cost overruns. How do we manage that tension?
Ms Orla Hegarty
That is always the tension in construction contracts whereby somebody does not want to be ripped off by paying too much for something. The difficulty is if you do not get the balance right you may end up driving costs too low and there is not enough money then to do the job, in which case you get corner-cutting and substandard work, or a contractor who goes out of business. That is always the tension. It has to be managed because construction contracts run over a long time. That is why the people who are at the coalface of delivery, who know how to manage construction contracts, should be given contracts that allow them the mechanism and the tools to do that effectively. In terms of the State trying to manage costs on that, clearly for the past 15 years there has been a priority in policy for cost certainty over value for money. The premium that had to be paid for cost certainty has not been that high in a recessionary period and therefore the issues with paying that premium for cost certainty has been masked to some extent. It has now been unmasked. The State needs to switch back to value for money and less cost certainty over having cost certainty at the beginning. That means managing the costs more effectively through the job. It means empowering with contingencies people who are at the coalface, who can make decisions and keep things moving rather than have the stop-start and delay that adds cost and is a disincentive to people tendering at the moment.
In regard to the smaller and the regional contractors, I accept it is very difficult for people who are trying to build businesses locally, again coming out of recession, to re-establish themselves and build capacity and maybe get work for turnkey or whatever. As was mentioned, HBFI really has gone in a direction that was not intended. As far as I am aware it can lend up to €75 million to one entity. That was not the original intention. A similar type entity in Scotland has a limit of about £1 million on what it will lend to contractors. That mechanism could be very useful if the money in HBFI was devolved into broadening the market and establishing a firmer market that is more diversified. Lending €1 million to a small developer would allow him to build four houses. That would allow the business to become established, take on apprentices and be capitalised for buying equipment. Then it sells those four houses and has seed funding that lets it build the next phase. I would like to see some of that used more strategically with a view to supporting the construction industry and the SMEs outside of Dublin in many cases, where these tender inflation issues are biting very hard. They are doubly hard because builders are trying to finance the job under terms the State has set for them and they are in an inflationary period with contract terms that transfer the risk onto them. It is a risk they cannot bear. The risk for the State now is that people will not want to tender on those terms.
On VAT, taking VAT off can look attractive in a simplistic way of reducing cost but the mechanism of that in reality may be difficult and unworkable. Having different VAT rates across different types of construction would be open to abuse and probably administratively very difficult. I would have concerns about that. Also, cutting VAT overnight would not necessarily reduce the cost of private homes. The price of homes would probably stay at the same level and the value of land would go up immediately overnight. A VAT cut would lead to a windfall for land holders.
Mr. Pat Doyle
On the Deputy’s point around Housing First and scattered sites, in all the Part Vs, we are the largest provider of Housing First in the country. In all the Part Vs available, we have never been offered a Part V for Housing First. That is a missed opportunity. We need to build that in now to developments, that a certain percentage are Part Vs. Some 55% of homeless people are single. Housing First is the approved model and has been supported by every Government for the past number of years and the Part Vs need to come in under that now as well.
On the LDA, it is not factual, but my worry is that we have to communicate everything we are doing in an area. We do not necessarily know what its plans are in the area. We just need to make sure and watch that the communication that we have with the local authority continues and we get that with the other players as well.
And on the VAT?
Mr. Pat Doyle
On the VAT, I agree that it sounds simplistic. It is difficult to have different VAT rates in different areas. However, we have it in the hospitality sector, for example. What I am particularly interested in is on the repair and lease and the second-hand over-the-shop stuff. We have caps from Government of €60,000, but that includes all of that. We could put much more into the unit. For example, the majority of the money that was available in this scheme could go into the unit rather than having to put some of it into VAT that goes back and it is circular. In other jurisdictions, such as the UK, for example, it is 5% for bringing back dereliction and over-the-shop and stuff like that. It might just encourage that.
Finally, the reason the over-the-shops have not been developed inside the canal is because every one of them is an individual application and it takes time. Some of us are doing it and are prepared to put that time into it, but if we are going to encourage more to do it, we need to be able to do it in bundles and streets. For example, there needs to be a scheme for a specific street so that we can do it more quickly with five or six over-the-shops together, rather than doing each one separately.
I ask for the Chair's indulgence. From an embodied carbon point of view, in particular, linking lower embodied carbon residential developments with a reduced VAT rate makes an awful lot of sense.
I was asking about VAT for new build social housing because that is kind of different. Is there a reason that would work for new build social housing?
Ms Tina Donaghy
Purely on viability, and especially in Dublin at the moment, when we are reaching these levels.
I wish to go back to the Deputy’s point about the payment and availability, P&A, agreements being based on a market rent. It is not market rent. I can have a market rent of €2,400. It is much more beneficial for me if I go in at a market rent of €1,500 and get 95% than going in at €2,400 and getting 50%. The whole basis of the viability sits with debt-service coverage ratio. That is where our barometer sits now. It is not about market rents. There is no race to the top to see who can get the highest rent. That does not work like that.
Ms Donaghy is making a case for a P&A that is full-cost recovery of to finance construction management-----
Ms Tina Donaghy
Whatever we want to call that revenue stream, it is a revenue stream to support the loan.
Just to be clear for the clarity of the committee, it is not just the loan, it is management-----
Ms Tina Donaghy
No. It is-----
It is basically the gap between the differential rent. Is that correct?
Ms Tina Donaghy
Absolutely.
-----and all of the costs over the-----
Ms Tina Donaghy
Absolutely. When we carry out a viability exercise, and why I am saying zero VAT on new build as well will help with that, we are looking at our costs from day one for the duration of the loan period, however long that needs to go on, and any housing body. We are talking about Dublin and it is a very good financial system. I have worked in Northern Ireland in housing and in London and the surroundings in the UK. This is the best financial model one can have. One would be looking for the lifecycle cost and looking at the lifetime of the building, so we would be looking at 60 years minimum. This model works on a 30-year maximum.
However, as Deputy Ó Broin rightly said, this services our loan. It also turns the light on for us everyday. We look at our cyclical maintenance, our day-to-day maintenance and our long-term major repairs responsibilities and a sinking fund. All of those costs factor in. There are all sorts of various exercises that we do within organisations because we know what our costs are and whether we tender our maintenance processes or whether we have to go out and do it and-----
That is why the directors of housing local authorities look so enviously at that particular funding model. They would not mind having it too.
Ms Tina Donaghy
We cost it from day one.
Sure. I agree with Ms Donaghy.
Ms Tina Donaghy
I have had this conversation with local authorities and we work in partnership with them in various working groups to see how we can do things smarter, better and more cost effectively.
Mr. Pat Doyle
Local authorities do not have a sinking fund. In 30 years’ time, if they decide to retrofit their housing units and replace all the windows in a scheme in Finglas South, they apply to central Government to do that and they get that. We have to have the windows replaced in 25 years and the heaters in 15. Therefore, we have to have that sinking fund or the regulator will come after us.
I am not arguing against the P&A, because it is good. The only thing I will say is the local authorities do not get that money at that point in time, which is why we are currently talking about demolishing apartment developments from the 1950s and 1960s. That grant funding model is both underfunded and incredibly inefficient. What is good about the P&A and why there is a case to be made why it should just be how we fund public housing generally, is because it takes all of that into account in a much more efficient manner. If the Irish Council for Social Housing could combine a large-scale affordable cost rental with P&A social housing on the current model, when its cost rental loans have matured, it then has an additional revenue surplus to recycle into the post-40 or 50 years maintenance of and recycling of its stock. That is the most efficient way to do it.
My point about the local authorities was to say the model that our guests have is better and they know that.
Mr. Pat Doyle
My only point was we have to have a model or the regulator will come after us.
Ms Tina Donaghy
Regardless of that, it makes good sense. This is taxpayers’ investment. They are investing in our social housing infrastructure and we want to make sure that it is well management, well maintained and fit for purpose for future generations.
I wish to come back on the acronyms. Back in the day when the wheels came off in 2008 and 2009, the construction works management framework was renegotiated. That was when they came up with Government Construction Contracts Committee, GCCC, contract. Professor Hegarty probably knows much more on GCCC than I do. At the time I was coming from a different jurisdiction. I was coming in after working for a very large housing body in London and we had much more flexibility around procurement. It was all about value for money, reinforcing what the professor said. We were looking for value for money, projects that could be replicated and building relationships with developers and house builders. We had very tall orders of developments to be done. At that time, they were streamlining the delivery partners in the UK as well, so they were cutting the number of housing bodies down to a minimum. That is when we had a contract called PPC2000 and it was a partnering contract where perhaps one tendered one’s first project. The benchmarks within the procurement or the pre-qualifying conditions were greater than just cost; they were about replication, reduction and a set of key performance indicators, KPIs, that would be measured and monitored throughout the progress of the project and further projects. One looked at cost saving as one replicated. It would work well for something like the-----
I apologise. I will have to leave it at that due to time. I will come in, followed by Deputy Ó Murchú. We have the last two slots left.
I wish to go back to affordable apartments for purchase, such as apartments built to sell, obviously to a higher standard. We also want those apartments to be livable for life and be family-type apartments. We need to densify and we need more compact growth.
I wish to ask Professor Hegarty a question. On the affordability and construction of apartments, we are told it is only affordable when they are build-to-rent and it is not affordable to build them build-to-sell. What is her sense of that? What needs to be done to make-----
Ms Orla Hegarty
The nature of the speculative development sector is that all the money will rush to the most attractive option. At the time that the deregulation happened around 2016-2017, I warned that if Government made something more attractive, all of the money would chase that and it will out-compete everything else. Effectively, co-living and build-to-rent apartments had standards reduced.
They were made far more attractive than build to sell and they set the market. The land value is then determined on the basis of how much rent can be recouped from the number of build-to-rent units that can be fitted on a site. The height caps were removed, which inflated land value further. It has meant that model has outcompeted build-to-sell apartments. The Department started out with a target sales price of under €260,000 for a two-bedroom apartment in Dublin and produced figures to show that was doable in 2016. Although the intention was to sell two-bedroom apartments in Dublin at between €200,000 and €260,000, the rounds of changes and deregulation have encouraged what we have now, which are these very dense strategic housing developments, SHDs, that are predominantly build to rent. The rental income from those units over the long term, which is very high, has determined the land value and has basically killed the market for build to sell. It is a very difficult situation at present. Since so many of these permissions are on these sites now, unless there are very high returns on sales and rental prices, they are not viable to build.
The attractiveness of the return on investment for build to rent is killing off anybody who wishes to construct build-to-sell family-sized apartments for people to live in long term. Of course, we will always need rental units, which are part of any normal housing system. What can we do to get more apartments built for build-to-rent for families?
Ms Orla Hegarty
I do not understand the rationale for having a different standard for rental and social tenants than there is for purchasers. That was a misstep. If we want people to live in apartments for the long term, all of them need to be liveable, with a decent space size, decent safety standards and decent levels of amenities. All of those were deregulated. In architecture, we do not always make the distinction between houses and apartments. We talk about density and the number of people or units per hectare. We start with that and then we see what form of building that might take. We then get a mixture of apartments and houses that reaches that density. As I said, that can be done between three and six floors so that a sustainable density site may have houses and apartments on it. We certainly have plenty of inner suburban and suburban sites that would be suitable for that. If we think of the amount of surface car parking in some places and underutilised land, there are certainly opportunities for that scale of development on much of that space.
What we have seen, however, is a lot of permission in the cities for very dense developments that are probably not attractive to purchasers. It is difficult to see that purchasers would pay €450,000 or more for a two-bedroom apartment in one of these blocks without many amenities when they can get a very good house in suburban Dublin for less. If we want mixed communities in the city, we have to make these developments attractive to purchasers as well as renters.
Sure, and for long-term rental as well.
Ms Orla Hegarty
We have to make them attractive to people as a lifetime proposition.
What would the impact be if we were to restore just one standard of apartments? If we do not have a build-to-rent standard or a build-to-sell standard, and go back to the higher build-to-sell standard, what would be the result of that in respect of supply and affordability? I know it is a hard one to answer.
Ms Orla Hegarty
It is a difficult one to call. We saw what happened when it was deregulated. Some of the volume going through An Bord Pleanála in recent years relates to sites that had permission. There were sites that had ready-to-go permission for build-to-sell apartments at five to nine floors that were then knocked off track by the raising of height caps, SHDs and build-to-rent standards. These changes might seem simple on paper but they can be extremely disruptive in the market. That relates to my earlier point about a risk assessment of policy. I do not think policy has been risk assessed. The broader shaking out of this, including the what-ifs and making sure these things are closed off, is very important because in speculation the money will all follow what is most attractive. We saw what happened with ghost estates. Just because it was viable to build one estate of so many houses in an area, it did not mean it was viable to build 2,000 of those houses, yet people borrowed, got planning permissions and raised land values. We then saw it did not wash out.
There is now a concern that the implications of any changes need to be very carefully assessed. There needs to be a look at transition arrangements relating to that. My point is there are technical solutions to this affordability challenge and there are solutions to the capacity challenge, but they need to be technical solutions. It is not enough that there be high-level policy decisions. There has to be a technical solution involving the people who are delivering and who know where the blockages are. Broader high-level policy needs to have some vision. What is the intention for what the housing system will be in 2030 or 2040? Is it a model where the vast majority of people in Dublin rent, pay a very high rent and there is a Government subsidy for the long term? Is it the case that, again, we will have an issue with sprawl into the commuter belt? People do not find that attractive as what they want. Will we have a surplus of SHD high-density units that are not attractive and that maybe become large developments of social housing that do not have sufficient amenities for residents?
There is risk in all of this. The policy response has not often considered that what is right for one site may not be right for the city.
When I talked earlier about local authorities, it was not that I was expecting a rip-roaring row. It was more that I had seen there was some element of pushback, but it has been said there is enough room for everyone to survive because we do not have enough houses. We will move on from there.
I was going to deal with what Ms Hegarty spoke about regarding the necessity for economic analysis of the financing of Housing for All but she has gone into a wider issue. I was going to ask whether anybody has made submissions to the Attorney General's review of planning. I was thinking specifically about compact growth being in the wrong place but, in fairness, what was talked about earlier would require a review with a greater remit, which probably needs to happen, and is something that can bring us to a solution. If the representatives could come up with that in their answers to me, I would be only too delighted.
I will also get some sort of answer, which Mr. Doyle was about to go into, regarding estate management. What is the Irish Council for Social Housing proposing for where we are now? Do we use the International Federation of Consulting Engineers, FIDIC, or one of those types of systems when tendering for building houses from here on in?
Mr. Pat Doyle
There is a lot there. I mentioned there are more than enough targets for all of us to live with. I have some concerns around communication to make sure local authorities and the LDA know exactly what we are doing and where we are doing it. We just need to make sure we do not take it for granted and that we keep the communication flow going both ways so that we are not all competing with each other. There are more than enough targets to deliver on in very challenging times.
The Irish Council for Social Housing has 50,000 members. We do a residents' survey every two years or so. The satisfaction rates are very high. Our speciality is in management. It is not who we manage but how we manage. We have specialties in managing clients for which some of the local authorities do not necessarily have the staffing or the resources to follow up on. There is 24-hour staff availability in some of the specialist approved housing bodies. There would be a fridge magnet on someone's fridge with the 24-hour numbers. If a person, or his or her neighbour, is in trouble, or someone is witnessing trouble, people can ring about estate management issues, maintenance issues, anti-social behaviour issues and so on. Some people ask why we need approved housing bodies and what is different about them. One of the hidden but very successful differences is that we estate manage very tightly. We have a very good satisfaction rating among our tenants and very few evictions. Some of us in the sector never evict at all. Some do if they feel it is necessary, but our eviction rate is very low. It is about how we manage and not who we manage.
The final question was around planning and tendering. That is a huge challenge. I would like to see the planning process pay more attention to what the need is rather than what the desire is in a particular local authority. A total of 55% of the people requiring a house on the social housing list require a one-bed or two-bed dwelling. We should be looking at more duplexes. We should be looking at more apartments that are lived in for life. We need lifetime apartments in which people have space and proper areas to put their bikes or their children's toys and so on rather than trying to squash families into apartments that are built really for people who live in them during the week and travel at the weekend or whatever. On the planning side, therefore, there is a disconnect at times between what the planners want, desire and demand and what the actual need is.
Anywhere State funding is being paid for social housing, it should be assessed against three criteria. I am not necessarily speaking for all members on this, though. The first is that housing applied for with State funding is in line with the typology of what we need to do, which is one-bed and two-bed dwellings for half of those. The second is whether duplexes have been considered on the land. The third is whether the housing has been poverty-proofed. Members probably have not heard that before but they do it in other jurisdictions. Has the housing been poverty-proofed? Some of the housing designs that are going in at the moment have windows from the top of the stairs to the bottom of the stairs. There is a cost of putting a blind on that. We see estates where developments have won awards for the designs but the tenants have sheets hanging up on the windows because it is cheaper. The windows are from floor to ceiling at the front of the building and people just cannot afford the blind. We provide that in many approved housing bodies but we do not in many council houses. We need to be assessing against the need, poverty-proofing and the typologies.
I cannot understand how the State pays so much for housing and does not demand more one-bed and two-bed dwellings within that. The State is paying for it. It should be making sure that what we are building is in line with what we need. Families who are homeless require four and five bedrooms. Traveller families who are on the housing lists require four and five bedrooms. We need to be smarter in the planning and criteria for drawing down State funding.
Ms Tina Donaghy
I would not disagree. In terms of planning, we work really closely with local authorities. We only address where housing need is. In my organisation specifically, we work with older people and we are a specialist older person housing provider. Therefore, our space standards would be larger. We have many criteria. It is not just about space. It is about useable, effective space that allows people to remain in their property if their mobility or care issues change throughout their lifetime.
We have very close working relationships with local authorities. We have at times not stuck to planning policy to the effect that 30% must be one-beds or no more than 30% can be one-beds. We have examples where 100% are one-beds. We opened what we think might probably be one of the largest housing developments for older people Crumlin in which there are 102 units that are all one bedroom and all social housing. It was allocated very fast and we worked really closely in partnership with Dublin City Council.
Ms Hegarty is indicating to come in on the same question.
Ms Orla Hegarty
I have a number of comments. First, it is important to remember the distorted social housing need for one- and two-bedroom apartments at the moment is a factor of how the waiting list and backlog have been managed and that, in terms of sustainable housing in all communities, we need a mix of homes. It is not true to say we have a surfeit of family homes and we only need small apartments. That is a recipe for unsustainable growth in the city and, again, pushing families into the commuter belt. As I said, that is 50% of households.
It is very important that meeting the backlog is balanced out with the needs of family formation and new families, and that adequate-sized homes also accommodate different care needs and disability needs over a lifetime, which are not met by very small housing units.
If the Chairman could give me two minutes, I will read the acronyms into the record if that would be helpful to the committee.
I believe that was Deputy Ó Broin's question. Please do.
Ms Orla Hegarty
The Government construction contracts committee, GCCC, reformed public procurement in construction around 2004 to 2007 and moved to a policy decision away from what had been there previously to cost certainty over value for money. It has a set of contracts that are public works contracts, PWC. It would be fair to say they are not very popular in industry for any number of reasons, including risk transfer and the fact they are lowest cost bids, in many cases, and tend to result in much adversity and dispute over variations.
Other alternatives are available. The Fédération Internationale des Ingénieurs-Conseil, FIDIC, contract was mentioned. That is an international engineering contract that is used extensively worldwide and has its own precedents for resolving disputes and the detail on those. New engineering contracts, NEC, are also in use in the UK and, increasingly, collaborative contracts that specifically move away from this adversarial claims culture are available now. It would be extraordinarily helpful if we could move in that direction in construction procurement here because it would de-risk the process for the contractors. It would give a better mechanism for resolving disputes and variations. Generally all round, it would get better prices and give more certainty over time for both sides in the equation.
I thank Ms Hegarty. I will call a halt to the meeting now as it is 6 o'clock. The initial meeting was to do with inflationary costs in construction. I think we covered a huge amount of ground in that regard. It has thrown up more questions for us that we must set out in our work themes from September onwards. We will have to return to this issue of costs in construction. I do not know where we will be in three months in terms of inflationary costs and potential mortgage interest increases, which obviously create affordability issues for people.
The witnesses mentioned poverty-proofing and the poverty assessment. We tend not to look at transport costs. A person living in his or her home has destinations to go to, whether it is school, work or for recreation and might be car dependent. This comes back to compact growth and densification and how we will build the designs in which people want to live in compact growth without this excessive small apartment-type scenario. Let us get away from that. We talked about duplexes. That is an area in which I am also very interested to see how we can get that better mix of design in there.
I thank Ms Hegarty, Mr. Doyle and Ms Donaghy. That was fascinating and very interesting. We also invited the Department of Public Expenditure and Reform and the Department of Housing, Local Government and Heritage to appear before the committee because, obviously, they are the lead Departments in the construction of affordable and social housing. We will probably have them in in September and then, after that session, we may have a fourth; I do not know. We would hope to compile a report, however, a copy of which we will certainly issue to the witnesses. I thank them for their contributions and help to the committee today in dealing with this issue.
The joint committee adjourned at 5.59 p.m. until
11 a.m. on Tuesday, 5 July 2022.