Ronan Lyons | Personal Website
Ronan Lyons | Personal Website

September 2018

The LDA and how to get the homes we need

The recently launched Land Development Agency has the potential to stem the tide of an ever-increasing shortage of urban homes. Its remit will cover mainly State-owned land but will encompass some land assembly of other, privately owned sites.

By redeveloping our army barracks, industrial estates, bus depots, ports and golf courses, Dublin and the other major cities will go some way to meeting the demand for urban living in Ireland currently and over coming decades.

Based on trends in urbanization, household size and population, the country needs something like 1.8m urban apartments in fifty years time. Given that the country is starting with very few, and allowing for some obsolescence, that means we need to see about 700 apartments built every week for 2,500 weeks!

Vary the assumptions and the exact answer changes, of course. But any reasonable projection of the future demand for housing points to a number of urban homes – apartments mainly – so large that not even the redevelopment of state lands alone will suffice. As reported in this column a few months ago, in Dublin, for example, there is a need for an average of 20 new homes on every single acre of the city!

Where will these new homes come from, then? We as a society have made a decision not to allow the demolition of our older housing stock. It’s a principle I largely agree with – the city is richer for having an architectural heritage.

But it means that much of our urban cores are, therefore, off limits when it comes to adding all those new homes that are needed. This is one reason that publicly-owned lands represent such an opportunity.

The other obvious opportunity is to redevelop the building we don’t like. If policymakers believe, for example, that the urban apartments built under the various tax breaks of the 1990s and 2000s are below the minimum standard today, then perhaps we can revisit those sites.

Rather than wait for them to come down, the State should proactively seek their redevelopment. The aim here should be a win-win for all involved. Suppose the State allows ‘upzoning’ – specifically building taller on the same site. A condition of the upzoning should be that the number of homes increase by at least a certain fraction – say 50%.

If apartment blocks are in disparate ownership, a model should be explored for guaranteeing right-to-remain in return for a state-sanctioned buy-out clause. In other words, the State would support a CPO (compulsory purchase order) in return for a guarantee that, once the new development is complete, the existing residents are rehoused – and housed somewhere else during works.

This would mean that a Celtic Tiger block of 100 units would be demolished and 150 better units would be put in its place, with existing residents offered a unit in the new building. The ‘surplus’ of 50 new homes should then be split between the developer and the State.

The 25 new units for the developer are their major ‘win’. The other 25 units would then be for social housing – the ‘win’ for society. The cost for society, other than the disruption of rebuilding, would be to allow a taller building.

With minimum standards for apartments that are far removed from the 1990s, a 50% increase in the number of homes may translate into a 100% increase in space required. This would mean, effectively, a doubling of height – usually from 4 to 8 storeys.

That seems to me a small price – if indeed it is a price at all – to pay for ensuring a ready supply of good quality apartments, for existing residents and for new residents, both market and social, in the years and decades to come.

Not only that but I would also recommend that the State have one final condition, when allowing this urban transformation: that the social housing units be cost-rental and managed by an approved housing body.

Organisations like Cluid and Tuath, housing bodies that manage social housing tenants, have a clear expertise in managing tenants. By putting them as effective management companies in these new blocks, they can ensure social and market housing residents are integrated and without the fear of anti-social behaviour that many have about social housing.

The cost rental approach would also ensure that no tenant has to move out if they are temporarily out of work. Cost rents mean that if markets rents are not affordable, the tenant pays a set fraction of their disposable income and the State pays the balance – but only as long as needed.

When designing policy, it is not necessary but not sufficient just to think in terms of costs and benefits. It is also important to think of the status quo and how to understand and overcome the biggest fears or objections.

With the system above, there is a win-win-win, with better quality housing stock, suitable for our future needs, available to all regardless of their means.

Taking back control

This week saw protests on the streets of Dublin about the housing shortage. It was prompted by the eviction of protesters occupying an empty building on North Frederick Street. Later in the same week, the Government launched the Land Development Agency. The agency’s remit is to facilitate the development of 150,000 homes on at least 40 sites in Dublin and Cork, the vast bulk State-owned land.

While very different, both are responses to the persistent and growing shortage of housing in this country – in particular in our cities and affecting those on lower incomes most. It is perhaps tempting to think of this shortage of housing as a recent phenomenon, dating back three or maybe five years. But in truth, this is a problem that has been building for a generation. In that sense, the bubble-crash episode of 1995-2012 is a distraction. If a straight line were to join those two years, it would be easier to spot that the true time-span of this problem is closer to 30 years.

Three decades ago, there was effectively no difference between average property prices in Dublin and those elsewhere in the country. Certainly, the Dublin property would have been smaller – both in dwelling size and site size – but, to the couple on an average income, the city was affordable. Since then, Dublin properties have inched up and up in price – either sale price or rental price. This mirrors what has happened in many other high-income cities. Supply has simply not been able to keep pace with demand.

The protesters in the streets this week – and the Government talking about tens of thousands of homes on State-owned lands – are responding to a problem that is three decades in the making, not three years. By political inclination, or perhaps cynicism born of weariness, many of the protestors on the streets of Dublin this week are likely to view the Government’s new land agency with scepticism. One early response was why the private sector was needed at all. As someone on Twitter asked, why couldn’t the Government build all the homes and make them all affordable?

My fellow academic-columnist, Eoin O’Malley of DCU, had a related argument: why can’t the state just keep the land, like is done in Singapore and Hong Kong?
I interpret the Singaporean and Hong Kong models somewhat differently. Both states effectively as ground landlords and they can direct what happens on the ground they own without ever having to take on that risk.

There’s a lesson here for the Irish government. By adopting a land tax, they effectively nationalise the entire stock of land in one go, without ever having to own any of it. With a land tax, the State (or municipality) levies a charge each year on land based on what its best use is. That value of that best use comes from the market, certainly, but is determined entirely by State regulations on what would be allowed on that land.

If a strategic land bank is required for defence purposes, then zoning that reflects this will mean its value is very low and the Army will not have to sell up. However, if you are the Army and you own half of Rathmines – or Portobello South, as the marketeers will no doubt be calling it – then if that land were better used for residential and mixed-use purposes, all the Government needs to do is zone it as such and, in a land value tax system, the market does the rest.

Land value tax is popular with left-wingers, who like the power it gives government, but also right-wingers, who like that the government sets out it stall and then lets the market do its thing. It is also popular with (real) farmers, as it typically gets ‘hobby farmers’ off valuable land, and with environmentalists. In fact, it is popular with almost every political group apart from the centre. It is, therefore, something of a test for those who call themselves Ireland’s left wing. Are they interested in government ownership for its own sake? Or are they interested in results, even if it means governments direct, rather than own?


PS. I still remain somewhat concerned that, this long into our housing shortage, senior Government figures are talking about long-run demand of 30,000 homes a year. If this figure refers only to market supply, then perhaps – if we can get a sense of what the Government believes social adds on top – this can be compared to aggregate estimates. But I’m not sure that this is the case. As ever, I remain happy to meet up with policymakers and outline the true level of housing demand and construction activity needed in the country over coming decades.

Worrying about soft or hard landing misses the point

Earlier this week, the ratings agency S&P issued a report on Ireland. That report included a diagnosis of the housing market that was interpreted as predicting a “soft landing”. Sure enough, many scoffed – remembering similar predictions from the mid-2000s. You could be forgiven for thinking of Michael Gove’s infamous line, just before Brexit, that “people in this country have had enough of experts”.

Whatever our opinions on ratings agencies and how they performed in the run-up to the Great Recession, the S&P report should not be dismissed as external analysts making the same mistakes all over again. Rather, our reaction to the report might tell us more about ourselves than the rating agencies. In particular, we need to ensure we are not fighting the last war. To explain, what happened the Irish housing market 1995-2012 was a classic credit-fuelled bubble and crash. It is understandable – indeed important – that we should be very careful not to make the same mistake again.

But those steps have largely already been taken. The Central Bank mortgage rules effectively bring the Irish mortgage market back to the system it had, quite successfully, under the Building Societies from the mid-19th century all the way through to the 1990s. Lenders and borrowers must link mortgages, and thus housing prices, to the real economy, as measured by savings and incomes. What is happening now is a scarcity of housing driving up the price of housing. There is strong demand but not enough supply. The big difference between the 2010s increase in prices and the 2000s one is that, then, sale prices roses but rents did not (or at least not nearly to the same extent). That is a classic sign of a bubble.

Now however, rent and sale prices are rising almost one-for-one in line with each other. This is why it is important to distinguish between bubble-crash cycles and more regular boom-bust cycles. Don’t believe anyone who tells you that they can end boom-bust cycles. As long as humans are humans, their confidence in the future will ebb and flow and those changes will drive rises and falls in economic activity.

We can be more confident, though, about bubble-crash cycles. I need to be careful here, too, as I wouldn’t feel comfortable in stating that we can stop them entirely. But we can make sure that the mistakes that happened 1995-2012 – in particular allowing people to borrow too much relative to their income and to the value of the property – don’t happen again. This is why there should be no link between S&P talking about supply and demand in the Irish housing market now and headlines from 12 or 14 years ago. If you’re fighting a different war, it makes no sense to be thinking about how you might have done better in the last one.

Up to the mid-1980s, there was effectively no “Dublin premium”. Granted, properties in the capital may have been a bedroom fewer and a smaller garden. But the price paid in Dublin was effectively the same as elsewhere. Since the 1990s, though, a growing Dublin premium has emerged. If current trends continue, it is likely that Dublin property prices will be twice as expensive as those elsewhere in the country by 2020. This is a hugely important trend that has, by and large, been missed by the vast majority of commentators and policymakers in recent years.

Suppose you could draw a straight line from 1995 to 2012 and ignore the credit bubble and crash. What would stick out then in a graph of housing prices? It would be that, over the last few decades, prices have risen above inflation – especially in the capital. This is a new phenomenon but not one unique to Ireland. Our high-income peers have also seen prices increase steadily in recent decades after typically a century of ups and downs but no overall trend. Detailed research into this reveals is that zoning restrictions have limited the ability of housing supply to meet demand.

In Ireland’s case, things were fine in the housing market… as long as we didn’t have significant population growth. If there’s little or no new demand, it’s easy for supply to meet that target. The last generation has shown – credit bubble and extraordinary tax breaks aside – that housing supply is fundamentally incapable of meeting demand in Ireland. Where supply has come on stream, it has typically been new housing estates on greenfield sites at the edges of cities or further down the national road network.

This is completely unsustainable. We already have far more family homes than families in this country. But we do not have nearly enough homes for our households of one or two persons. These smaller households are now the majority in this country. But apartments form only one in seven of our housing stock.

The recent bubble should not distract us from the huge challenges that lie ahead.