Land Development Agency: developers look to be the big winners

So what are the big takeaways from the newly announced Land Development Agency? Look past all the big numbers and where are all the affordable homes so desperately needed right now?

There won’t be a new home delivered by this agency before 2020. Disappointingly few sites are ready to go, with just eight earmarked to deliver a modest 3,000 homes nationally, when estimates indicate we need upwards of 30,000 annually. This seems a little unambitious given that the State already has vast tracts of land at its disposal, enough to deliver 114,000 units in fact.

Time is also of the essence. “Bringing these big land banks into play is to be welcomed, but if nothing is built until 2020 by that time the acute phase of this housing crisis will be well behind us,” says Savills economist John McCartney. With housing supply rising (up 46 per cent in 2017, and looking at 19,000 further units this year), house price inflation falling, an ageing population and falling birth rates, a number of factors already in play should ease demand over the longer term.

Then there’s the question of where the “affordable” level will fall. This critical figure has yet to be nailed down. If affordable is universally defined as one-third of takehome pay, and the current CSO average household income is €67,000, this would suggest an affordability level of some €240,000. Yesterday an affordability figure was put forward of some €320,000 in Dublin, and €250,000 outside Dublin

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Social housing

But with hardly a new social home built since the downturn, there is no evidence of what any developer will charge the Government . A recent planning application approved for 313 homes in Cherrywood in Co Dublin estimated the social housing would cost the State about €350,000 per unit.

In order to afford these, buyers will need additional assistance via low interest mortgages or an easing of the loan-to-income multiple. With interest rates anticipated to rise, it all sounds a little familiar. Housing policy analyst Mel Reynolds says "this is like groundhog day"and notes of those who bought an affordable home during the boom, 43 per cent are in arrears. "The affordability level this time around is being set in the middle of a pricing peak, so these are artificially affordable homes."

There's no way a developer in Dublin right now can afford to build affordable homes

Whether the prohibitive land cost element has been removed or not, a private sector developer-led model will seek a profit margin of at least 15 per cent. As one industry commentator put it: “There’s no way a developer in Dublin right now can afford to build affordable homes.”

The developers look to be big winners here. They’ve watched land prices soar to prohibitive levels with a challenge to sourcing land in areas where people want to live. The release of these lands is surely a bonanza for them, and the cherry on top is the minimisation of the land-cost element.

Possible quango?

Another seasoned observer says: “It looks like they’re announcing a quango that will take two or three years before it delivers any real results. They can now move into closed negotiations with the private sector, where there’s a real opportunity for the private sector to get heavily discounted land. If the economic cycle takes a downward dip, the whole thing can go wallop overnight. And we’re back to square one again.”

And what will be the criteria for selection of private industry partners? The Society of Chartered Surveyors Ireland sounds a warning note: “Rather than going to the highest bidder, State lands should go to the best scheme. This would give the best public interest value and could also mean a better tenure/unit mix leading to better integrated communities.”

Though cautiously welcomed by industry, the new agency has managed to raise more questions than answers on its first outing.