A history of dysfunction: Tenants can’t rent, buyers can’t buy, builders can’t build

It’s now a struggle to keep up that pace, said James Benson, the Construction Industry Federation’s (CIF) director of housing, planning and development services, at a recent workshop in Dublin.

“Now that’s gone up to 26 weeks plus for a number of reasons: scarcity and availability of materials, setting up critical infrastructure, connecting sites, or issues with sourcing, planning and everything related to that,” he added.

Contractors and surveyors have struggled with rapidly changing prices for wood, steel, insulation and other critical materials for more than a year. Getting materials to the scene when needed is becoming increasingly difficult as challenges from a Covid hangover, war in Ukraine and shutdowns in China freeze supply chains.

IHBA figures show that the cost of building an average three-bedroom semi-detached home has increased by about €15,000 to €17,000 over the past year. That figure is an increase from the €12,000-€15,000 increase forecast for 2021 this time last year, and further increases are expected.

The Society of Chartered Surveyors Ireland (SCSI) said this is leading to “a more cautious approach by financiers, contractors and subcontractors” as they manage the risk associated with material and labor shortages. Kevin Brady, chair of the SCSI group of volume surveyors, said builders have tried to adapt by sourcing local materials and taking other steps to cope with global pricing pressures.

“These increases have forced developers to critically review construction methods and examine alternative methods of delivering homes, ie timber frame, blockwork and modular off-site construction,” he added.

Cost increases come amid a large number of building permits issued and massive demand, but data shows that building permits are no guarantee of delivery. Builders are working at full speed. They began work on 1,108 more homes than plans were granted
Approval for (29,541) in 2021 due to spillover from pandemic construction freeze. If construction companies had more staff, more work would likely have been done, but a labor shortage added to stress in an already strained sector.

Planning data shows that in the past five years, 163,199 apartments have been approved, but far fewer have been built. Work has started on almost three quarters (118,686) of these. During this period, there were 94,240 deals.

Problems can arise that prevent projects from getting off the ground once planning permission has been granted, but those working in the industry say that between the time an application is submitted and permission is granted, developments become increasingly unprofitable.

Builders say about 106 weeks will elapse between the submission of a building permit application and the start of work on site. They complain that this is unsustainable, as price inflation over a two-year period can push financially viable developments into prohibitive territory.

Housing Department officials have reassured builders that they are working with the Local Government Management Agency and the County and City Management Association to adequately resource planning authorities to expedite applications. Meanwhile, An Bord Pleanála (ABP) is also conducting a review of its workforce and speaking to housing officials about the resources ABP needs to make quick decisions.

However, this is not a guarantee that the problem will be fixed. Economist Jim Power said demand will exceed supply for some time and construction companies are acting at the behest of catastrophic global events.

“Global supply chains are now having a huge impact on the delivery capability of the Irish construction sector. I think you can expect demand to continue to outpace supply for the foreseeable future,” Mr Power said.

The offer is restricted at every corner.

“Owner-occupier, rental, social and affordable are all components of the housing market and you can’t look at them in isolation from each other because they are all closely related – it’s clear the market is quite dysfunctional,” Mr Power added.

“Demand is significantly outstripping supply, house prices are rising at record rates, rents continue to move up and there is an ongoing problem of homelessness. The market is clearly not working properly, so at a macro level all that needs to be done is increase supply for owner-occupiers and rentals.”

The number of apartments needed is disputed. Many experts and the government estimate that there are about 35,000 annually. Work on 31,000 new homes began last year (a 42 percent increase from 2020), leaving backlog demand unmet for some time. Meanwhile further
On Friday there were 826 listings for available rentals on Daft.ie.

A report by Mr Power, released last week by the Institute of Professional Auctioneers and Valuers (IPAV) and the Irish Property Owners’ Association (IPOA), showed landlords are exiting the market in droves, deepening the supply crisis.

IPAV chief executive Pat Davitt said it also shows how rental companies are feeding the used-buyer market. He estimates that up to two-thirds of the resale homes that come onto the market could come from landlords looking to sell.

“It’s incredible to think rents have never been this high but landlords are exiting the market. Why should that be so?” Mr. Davitt said.

“After talking to our members I think two out of every three sales could be from landlords and that’s a huge amount of property. Institutional landlords don’t buy one-off properties, so the two and three bed rooms are disappearing from the market.”

The IPAV/IPOA report found that since their introduction in 2016, rent pressure zones have failed to control rental prices, while bureaucracy and changing regulations drive private landlords out of the rental sector. These landlords complain that they have to pay up to 52 percent of rental income in PAYE, PRSI, and USC, while institutional landlords pay no taxes.

The concern is that landlords operating in small villages and towns across Ireland that are not attractive to institutional investors cannot be easily replaced. “The incentives to stay in the market or to enter the market are currently not particularly compelling,” the report states.

Eoin Ó Broin, spokesman for Sinn Féin Housing, said an exodus of landlords is increasing the risk of homelessness for many, and he fears 10,000 adults and children will be using shelters before the end of the summer.

When the report was presented on Wednesday, politicians from the governing parties expressed their concerns about the real estate crisis.

Fine Gael Senator Jerry Buttimer told those at the opening he knew friends and constituents who were selling properties because they felt the work required to let them was not worth the financial return.

“Based on our own anecdotal experience of dealing with local people on a daily basis, this is the biggest challenge we face. Something is not working and something needs to change,” Mr Buttimer said.

“What I’m finding now are landlords with three or four properties, or even just one or two, who have gone — and left with joy.”

The conversation revolved around simplifications for landlords and tenants.

Landlords want to see tax cuts, with IPOA Information Officer Margaret McCormick suggesting a 12 percent tax rate would be more acceptable for landlords.

“We’re going to lose more landlords,” Ms McCormick added.

This suggestion made some uneasy at launch and some observers later said 12pc was “unrealistic”. Mr Power told the meeting that a 40 per cent rate, with mechanisms to reclaim taxes paid on expenses and pay rental income into pension contributions, might be a more appropriate proposal.

Ms McCormick said most landlords selling houses were likely to charge below market rents because they had long-term leases but were restricted to limited increases by legislation in rent pressure zones. She said landlords must be given the opportunity to revise rents between leases to bring them in line with market rates.

Mr Davitt said he was aware of cases where houses were sitting vacant for two years to allow landlords to raise rents to market prices.

Fianna Fáil Senator Mary Fitzpatrick asked the IPOA how eviction bans and rent freezes would affect landlords.

IPOA Chairman Stephen Faughnan said this was “a red rag” and would trigger another exodus from the market, but he acknowledged tenants need support. He suggested the government cut taxes for hard-pressed renters.

The problem in the rental sector is similar to that faced by people trying to buy a home and the builders trying to build a home: supply shortages. Tenants cannot find rental apartments. Buyers cannot buy. Builders can’t get the materials and workers they need to give buyers and renters what they want.

Mr Power said there was no sign of rent pressure abating but the logic could point to some easing in the buyers’ market as rate hikes are expected to be introduced to fight inflation.

However, supply must be increased to meet demand and this is proving difficult.

“You would logically feel that rents and house prices, especially rents, would continue to go up. I have a slightly different feeling about house prices at the moment because the global economy is in serious trouble around the world,” said Mr. Power.

“Global geopolitical events are dire, stock markets are falling sharply, bond yields are rising and central banks are raising interest rates; the European Central Bank will follow shortly because of the global inflation problem.

“Rising interest rates could take some of the heat from rising house prices and logically, and I stress logically because logic doesn’t always apply in the Irish property market, house price inflation should ease off significantly over the next 12 months. This is not a prediction, it is a statement of logic.

“Logically, house price inflation should ease off significantly, and if it doesn’t then we’ll have an even worse problem down the road.

“Another 12 months of current house price inflation would be catastrophic.”