The government is preparing to step in to help build housing if big monies exit
The halt to construction at a high profile Dublin Docklands site containing 700 high-end apartments where earthworks were underway is seen as only the most public example of the collapse of the housing sector in Ireland.
The developer of this site insisted Sunday independent this work is resumed after some design changes. But housing construction has stalled across the sector – and according to numerous sources, the institutional financing that fueled the development of private rental schemes is no longer available.
That means the government’s insistence that it can meet its target of 29,000 housing units by 2023 seems almost impossible, according to a number of well-informed construction sources.
“Apartments are dead in the ground. The funds left town’
The only way to salvage those targets is for the state to intervene in one way or another — and begin partially funding some of the tens of thousands of housing units that have planning permission, construction industry sources say.
And with bad news for tech workers arriving en masse and fast, government-sponsored social and affordable housing — planning complications notwithstanding — may be the most viable avenue for developers wondering what to do with land earmarked for housing .
“Apartments are definitely dead in the ground,” said a construction industry source. “There is no PRS [private rental scheme] person left in Dublin.
“I don’t know of anyone in the industry right now who is speaking to any of the PRS people about financing or developing an apartment complex for them.
“The funds have left town because of increased costs from rising interest rates and, more importantly, increased construction costs. These guys only deal with a fixed price and that is impossible in the current environment.
“It was a perfect storm for this model. Construction costs have spiraled out of control over the past 12 months. And then the refinancing costs on the international money market have also risen.
“Developers or prime contractors didn’t want to be locked into a fixed price for a home when it would take 24 to 36 months before they could hand it over and get paid,” the source said.
This was announced by the Ministry of Housing Sunday independent that “the reported declining activity in the build-to-rent sector gives us some near-term opportunities.”
A department spokesman said: “The landscape has changed tremendously since the release of Housing for All and we must intervene.
“Construction price inflation, delays in supply chains and soaring energy costs have delayed – and in some cases halted – projects. Given the prevailing interest rate environment, rising energy costs and the ongoing war in Ukraine, these challenges will remain.”
The Land Development Agency (LDA) will be tasked to work with major city local authorities to activate deadlocked build-to-rent planning permits for paid rent, affordable purchase and public housing, the spokesman said.
“The department and LDA will implement a process of working with relevant developers to identify projects that may be suitable for low-cost rent, affordable housing or public housing. This requires a new profitability and affordability measure to subsidize a portion of the capital cost of building a unit through open book valuation.”
But in a week when the government has already committed to a check for up to $2.5 billion, high-end homes need to be handled very carefully — if they’re not to be perceived by voters as just another bailout .
The government’s most controversial approach is the €450 million Croí Cónaithe (Cities) program included in the budget to support the construction of homes for sale to owner-occupiers by bridging the “affordability gap” between the costs of building homes and the housing cost surplus is closed at the usual market selling price.
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Taoiseach Leo Varadkar urged answers as to why 70,000 homes that have received planning permission have yet to be built. Photo: Collins
The program is primarily aimed at activating the tens of thousands of building permits already in place for such homes, with a target of 5,000 units by 2025.
When asked for details on how many expressions of interest had been received under this scheme, the ministry spokesman said: “The Croí Cónaithe (Cities) scheme is currently the subject of a state aid application to the EU DG Competition. A decision will be made shortly.
“Until this live process is complete and due to the ongoing commercial sensitivity surrounding the live judging process, it is not possible to comment further on specific details.”
At a housing summit earlier this month, Taoiseach Leo Varadkar urged answers as to why 70,000 homes that have received planning permission have yet to be built. He told the summit that “pre-purchase” of housing would be considered.
“But no one is going to build a block of flats to specification, and no bank or lender is going to pay for it,” a construction source said.
“An apartment block costs so much more to build than a three bedroom house and you have to build the entire complex before you can sell a unit. Without some sort of pre-purchase, these blocks will not launch.”
“There are rumors that it’s about completing projects instead of breaking new ground”
Another complication is that planning laws have been changed to insist on higher housing densities in provincial cities.
This means that many of the apartments that have planning permission in these cities have been included in larger housing developments to allow developers to meet these new density requirements.
“Builders are building the houses but are holding back on the apartments – sometimes in the hope that at some point the local authority or an approved housing association will step in and pre-purchase the house,” said a construction industry source.
“If the state doesn’t intervene, who is going to pay them? We won’t be able to sell a two bedroom flat in Clonmel for €480,000 when you can buy a house around the corner for €310,000.”
Others in the broader sector are more optimistic.
“Business in January has been quite good so far in terms of activity levels,” said Michael O’Donoghue, Country Director at Wavin Ireland, which supplies most of the major PVC pipe used in construction projects.
“It remains to be seen whether this will continue, because there are all kinds of anecdotes and rumors – that it’s about completing projects instead of breaking new ground,” he said.
He is optimistic about long-term growth trends across the construction sector and expects a return to growth and stronger activity in the second half after a slowdown in the first half.
“Everyone has been talking themselves into a recession or a downturn when now is the time to ramp up production — that’s what the market needs,” O’Donoghue said.
“There is a strong underlying demand for social and affordable housing and I have no doubt there is still similar demand in the private sector. It just takes someone who has the confidence to build it.
“When developers build where people want to live, then the houses get sold — and there’s no evidence they don’t,” he said.
https://www.independent.ie/business/irish/government-gears-up-to-step-in-to-help-build-apartments-as-big-funds-step-out-42302199.html The government is preparing to step in to help build housing if big monies exit