There is scope for domestic and international capital in housing construction

Achieving housing development goals relies on international capital, which is more likely to be made available as the government responds to housing delivery deadlines and political uncertainty.

transactions worth around 650 million euros were reported on the building land market in 2021, which was around half the level before the pandemic. Considering that the bulk of the year’s spending, €450m, was made in the second half of the year suggests a return to normal as Covid eases.

With a number of land sales being transferred early signs for 2022 are very positive with the potential for volumes to exceed 2021.

Residential and apartment locations dominated in 2021, consistent with capital markets where PRS accounted for around €2 billion in asset transactions, 41 percent of the total.

Given Ireland’s strong economic and investment fundamentals, there is a strong case for continued investment in the Irish housing market over the next 10 years. Ireland’s GDP growth rate is 13.5 percent, the highest in the EU, while employment rose 10.1 percent last year. Consumer sentiment and retail sales have recovered, showing signs that Ireland is recovering relatively well from the global pandemic.

Rents and prices in both the residential and industrial sectors have continued to rise due to strong end-user demand and limited supply. Current CSO estimates point to house price inflation of 5.1 percent for new homes and 16.7 percent for used homes. This also supports the developing country investment opportunity already underpinned by Ireland’s growing population and economic performance.

As part of its “Housing for All” strategy, the government has set a target of creating 300,000 new homes by 2030, including 54,000 affordable homes. To support this, it has pledged €4 billion per year. Although universally welcomed, the delivery of this volume of housing units remains both a challenge and an opportunity.

Around 20,400 new homes were built in 2021, despite two-year Covid lockdowns and building restrictions. The government plans to deliver an average of 33,000 homes per year by 2030.

According to the CSO, the median price for new homes is around €367,000 nationwide and €482,000 in Dublin, accounting for 31 percent of sales. At these rates, around €13 billion in total investment per year would be required to meet government housing targets, ignoring cost inflation. That is over 100 billion euros in 8 years.

Clearly, then, there is considerable scope, even a need, for more domestic and international capital to invest.

But for this to happen, Ireland must make it easier to deploy this capital by removing or minimizing barriers to entry. Otherwise, this capital could easily find a home elsewhere.

Numerous planning and housing policy changes in recent years have led to uncertainties. Individually, the policies are manageable, but the cumulative effect of multiple changes over a short number of years is a concern as it affects the timing and outcomes of housing delivery, as well as development costs and risks.

To assess the feasibility of a housing project you need predictability and this requires a reasonable time frame.

For example, currently in Ireland it can take around 4 years to get a development of 300 to 400 dwellings to a ‘shovel ready’ state with the necessary planning permission and infrastructure. The expansion then takes about 2 years. This is too long. It shouldn’t take twice as long to finish a housing lot as it takes to build it; especially with construction cost inflation, which is currently around 8-10 percent.

Ireland needs to find a way to shorten deadlines for home delivery in order to shore up the market confidence needed to meet the government’s target.

Fast track planning for strategic housing development (for housing estates with more than 100 housing units) worked well for the first two years when it was introduced. But then, starting in 2019, a snowball of third-party judicial reviews rolled in, severely impacting the housing supply.

These forensic reviews not only increase project risk and uncertainty, but also result in time delays and increased costs.

Locations are by nature demographically driven, but relying on population alone is not enough. Investors and developers must also assess whether the programs are fit for purpose.

Access to and availability of credit and mortgage finance is crucial for the sale of buildings, which also calls into question the Central Bank’s mortgage lending limits.

Within the PRS, developers are targeting assets that can attract institutional investors looking to deploy capital and where tenants can afford to pay prevailing rents.

In the build-to-sell market, there is strong demand for locations with good commuter traffic, established locations, proven sales and rental speed and demand where homebuyers can secure mortgage financing.

Prime “shovel-ready” properties that meet these criteria, with adequate infrastructure and building permits, and buildable designs, are at the center of the residential dartboard. And it moves from there.

The national challenge is to simplify the creation of these websites in shorter and more predictable timeframes. The international challenge we face is to ensure that we continue to attract capital to it over the next decade.

Bobby Lloyd is a Director of BNP Paribas Real Estate where he is Head of Land & Development Agency There is scope for domestic and international capital in housing construction

Fry Electronics Team

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