Dr. Peter Stafford:

I thank the Chairman, Deputies and Senators for the opportunity to brief the committee on some of the supply and demand issues facing the Irish residential and commercial property sector.

My name is Peter Stafford and I am accompanied by some of PII's committee members. We have submitted to the committee, in advance, a briefing note on the state of the sector. I hope it gives an overview of some of the issues that we would like to talk about today.

By way of background, Property Industry Ireland works as a not-for-profit think tank to co-ordinate discussions among businesses which have an interest in the property market. Our member firms who lead our policy-development process cover the entire spectrum of interests and range from banks and financial institutions and asset managers to contractors, developers and builders, and property professional service providers such as architects, surveyors, engineers and planners.

Let me turn to the residential sector first. The period 2002-17 falls into two distinct eras. During the first era, which ended in 2007, we often built the wrong properties in the wrong locations at the wrong time and we are all living with the consequence of those errors. Those consequences are negative equity, ghost estates and a collapse in new building activity. The recent rise in house prices and rents in some parts of the country are a direct result of complexities in the supply chain which often makes it difficult for the market to switch back on supply to meet a recovery in demand.

The second era - up to 2017 - begins now. It is PII's belief that we need to make sure that we only build the right houses in the right place and ahead of the right time. A clear vision for success for the property sector will ensure that the errors of the past are rectified and sustainability and high standards are met. We believe we need a data-driven, evidence-based property sector so that supply and demand mismatches are identified, understood and rectified. Recent increased building standards should now be coupled with a reformed planning process so that viable and sustainable new projects are supported through the planning system and into construction and will drive employment in the sector.

Improving supply to the market will calm the market and will provide security to those who own houses and confidence to those who wish to own houses. It is the easiest way of controlling rents. Development of new houses, however, will not happen while the cost of construction and development is higher than the market price of the house. That is why, despite the growth in prices in some areas, there are still no cranes on the skyline. Two options are open to us: we can allow prices to rise or we can tackle the non-construction cost of development. VAT at 13.5%, the windfall tax on profits from rezoned land at 80%, and high local development charges all add to the cost of development and mean that in many parts of Ireland, commencing new buildings, despite any increased demand, is not yet viable. My colleague Mr. Phillips will talk about the recommendations of Property Industry Ireland for planning reform.

Since the crash, the volume of new commercial property across Ireland has dried up for many of the same reasons as in the residential sector. High costs of development and low rents, as well as an absence of bank financing, has meant little viability for new development. Vacancy rates in the commercial property sector are falling, and as employment - especially office-based employment - grows, demand for commercial property space is increasing, driving rents and lowering vacancies. Ireland has struggled in recent years to regain its international competitiveness. We attract some of the biggest and best firms to locate and invest in Ireland and we know the reason behind the attraction, but we must be careful that once we set up a tax base and invest in an education system to attract the firms, we have places in which they can work and in which their workers can live. If we cannot accommodate firms and house their employees in the locations they demand, they will simply relocate - not necessarily to a different area of Ireland, but to another country where there is space.

In our cities, including Cork, Galway and Limerick, the priority must be to support the building of offices in city centres. The infrastructure is in place and it is where the bulk of demand lies. Increasing employment in city centres will have the most immediate knock-on impact on supporting other businesses, especially in the retail sector. Four issues will drive the ability of the industry to supply new commercial property to the sector: first, access to domestic sources of finance and bank lending to support construction activity and the availability of equity financing; second, the capacity within the construction supply chain to build out large office and commercial property developments; third, the future direction of NAMA and the speed and nature of decisions on access to finance and sales by NAMA; and fourth, the speed of bringing new developments through the planning and appeals process, especially in the strategic development zones, where the bulk of development will take place in the short term.

Property Industry Ireland believes the property sector can help to underpin Ireland's economic recovery without a fear of repeating past mistakes so that all micro-sectors can function together in a wider sustainable sector. The forthcoming planning Bills, the next budget and the budgets after that will provide an opportunity to ensure we have a property sector that is well resourced and informed, working to support an economy that is sustainable and fair, and serving a society that is housed in the highest-quality built environment.