Professor P.J. Drudy:

I thank the joint committee for inviting me. I think the Bill is a good one and an important element if we are to increase the supply of land and, hence, housing. If we increase the supply of land and housing, we will actually reduce house prices and rents. I know that may not appeal in some quarters, but I it is a very important goal for everybody to try to achieve because house prices and rents are too high.

I am not telling members anything they do not already know, but we have a crisis. To put it mildly, some ownership is difficult for people. It is beyond the reach of many young and not so young people. The housing market is not working in many ways. Supply and demand are the two critical issues. Supply is not coming on-stream fast enough. There is remarkable volatility in the market, as members will see in the table on page 1 of my submission. In 1975, 18,000 homes were built by the private sector. In 2005 that number shot up to 75,000, with many of those houses being in areas where they were not required. There were far too many, resulting in ghost estates, etc. In 2018 the number was down to 13,800. There is something radically wrong with a market where there is significant demand for housing and only a small number of houses are being built. The market is failing. There is remarkable volatility in the private sector. I am not here to criticise that sector, but the message I would like to get across is that reliance on it alone is inadequate. I have heard many Deputies and Senators say this during the years.

The data on the right hand side of the table indicate that local authority and approved housing body provision has not been much better. In fact, it has been very bad. It has dropped dramatically, from almost 9,000 homes in 1975 to 4,251. Those 4,251 homes include Part V and turnkey homes purchased by the local authorities from the private sector. The local authorities are building small numbers. The end product is that house prices have increased significantly and are badly out of line with general inflation, the cost of building and average earnings. I have a diagram on page 2 which shows how new apartment and house prices have changed. Prices are way above what they were at the peak in 2007, which is problematic. Some 30 years ago, a mortgage could be taken out by one person and on that one modest salary one could buy a house. Nowadays, that is out of the question for many young people. Something is radically wrong with this. Working couples with childcare costs struggle with the equivalent of two mortgages.

Supply is critical, but demand is also an issue. It should be obvious from Table 1 that the local authorities are purchasing turnkey homes. This was alluded to by Deputy Darragh O'Brien in the newspaper recently. It is a problem. If the local authorities are purchasing homes, they are in competition with young people, which is a problem. Approved housing bodies and other non-housing bodies are also purchasing homes. There is a problem with young and not so young people having to compete with those who should not be purchasing houses. I know that it has been the practice for many years, but the local authorities and approved housing bodies should really build rather than purchase houses. That is an important point.

The private rented sector is equally problematic. The committee knows all of the problems, including increasing and unaffordable rents, insecurity of tenure and poor standards. In fairness to the Government, the introduction of rent regulation was a very important element in trying to solve the problem. It was much criticised at the time and there was significant lobbying against it by major international companies. I am pleased that at the time the then Minister, Deputy Coveney, and the Government stuck it out and went along with it. Ideally, rent regulation should be extended throughout the country, as opposed to simply having pressure zones, but it was a good initiative, for which I certainly argued strongly a few years ago at the Oireachtas Committee on Housing and Homelessness. The other problem in the private rented sector is that a range of multinational and property developers have purchased and now control a high proportion of the houses and apartments available. They buy in blocks, which is a real problem and I am not quite sure how we should deal with it. I have no doubt that the Government is aware of it, as is the Chairman of this important committee. It certainly requires some action, although I do not know how it would be done.

There are negative consequences related to high house prices and rents which we know are completely out of line with the consumer price index, average earnings and the cost of building. They are bad for the economy, which is a central point. A high proportion of disposable income is tied up in repaying mortgage debt or rents for an extended period and the result is less disposable income to be spent on employment creating activities. There is something radically wrong with a situation where substantial amounts of people's incomes have to be spent on housing. There are very few people here who are older than me, but some young people would not understand that long ago one could quite easily have bought a house with one salary. Some people benefit. Some homeowners think they are sitting on a gold mine and very happy, but I think they are very foolish. They should think of their children and grandchildren.

Apart from the economic reasons to try to keep house prices and rents down, there are reasons of social equity and ethical reasons housing should not be expensive. It should be a home, rather than a commodity. The commodification of housing is a serious problem. Financialisation is a global issue where large finance companies and funds purchase housing which they see as a fantastic, sound asset to purchase, but they are not thinking of young people.

The other problem apart from the private sector is that there has been a dramatic decline in the construction of homes by the local authorities, housing associations and other non-profit organisations, as members saw in the table. I am sorry to say it is not good enough. We have to return to a situation where the Government has a policy of ensuring the local authorities, approved housing bodies and so on will build houses. I remember writing about this issue 15 or 16 years ago. Since 2004 successive Governments have turned to and relied unduly on the private rented sector to provide social housing. The cost is enormous, at more than €900 million. Mr. Mel Reynolds has just given me a figure for 2018 of €934 million spent on a combination of homelessness services, rent supplement, the rental accommodation scheme, the housing assistance payment scheme and so on. I have no doubt that it is well intentioned, but not one single extra long-term home is available as a result of this enormous expenditure. We should think again. It is essential that we reverse the alarming reduction in the provision for public housing. We should also move away from reliance on the private rented sector. I know that it is well intentioned, but it is foolish.

In regard to State-controlled land, an analysis last year confirmed that, excluding land owned by other semi-State bodies such as the IDA, Coillte, the Housing Agency and CIÉ, the National Asset Management Agency, NAMA, debtors and local authorities own 17% of residential zoned land nationwide, with the capacity for more than 100,000 dwellings. Of this, NAMA controls 60% and local authorities own 40%, but that is enough State-owned land for more than 40,000 dwellings nationwide, owned by local authorities. Densities have subsequently increased from the 2015 figure due to the lifting of the height caps. In Dublin, between NAMA-controlled debtors and local authorities, almost half of all residential zoned land with capacity for more than 55,000 dwellings is controlled by the State. In Dublin city alone, almost three out of four vacant sites are controlled by the State, with Dublin City Council owning half of the sites.

Turning to land values and affordability, land price is a significant issue affecting affordability. Typically, upwards of 35% of a dwelling's sale price comprises land value and developer’s profit, although this can be a lot higher. Land price is highly volatile. A 10% increase in a new-home price translates to a 30% increase in land values. The opposite is also true, however, and land values can fall dramatically when prices soften. Land trading and speculation is a feature of the Dublin land market, with less than one quarter of residential planning permissions turning into completed units after three years.

The residual site value for land is derived from the sale prices less costs and margin. In some Dublin locations, the residual value is significantly exceeded, which suggests an inflated land market. When developers overpay for land, developments stall until sale prices increase to a level where it is viable, that is, where it is profitable to build. Developers will not build where they will make a loss. Forty years of CSO data since 1975 demonstrates that demand leads supply by approximately 12 months. The currently stalling sales levels and prices suggest a drop in the number of homes being built in the latter part of last year in certain locations. When prices fall, supply falls.

One critical area that has affected prices is the promotion of alternative uses. We know that planning changes have delayed development and encouraged repeat applications and land speculation. Analysis by the Dublin Chamber of Commerce of planning applications for new apartments in Dublin suggests recent planning reforms have had a dampening impact on the supply of new apartments, added to which are the inflationary effects of new, more intensive forms of residential development being promoted by policy. Co-housing, shared-living developments and student housing are short-term, intensive and very profitable uses. In the midst of a housing shortage, the industry continues to prioritise student housing schemes. One example of this is the recent sale of a large student housing scheme in Ballymun. The sale price was €46 million for 364 bed-spaces, equating to €126,000 per bed-space. In planning terms, a unit with four bed-spaces is the equivalent size of a normal two-bed apartment and, therefore, for residential development to be as profitable as this scheme, it would need to sell for more than €500,000 in Ballymun. Currently on Daft, however, one can see two-bed properties for sale for between €150,000 and €170,000. Sites for student housing or new co-living uses are significantly more valuable than normal residential properties in most Dublin locations. Apartments will not be built unless this trend is addressed.

The vacant site levy was proposed in 2016 to penalise owners of vacant land and stimulate activity. Although introduced in January 2017, the tax is charged only from 2019 onwards for sites included on registers. The levy had been on a sliding scale, where the larger the loan that was attached to the land, the lower the levy that was due. The original maximum level was 3%, based on a 2018 land market value. Last October, to its credit, the Department of Housing, Planning and Local Government moved to make the levy more effective for owners, removing the sliding scale and increasing the levy to 7%. Questions, however, continue to surround the effectiveness of the measure in the current market. To date, just 21 of 31 local authorities have listed sites as vacant on public registers. Dublin City Council is one of the most proactive of all the local authorities and its register includes approximately 16 ha of land in the ownership of the council itself. This is a fraction, however, of the 112 ha of vacant zoned residential land owned by the council, which is on the Rebuilding Ireland land availability plan. Figures for other local authorities that have populated registers are lower again. Despite the best intentions of the Department, local authorities appear reluctant to implement the site levy and have cited a number of reasons, from lack of resources to low land values. This inertia worryingly suggests that local authorities have little resources or support from the Government for strategic land management.

The supply of public housing is heavily reliant on the private sector. This is an expensive way to meet demand because it involves paying market value for units, high site prices, expensive financing costs and developers' margins. The National Economic and Social Council and the Department of Public Expenditure and Reform have recommended that the State directly procure social housing on State land in areas of high demand such as County Dublin, and continue rent supplement in low-demand areas where prices and rents are lower. In a time of constrained industry output, such over-reliance on the private sector is having an inflationary effect on rents, prices and land values. Affordable housing schemes, which rely on discounted purchase prices, effectively subvent high prices and are prone to failure in downturns. Current policy assumes new housing output will continue to increase and has not been risk-assessed to take account of the cyclical nature of development. When the cycle turns, less money is available, which means that fewer houses will be produced by the private sector, leading to fewer dwellings available for rent or purchase. This is a high-risk strategy and there have been indications that we are at or close to the peak of the current cycle. A proper, functioning vacant site levy, implemented in a transparent and consistent manner by all local authorities, should be encouraged. Once changes are signalled in an unambiguous and timely manner, costs will be transferred back into site values. Proceeds from any site levy should be ring-fenced to provide finance for affordable housing.