Oireachtas Joint and Select Committees
Tuesday, 3 May 2016
Committee on Housing and Homelessness
Construction Industry Federation
I draw the witnesses' attention to the fact that, by virtue of section 17(2)(l) of the Defamation Act 2009, they are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by it to cease giving evidence on a particular matter and they continue to do so, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. The opening statements submitted to the committee will be published on the committee's website after the meeting. Members are reminded of the long-standing practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.
I welcome the Construction Industry Federation, CIF, represented this morning by Mr. Tom Parlon, director general, and Mr. Hugh O'Neill, Mr. Anthony Neville, Mr. Hubert Fitzpatrick and Mr. Shane Dempsey. I understand that Mr. Parlon will make a short opening statement, and we will then have questions from members. I thank the witnesses for their attendance.
Mr. Tom Parlon:
Good morning. We are happy to be present to assist the committee, which has a tight deadline and must devise recommendations in a short period. Two of my colleagues are members of the CIF and house builders, from which point of view they will bring quite a bit of experience to the question and answer session, while the other two are the executives who work with me. We represent the builders who have the skills and capacity to build houses. I hope we will be able to bring that perspective to the committee.
House building has become a lesser but still substantial part of the CIF. The industry's overall capacity is growing and recovering. It has a ways to go before it can be deemed to be at an optimal level, but the recent CSO figures show that we are increasing the construction workforce by approximately 1,000 workers per month. Unfortunately, that increase has not materialised on the residential side, which is the issue that we are present to address.
I have read the transcripts of the committee's meetings with other witnesses. The lack of supply is the real problem. Some have suggested that the problem was the management of existing supply, but there is no doubt that supply is a major part of the problem. The industry's large problem is the cost of construction compared with what the market is in a position to offer. My submission goes into the issue in some detail.
Substantial infrastructural investment, be it in roads, water, wastewater or schools for new communities, is necessary. We cannot build 10,000 or 25,000 houses without it. There has been a great deal of debate lately about the possibility of a Minister for infrastructure and construction or housing. It is imperative that someone have overall responsibility. The acting Minister referred to levers that need to be pulled. I appreciate that it would be difficult for one Minister to have access to all of them, but it is imperative that someone be given responsibility by the Government - for example, a senior civil servant who could lift the phone or pull the lever that is holding things up.
Housing supply has a knock-on effect on the issue of homelessness. The availability of adequate mortgages is a major issue for some borrowers. Assembling the required deposit is a major challenge for many who are attempting to get onto the housing ladder.
If a number of these issues are addressed, it will stimulate new house building. The level of direct social housing provision will certainly assist these persons also. There are many people on the margins of being able to draw down a mortgage and provide their own housing. We agree with the Central Bank applying restrictions, but some minor tweaking of these restrictions will allow people on the margins to qualify for mortgages without having a negative impact on their repayment capacity.
We have made a substantial and detailed submission which I will briefly run through. For a while we have been proposing a help-to-buy scheme. It would be a direct help to first-time buyers and has been happening in the United Kingdom for a long while, with very good effect in terms of the numbers of houses turned out. It means that the State or the Government would take an equity stake in loans up to a maximum of 25%. It means that somebody attempting to buy a house for €300,000 would see the State take a maximum stake of 20% or €60,000, with that amount being repayable over five years. It would make the challenge of getting a mortgage and putting a deposit together a little easier. It would certainly assist in encouraging supply. As I noted, getting a mortgage together has been a challenge and we, therefore, suggest a tax incentivised saving scheme for first-time purchasers of new houses which could be restricted to those saving for a deposit. It would certainly provide an incentive. We suggest a contribution of up to 25% by the Exchequer for every euro saved.
Development levies are a substantial cost on the industry and, as a result, first-time buyers. We can understand why they were introduced originally, as the investment in infrastructure had to be made. Now we have the local property tax and we had water charges until recently; therefore, it amounts to double taxation. The local property tax regime should be developed sufficiently to provide for infrastructure, with the levies being dropped. VAT has been mentioned. A number of people have accepted that 36% of the cost for a first-time buyer goes to the Exchequer and VAT is certainly one of these costs. A reduction in VAT, as proposed by us and a number of other players, from 13.5% to 9% would help to reduce the overall cost of a first-time buyer's €300,000 house, for example, by close to €12,000. There is a question as to how we could be sure it would be passed on to the first-time buyer and that is one we would like to address. One of our members has indicated that if there was a change in the VAT rate, it would be reflected in the price of the new houses he is selling. The industry does not want to be accused of lining its pockets in that regard.
It is about working out a viable proposal for lenders. Practically all builders have to acquire finance, not just from banks, to provide a maximum of 60% of the funding required, but it is a dysfunctional market. With regard to other financiers that may come on board, unless there is a viable plan and a margin can be demonstrated, there will be no funding. Dealing with the VAT issue, as opposed to levies, offers an opportunity to bridge the gap. The process should be targeted and time-specific in order to alleviate concerns any change could lead to difficulties. We propose changes to the seven-year capital gains tax exemption. It was put in place for a very good reason, but there was an unintended consequence, as happens in many cases. There is now no requirement to develop the land in question during the relevant period.
There is the review of Central Bank rules. Currently, to obtain a €300,000 mortgage, a person needs to have €38,000 and an annual income of €75,000. Unfortunately, that will accommodate a very small percentage of potential house buyers. It does not take into account the fact that first-time buyers are substantially older than they may have been previously. They may be five or six years older and have a family.
In most cases they are renting and could be paying up to €20,000 a year for rent, which is not taken into account. We are proposing some modifications that will lessen those requirements and with which the banking sector can be satisfied. It would have to be satisfied with the repayment capacity of the people.
On the social housing side we propose a number of different things and we know the committee has had a number of the players in already. We are proposing a review of the landbank retained by the Housing Agency and local authorities and its immediate suitability for general housing construction. We feel, as many commentators have said, that within the M50 there is a great deal of land, which certainly has to be reviewed. We have to work out what is available and shovel ready and make it available.
Part V contributions are an issue that have been raised time and again. We absolutely support a contribution to social housing but we feel that Part V makes a very minute contribution, particularly when there is little or no housing being built. If we are to ramp it up, that Part V contribution passes on to the first-time buyer just like all the other costs. We have proposed all along that instead of the Part V social housing contribution, there should be a 1% levy on all residential transactions. The figures we have presented here show that it would bring in substantially more than is currently the case.
In terms of urban regeneration, in particular in rural towns, there is a great deal of capacity, with many sites derelict and many rural towns falling into disrepair. We propose some incentives to encourage the people who own those sites to turn them into good quality living accommodation in towns where it suits people and families to live and so on. It would make the upgrading more financially viable.
The last point I will raise is the register of builders. The Construction Industry Register Ireland was accepted by the outgoing Government under action 55 to provide a register for contractors, builders and tradespeople on a statutory basis. The register would mean that when the customer, whether it is a housing agency, individual or local authority, engages a contractor from the register, they are assured they will get a competent contractor that is fully compliant in terms of tax, health and safety and insurance. It will get rid of some of the issues that unfortunately brought ill repute on the industry where non-professionals were involved and took advantage of loopholes and so on. This is something that the industry absolutely supports. There is a voluntary register in place at the moment with more than 850 people registered. We feel that through the attempts and efforts by the industry to solve this particular problem in terms of getting the output, the work will be done by competent professionals in future.
I will leave it that. My colleagues will be anxious to try to answer any questions that are put forward and we look forward to the questions.
Mr. Parlon indicated in his opening comments that the cost of housing, taken in the context of the Central Bank guidelines, is an issue. During his presentation he referred to the issue of VAT and development levies and so forth. It would be remiss of the committee not to ask directly what saving, if any, can be made on the costs over which the construction industry has direct control? Mr. Parlon has pointed out other areas but what about his own area over which he has control?
Mr. Tom Parlon:
It is a very valid question. The chartered surveyors have come forward with a number of costings recently and one that will be publicised very soon suggests that on a typical €300,000 starter home in Dublin, the actual construction costs are about €150,000, which is about half of the end cost. After it has been constructed, the site, VAT, levies, and Part V contribution have to be provided for, which is currently about half of the end cost. I saw a presentation on the economies of scale which suggested that if one were to build 500 units, it would be fine. However, it is difficult to build five at the moment because of existing difficulties. The industry would face up to the challenge of the economies of scale. Overall, the industry is fulfilling massive projects at the moment. I will name two within fairly close proximity to Dublin.
Facebook is constructing a data centre in Clonee, County Meath, which is worth close to €1 billion. The efficiencies brought in there are absolutely world class, whether it be lean construction, building information modelling, BIM, or all of the modern stuff that brings more efficiencies. That is what our members are obliged to do and are embracing. Likewise, Bristol-Myers Squibb is building a fabulous new facility to build one of the most advanced cancer drugs in the world. If the opportunity is available, the house building industry will step up to the mark. However, due to the lack of scale we know there is massive pressure around at present. On the wage side, we believe we pay a substantial wage. We are in engagement with the unions at this stage, but certainly we do not see that there is much scope to reduce the cost of labour on sites. It is a very labour intensive industry. Most commentators are saying that the 10,000 extra houses we would like to build would provide 25,000 jobs.
In terms of the other materials, there is not a great deal of scope. If there is increased demand, there is pressure. The industry certainly will face up to finding efficiencies there, but we genuinely do not see that there is much scope to reduce the bill cost. If one compares our hard building costs internationally, we are very much in line with what is the norm in Europe at present.
Mr. Hubert Fitzpatrick:
The labour involved in building a house is usually approximately 1.5 direct jobs or 2.5 jobs, direct and indirect, per annum. If one factors that into it, that should give a reasonable breakdown between labour and materials.
I wish to make a point regarding the hard construction costs. We looked at the hard construction costs of a house here compared to those in the UK. On a per square foot basis, the hard construction costs in Ireland were on a par with those pertaining in the UK, but the difference related to the size of house here compared with the size in the UK. House sizes in the UK are generally 20% smaller than they are in this country. It is the other soft costs which are out of line with those pertaining in the UK. In the UK, there is a 0% VAT rate and there would not be the same extent of development levies and so forth. We were anxious to address this issue over the past 12 to 18 months. The hard construction costs are broadly in line on a square foot basis, but it is the other related issues that are causing the difficulties, including size.
I welcome Mr. Parlon and his colleagues. What intrigues me most is the €300,000 starter house and the ability of the average loan applicant to service a loan. As the Chairman knows, we are supposed to be well paid. I would not be able to service that type of loan for a starter house, and I am sure I am not the exception. In Mr. Parlon's calculations, what regard was had for the various costs? Incidentally, I accept that the VAT and taxes are a third of the total cost of a house. It has crept up gradually to such an extent that it is virtually impossible.
There are two items which I considered to be the biggest contributors to inflation in house prices. One was the speculation that took place in the land sector, where a person acquired a plot or plots of land or control over a multiplicity of plots of land and used that as a lever to enhance their own profits. There have been countless instances of this. I note what was said about capital acquisitions tax, capital gains tax and so forth. They should kick in to remove those problems, but apparently they do not. The problem facing us now is that over a seven or eight year period house prices increased by approximately 500%. That is intolerable. The availability of unlimited funds was a contributory factor. What about the speculation that took place where a person acquired a property or a multiplicity of properties and off-loaded them after six or eight months to somebody else at a massive profit, who in turn off-loaded them to somebody else, again at a massive profit?
Arising from that period, what amount of land likely to become available to the construction sector for the public and the private sector might be affected by the inflated prices that prevailed during the boom? In other words, are we using as a benchmark prices which are reduced somewhat but which have their roots in the boom period, so that some people who had speculated wrongly and unwisely might see themselves in a position to recover some ground? Our job is not to facilitate that but to facilitate the customer, whether that be the building sector or the consumer. That is the first option.
I welcome the Construction Industry Federation, CIF, representatives. We all - society, politicians and the CIF - have a great deal of ground to make up. It brings to mind two houses side by side in the recent election. One was bought for €750,000 while the next door neighbour in the exact same house paid half that. There has been huge speculation and indeed the good name of the builder is very difficult to stand over in many parts of the country because of the exploitation and the profiteering that took place. We all, including politicians and the industry, have to step up to the mark. I would have liked to see much more constructive suggestions from Mr. Parlon's organisation. I welcome the points he makes, and I am not being critical of those, but we would like to hear more from him about what more the CIF can do as an organisation to reduce costs and to make housing more affordable.
The CIF has a large number of properties in town centres, which are over shops and businesses and are unoccupied. It seems to me that it would be constructive to have a scheme whereby they could be made suitable for modern flats or residences for people with the family type that could live there - childless couples, single people, or whoever. There are also many infill sites in the ownership of local authorities. If the councils identify them, we ought to be able to reach a satisfactory solution whereby they could be offered as serviced sites to builders competitively to build on. That would get over many of the infrastructure costs Mr. Parlon was talking about.
Finally, I think it was the Affordable Homes Partnership which was looking some years ago at a place like Gormanstown army camp, which is more than 200 acres. One could take 60 acres of that land, which could be serviced by the State. We would have to get the vehicle which other members have spoken about - a special purpose vehicle, NAMA or whatever - so that we could offer sites serviced by the State in terms of special infrastructure funds or whatever. There would be two builders in a competitive, fixed-price environment. It would do away with the issues the CIF has as an organisation as regards the cost of infrastructure. The State has an obligation to support social and affordable housing. Is there a formula we could find, nationally or regionally - it would probably require a bigger organisation than a county council to get it right - so that we could immediately move on sites that are owned either by local authorities or by State or semi-State bodies that could be used immediately for housing? I would like to hear Mr. Parlon's views on that.
What is the CIF's view on the report at the weekend inThe Sunday Business Post that NAMA has allowed 80 major property developers to walk away from €1.5 billion of toxic debt? The write-off is equivalent to €19 million per developer. How does the CIF feel about this? Is that just? Has Mr. Parlon any views on it, given that ordinary mortgage holders are still being screwed to pay for inflated house prices and yet members of his organisation, although they may not all be members, are being allowed to walk away from their debts?
I want to deal with what Mr. Parlon raised in his submission. My substantive question is: how much profit is sufficient for a builder to build? For example, regarding this famous starter home for €300,000 - which does not seem much like a starter home if one considers the income one would need to buy it - how much profit would CIF members be happy with on such a house? The CEO of NAMA has said that it is profitable to build houses and that it is a question of how much profit people want to make. He suggested that builders are not happy with profits of €20,000 per house and they are waiting until the profits reach €50,000 or more.
The CIF representatives have come here today looking for a range of breaks and incentives. They want abolition of the Part V system and development levies and for ordinary people to pay more property tax. They also want the tax breaks that the Department of Finance found had benefited high-income earners in the main to be reintroduced. Those tax breaks also led to the construction of all those empty houses in Leitrim. Our guests want the introduction of a help-to-buy scheme, as exists in Britain, which has turned out to be a help-to-sell scheme. They want tax incentives for new buyers, many of whom are able to save in any event and are not really the focus of this committee. Given those two features, is it not fair to deduce that the developers - the CIF's members - are on strike and are holding the country to ransom until they get these concessions from Government? If that was a group of workers, its members would be slated every day in the media. Why are the developers and the construction industry allowed to hold off until it is profitable enough for them, and ask the Government to cave in and give a rake of concessions to get them to do what they are meant to be doing?
Mr. Tom Parlon:
I see our submission did not have much impact on Deputy Coppinger.
First, I will address Deputy Durkan's questions. He is right about land speculation in the past. It drove site prices out of control and that led largely to the crazy prices that were achieved. It is not the case now. We only refer to a house costing €300,000 because that is the asking price. The new type of house that buyers will get now with the new building regulations, etc., is a superb quality home in terms of the finish. It is a very good product. There is an assigned certifier system that it has to be signed off by a chartered surveyor, a chartered engineer or an architect. That adds substantially to the quality of the house and adds substantially to the cost. However, as members will tell me and as we can see from the chartered surveyors' figures, €30,000 is the absolute maximum one can put in for that particular site.
Some investors with the big funds have come in. We have seen various projects and massive numbers of sites being sold off to developers. When the number of sites is divided by the overall price, those individual sites can range from €20,000 to €150,000 each. An earlier contribution to this committee suggested that development land was sold for €120,000 or €140,000 per site. They say it is a question of location, location, location. However, somebody choosing to buy a site for €120,000 needs to get a very big mark-up on the build price. I do not think that can happen anymore and certainly we do not.
There have been suggestions about how to curb hoarding of sites and how to encourage people sitting on those sites to offload them. We would certainly favour such development generally. However, the reason that a number of sites are not being developed is not because somebody is sitting on them or as Deputy Coppinger said, that the individuals are on strike. It means there is a planning issue, a financial issue in terms of not being able to afford or not being able to draw down the finance to develop it, or far more likely there is an infrastructure issue in that there is not water supply, wastewater services or there is no road access to the sites. That was the past and I do not think we will see that in the future.
I did not see the article to which Deputy Coppinger referred, which was published in yesterday's edition of The Sunday Business Post. The Construction Industry Federation represents people who build and take risks in employing people, buying plant and getting their hands dirty every day. It does not represent speculators. In the past, some builders became speculators and they came to great grief as a result unfortunately. These individuals may well be among those who were referred to in yesterday's newspaper article.
To respond to Deputy O'Dowd, I agree the industry has ground to make up, as have politicians. The reason we are strongly in favour of a register is that it would exclude cowboys from the industry as it would include only professionals who know their business, are competent and tax compliant and meet all the other strict criteria that apply in building.
I will ask Mr. Fitzpatrick to respond to the question on making use of properties in town centres because he has a specific proposal to make on that issue. Some efforts have been made to encourage this practice in cities and there is certainly scope for doing so in all towns. I am from Offaly but my local town is Roscrea. Castle Street in the town used to be a thriving area with a hotel, a couple of banks, pubs and so forth. If one were to drive up the street at 11 p.m. nowadays, one would see perhaps three cars and every premises would be closed. There is certainly scope to take action in the area because the street has a large amount of space to accommodate people. Some form of an incentive to invest in it is needed.
I will respond to Deputy Coppinger before I ask Mr. Fitzpatrick to speak. I do not have any idea who the developers to whom she refers are. However, in my experience of the National Asset Management Agency, if it has signed off on a developer, it is because there is nothing left to get from him or her. NAMA has done a very effective job at working out a way to maximise the return it can make on whatever assets individuals have left.
The Deputy asked how much profit is enough and cited the views expressed by the chief executive officer of NAMA. I contradicted the statement he made at the time and I do not believe NAMA would still suggest that this view holds. A margin is whatever one may have left over. It is not the case that there is a €20,000 margin. Banks would seek a margin of 15% and I believe NAMA factors in a 15% margin for the builder when it is engaged in joint ventures or financially supporting some of their clients to build. There is a substantial amount of this type of construction taking place. As to the notion that a builder would not build for a margin of €20,000, I guarantee the Deputy that any builder, including the two gentlemen present, would take the hand of anyone they believed was offering a €20,000 margin on a €300,000 house. It is certainly not the case that such margins are available.
On the issue of developers being on strike, thankfully builders are finding work other than building houses because it is not economically viable to build a house in most cases. Perhaps the other witnesses would like to speak in greater detail on that issue. Anyone who walks around Dublin will see massive refurbishment works taking place throughout the city. Builders are becoming subcontractors and specialising in other works. Standard house building, which most small family builders used to engage in, is unviable at the current prices, given the costs the builder must incur and the prices available. Perhaps the developers are on strike and maybe they can afford to be on strike or have some money left over from the crash. However, many of the builders the Construction Industry Federation represents are still underemployed, which means there is capacity. We are concerned that a big pick-up in activity will result in a skills shortage. We are discussing that issue with SOLAS and a number of other education bodies because we know there are many people on the live register who have construction skills that need to be ungraded before they can go back on site. We look forward to having that problem. Currently, however, there is still capacity in the sector and we do not have a skills shortage.
In terms of house builders and general main contractors, some of the bigger schemes, which will involve main contractors, will be tendered and so on. Recently, I learned from one of our members, who is doing a substantial scheme of more than 100 houses, that he is operating on a margin of slightly more than 2%. Any businessman looking at that figure would say the margin is much too tight to guarantee a return. Margins are so low because of the competition in the business. To suggest that builders would not build for a margin of €60,000 is ridiculous. The Deputy should ask the CEO of NAMA if he continues to hold the view he expressed on this matter because it is used to have a go at builders. I can guarantee it is not the case.
Mr. Hubert Fitzpatrick:
In many parts of the country, sales prices for existing stock are far below replacement cost.
Houses in many parts of the country can be bought at the moment for, perhaps, 60% to 70% of the build cost of those units. That is a major problem because it is not viable to secure finance to build any units in those areas. Clearly that issue has to be addressed.
In regard to Deputy O'Dowd's suggestion about the various infill sites, there is significant scope for rejuvenating those particular sites. There may be some constraints to developing those sites and there may be issues in respect of building regulations that pertain to living over the shop areas and so on. We suggest that the building regulations be looked at to see whether they can be tweaked to ensure that development can be made viable and, at the same time, to ensure buildings that are fit for purpose and satisfy all needs are being built.
The regional nature of the market cannot be over-emphasised. Some development is taking place in Dublin and Cork and a little in Galway. After that it is very sparse. The industry wants to build houses but if the costs are higher than sales prices, it is just not viable to do it.
I apologise for my late arrival. I thank the delegation for the presentation which I read earlier. We are on the same page in regard to many aspects of it, including the savings schemes and the recognition of those who are renting properties. I give some credit to the review on deposits conducted by the Central Bank. In regard to the landbanks, the audit of them and the potential for development, I seek the opinion of the delegation in respect of the joint ventures that may be possible with local authorities and the incentive in terms of VAT refunds. A reduction in VAT might be something that could be explored.
We are on the same page in respect of town renewal and regeneration schemes. Has the delegation any suggestions or legal opinion on the CPO legislation and its potential for exploration where the local authorities could take the lead? I would not agree totally with the way in which the CIF seeks to revise the development levies. A holistic approach needs to be taken throughout the country and the Government has a role to play in realising that wish.
I disagree with the view expressed in regard to Part V. Across the whole construction sector we seek to assist private and public development and address the issues of rental and mortgage distress, and a holistic approach would improve the lot of the social dividend for the State. Having played our part in revising that sector, there should be a return on that investment in regard to Part V. Not alone should the 10% be restored but I would like to see the 20% restored. I respect where the CIF is coming from, but if there is an improvement, a benefit must be derived by the State.
My two questions are on certification and compliance costs. I do not think Mr. Parlon referred to these in his submission. It has been said that these cost up to €20,000 for an apartment in Dublin. The costs have been exacerbated in recent years with the new regulations that have come into force. Is the CIF interested in a licence system specifically dedicated to this area and perhaps supervised, managed and policed by local authorities? I do not think the availability of funds was mentioned in the presentation either. That is one of the major stumbling blocks to development taking place at present, namely, the lack of available funds from institutions.
The Government initiated a scheme together with some American funds in which the Government invested €125 million along with €375 million to create a €500 million fund. What rate are CIF members being asked to pay and how does it compare with the mezzanine funds which are far greater than one expect? Is Mr. Parlon open to strategic investment funds being put in place to assist the sector at more competitive rates than is the case? I am sure he will agree that if rates of 15% and 16% are being charged, that will have to be stopped and more realistic proposals will have to be put in place that can help and assist the industry.
I will be brief because I am not really au faitwith the various aspects of the building sector. However, we are in a state of emergency and crisis because people have no homes. This committee was initiated in order to allow members to sit down and work with people with building know-how. Mr. Parlon made the point that the average ballpark figure for building a house is €300,000, with €150,000 of that being for construction costs and labour. I would like a breakdown of all of that. Many building sites no longer operate by way of direct labour but via the relevant contracts tax, RTC, system whereby a self-employed person employs five or ten workers to go on site. This deal is made with the developer in advance.
I do not believe the prices we see represent the real cost, although perhaps they do. However, with €150,000 going on costs, I would like to see a breakdown for the materials used and in respect of labour. I would like to see how these costs are arrived at, how much goes on labour, what goes on VAT and how much goes on development levies. Also, how much of a profit margin does the industry expect across the board? The costs may be genuine, but an open and honest approach must be made to show this, because people do not believe the stories anymore. They have gone through a great deal and they do not trust developers and builders anymore. If there was a willingness on the part of the building industry to work with the State on the basis of the actual costs and what profit they are willing to accept, the State could adopt a more open approach and agree to work with it on the issue. It could then examine whether it could provide the amenities required, such as drains, water pipes and so on. However, we cannot do that until we have an honest appraisal from the construction industry on the costs and the profit margin required.
Does the construction industry think there should be a cap on land prices over the coming period - as there was had some decades ago - in order to try to stop the inflationary aspect of house prices into the future? Would this help control construction costs and ensure that everybody involved gets a fair cut, makes some sort of profit and gets a job and there is a benefit for all, rather than contributing to house prices increasing again?
We will take just one or two more questions. To be helpful, if Mr. Parlon does not have all the answers on cost, we will have the Society of Chartered Surveyors before the committee next and its representatives may have more detailed answers. Deputy Joan Collins may like to continue her line of questioning with them. However, we will wait to see what Mr. Parlon has to say on that.
We are hopeful we will have a Minister dedicated to housing. Mr. Parlon mentioned the issue of access, an issue which also arose at our meeting last week. Will he outline what he means by "access" from the point of view of the construction industry? What is needed to get movement on this?
My second question concerns capacity to build and the skills required. Mr. Parlon said there is no skills shortage, yet we know there has been a major fall-off in apprenticeships. How is that being resolved? I know from a previous career that apprenticeships are important for significant numbers of people and am aware of the disappointment that has existed because these apprenticeships have not come on stream in recent years. Reference was made to SOLAS. Can Mr. Parlon outline what is happening in that regard?
My third question relates to land banks and availability. Do we know how much land is available for building in the near future, how much available land is not being used for building and what capacity exists? In Mr. Parlon's experience of the industry, what are the biggest stumbling blocks to their being forward movement in this regard as soon as possible?
My last question relates to ghost estates. What is the position of the construction industry on these and what potential is there for it to make progress on them?
I am delighted Mr. Parlon started by saying the housing market is dysfunctional at this time. It is important the construction industry recognises that also. He said we need substantial investment in infrastructure and I would like him to provide some more detail on that.
I have a huge concern with regard to Part V contributions. I reiterate what Deputy Cowen said, namely, that 20% of houses built should be for social housing purposes.
We had a huge discussion at a previous sitting of the committee about the fact that we no longer wanted to build houses in totally social housing estates. We do not want to go down that road. The Minister has also announced the social housing 2020 strategy. Mr. Fitzpatrick has said that as long as the market value of existing or new homes is lower than the replacement cost, little or no private house building activity will take place. For example, in his submission, under the Housing Bill, he states one can buy a house in Hospital, County Limerick for €75,000 and estimates that the cost of building it is €185,000. There are a number of houses for sale in the area. As one can buy ten for the same price, why would one build them? We need to start a massive house purchase programme of the houses available and put people in them because people are homeless and there is a crisis. They have nowhere to go and we cannot wait two to three years for houses to be built. Is the Construction Industry Federation stating it cannot build them because the market price is too low? We require State intervention to buy these houses. I had a huge concern that the figure of 1% suggested in Part V would be used for housing infrastructure to be built, yet no social units would be delivered.
Mr. Tom Parlon:
I will address some of the points made and will then ask my colleague to discuss the issue of certification and compliance costs to which Deputy Barry Cowen referred.
The availability of funds is a major problem. Chartered surveyors have suggested - I heard from their chairman recently who I am sure will give the information to the committee first hand today - there could be a cost of up to €21,000 in financing a €300,000 home. That is crazy, assuming that the builder has to borrow everything, which is probably the position in most cases. The builder goes to the bank for the figure of 60%, but he also has to seek mezzanine capital or go to somebody else. We are then talking about double digit interest figures.
We certainly believed there was a lot of hooha about the announcement by ISIF and Activate Capital that were putting together €500 million for house building. They were going to fund up to 90% of this, which sounded very good. However, when the details came out, they were initially talking about a figure of 13% or 14% which was eventually brought down to about 10%. Even after this, as one started to sell the units, there was another levy of 1.5% on top of these figures. With that particular fund, it did appear that the first priority was not to upset or undercut the banks, but funding is a major problem. We know from different contributions and seeing what is happening that the European Central Bank is attempting to almost give money away. It wants money in the economy in order that it can be spent. There was the concept of helicopter money at one stage; one received and spent it and it was going to be good. We know that if a person has money on deposit, or is lucky enough to have money on deposit, he or she will be very lucky to get any return on it. He or she may even be charged by the bank for taking care of it. We know that there is money there. The Exchequer can borrow very cheaply, at a rate of less than 1%, yet when we want to provide houses - I am speaking genuinely and on behalf of the industry - and any builder sticks his neck out and says he wants to build ten, 15 or 100 houses, it becomes very difficult. He goes to his bank and it is a major challenge to first get it to engage. If and when it does engage, it is on a 60% maximum figure and one needs to be well up to the mark to get that amount. It is then very difficult to obtain the remaining funds to provide a very important piece of critical infrastructure - housing.
We met the Governor of the Central Bank to discuss whether the fiscal rules were the issue and he said the Central Bank - even at a European level - would not be involved in lending on a speculative basis. I do not see how the provision of much needed housing infrastructure would to any degree be speculative. I know that there have been a number of proposals and hope the Government will come up with some formula to take advantage of the availability of very cheap money over a 20 to 30 year period to be invested in housing. The Society of Chartered Surveyors Ireland will go into this matter in more detail for the committee today. Currently, all of the cost of house building has to be passed on to the first-time buyer. That is the unfortunate reality. The Part V contribution required to be paid has to be added to the cost and it is the first-time buyer who pays it. In the crisis in which the country and first-time buyers find themselves it does not make sense to ask that beleaguered sector to make that contribution.
If we put the 1% across the boards, it will touch a bigger market and bring in a lot more money. I will ask Mr. Hubert Fitzpatrick to deal with this matter also.
In the context of Deputy Joan Collins's observations on the crisis that exists, we have an absolute breakdown of the costs. Hopefully, the Society of Chartered Surveyors Ireland will have such a breakdown too. We got a registered chartered surveyor to provide our figure for costs and the society can give its own independent costs. I know that, in his report, our surveyor made a point of saying he did not consult any member of the Irish Home Builders Association or the CIF in coming up with the costs. Chartered surveying is an exact science. If we take a typical house and the new standards that apply, a chartered surveyor will indicate exactly the degree of ground works to be done, the number of blocks needed, the cost of plastering, the amount of timber required, the number of roof tiles needed, all the internal stuff and so on. It is a very exact science and no one is pulling the wool over anyone's eyes. Even in terms of efficiency now and the competition that exists, unless one is a very efficient builder and able to build and deliver a house with the minimum of extras or waste, one will not feature in terms of whether an individual buyer, a local authority or anyone else is involved.
We would all love a cap on land prices. A lot of people have invested in land. A lot of the stuff has been washed out and been sold off. All the sites that were bought for €50 million are now being sold at auction for €10 million and €12 million. That is making its own readjustment. However, the cap that is on land prices at the moment is the value of the site. If someone pays €400,000 for a house in Clontarf, for example, or in south County Dublin, that is probably factoring in a site cost of perhaps €80,000 to €100,000. If trying to get a first-time buyer who has a maximum of €300,000 and who is working very hard to comply with the Central Bank guidelines to a particular market, the maximum value of a site to accommodate his or her house on is probably €30,000 or perhaps even less.
Deputy O'Sullivan raised the issue of a skills shortage. In 2006, we were building close to 90,000 houses. Last year, the number was approximately 10,000. There has been a total, over-the-cliff reaction. It is clear what happened to all of those involved in house building. Unfortunately, many did not get the chance to finish their apprenticeships, and that was a sad situation. In fairness to FAS and ourselves, at the time we worked very well together to try to assist people finish their apprenticeships. Many of those people have skills and a lot of them are gone. We are monitoring this matter very carefully but currently there is not a skills shortage. We expect, however, that if activity is ramped up, it will happen, particularly in the wet trades. Few or no plasterers, blocklayers or floor or wall tilers have come through. We have been working hard to try to get that ramped up.
We are working with SOLAS and the ETBs throughout the country. They are currently putting on courses for specialties. Form work is a big thing. This is the building of wooden cases to pour the mass concrete to build high-rise office or apartment blocks or hotels. It is very difficult to get form work contractors. Courses are being set up that will give people the basic skills so that they will be able to go on site. Dry-lining, which relates to internal partition walls and their insulation, is a particular skill in itself. One probably does not need to complete three or four years as an apprentice. An individual could pick up those skills in a ten-week course with another ten weeks on site if that person knows something about it already.
Building sites have become very sophisticated places. Guys are no longer leaning on their shovels on sites. One would be hard set to find a shovel on a site. From a health and safety regulations perspective, it is very rigorous. The last thing a builder wants on site is someone who will be a danger to himself or someone else. Being site-ready is quite a challenge for many unemployed or unskilled people. However, we are working closely with the Department of Education and Skills, SOLAS and the ETBs. In fairness to the ETBs, we are getting a very positive response. SOLAS informs me that it is providing substantial extra funding for training the individuals involved. On the Pathways to Work initiative, the Department of Social Protection has offices all over the country now and we are engaging with them in the context of their being very strong potential employers. They are interviewing people who are on the live register as well as some of our members, who are keen to take them on, and they are upskilling those individuals to make them site-ready. We are making progress. If we get an explosion in house building, we will have a problem. As we know from before, skilled people will arrive from all over the world and, hopefully, many of our citizens who emigrated and went elsewhere will choose to come back.
Ghost estates have been resolved largely, except in some of the areas where there is no local employment and so on. Considerable work has been done in that regard.
Deputy Quinlivan referred to a problem with Part V regulations. A figure of 20% of nearly nothing was very little. When house building almost stopped, little or no contribution was being made to Part V. A change has been made now to the 5% arrangement. It is still a rather difficult area. If either of the gentlemen beside me wants to tell the committee how difficult it is to manage this on site, he should feel free to do so. It is still a difficult area to manage. Building 11,000 or 12,000 still amounts to making only a minor contribution to social housing. It is passing on that cost to first-time buyers. We proposed a 1% levy across the board. That would spread the cost and raise substantially the income needed. The committee raised the issue and I heard someone refer to it. As Mr. Fitzpatrick has said, people can buy houses throughout the country at a cost substantially cheaper than the cost for us to build them at the moment. That is why there is no building. We would encourage those units to be bought up where they are available but in the areas where there are the greatest housing shortages, no houses are available to buy at those prices. Deputy Quinlivan referred to a purchase price of €75,000 in Hospital. That is probably going to be an entirely different animal from the new €175,000 house built under the new building regulations with all the bells and whistles in terms of energy efficiency and all the other aspects. We have had this debate previously. When a person is starting off and buys his or her first car, he or she does not normally aspire to a Mercedes or BMW. He or she starts off with a Ford Focus or a Volkswagen Golf. Then, if the standard of safety and so on is good, he or she works up. Perhaps we have gone a little over the top in terms of the size of house and the standards that we are setting in respect of the affordability issue.
Mr. Hubert Fitzpatrick:
Reference was made to certificate of compliance costs. The industry fully supported the introduction of the Building Control (Amendment) Regulations 2014. They provided the end user, the consumer, with a far greater level of oversight, certification and a security that the buildings had been built according to the standards. The figure of €20,000 quoted for compliance with the regulations is too much on the high side. I expect the €20,000 figure includes many other costs that the developer would have to incorporate in any event, such as the cost of drawings and so on. I imagine the real certification costs for compliance with the Building Control (Amendment) Regulations are closer to €2,500 or €3,000 rather than the €20,000 figure. By and large, the Building Control (Amendment) Regulations provide a far greater level of oversight for the end user and a certainty that the buildings have been constructed to the required standard. We are certainly supportive of the consumer having that level of oversight.
Reference was made to the development of town centre sites and compulsory purchase order legislation. I had thought the CPO legislation was adequate. If it requires amendment or review, we would fully support it. The renewal of town centre sites should be supported for a quantified and specific type of development. It should not be open-ended. We want to ensure that we do not end up with an oversupply of any particular type of properties in any particular area. We do not want to repeat the mistakes of the past.
Section 48 development contributions are used to fund infrastructure in any part of a given local authority area. Therefore, someone buying a new house in one town may be funding the building of a community centre or other development in another area entirely of the local authority. Section 48 development contributions were introduced at a time when no property tax was payable. No other type of such taxation was payable by households at the time. We view the section 48 development levy as one that could be replaced by the property tax. We still support section 49 arrangements with special development levies that pertain to particular developments where specific works are required to support those units.
Regarding the help-to-buy scheme, we are aware that many people would traditionally have been able to provide for their own housing needs and would have been able to buy a house in the past. Some of those people are now falling back on social housing waiting lists. This ends up being more expensive for the Exchequer if it is to meet that need.
A small leg up under a help to buy scheme, whereby the State took up to a 20% stake in a house, would be good value for money for the Exchequer because ultimately the purchaser would buy out that 20%.
The answer in respect of certification costs. The costs may be as the witness says but the charges to the end user are far in excess of what they should be. Would Mr. Fitzpatrick not agree that there should be a new licensing system for the way it is patrolled or policed and that local authorities have a role, considering they were supposed to have one under the old legislation with the compliance officers within local authorities? Is Mr. Fitzpatrick aware of the costs for certification of a one-off building? I agree that the end user must have some sense of security about the reliability of the work, that it complies with building regulations, has planning permission and so forth but these costs are way in excess of what they should be. That has to be addressed. I do not accept that those charges are nearer to €2,000 and €3,000. Many of my constituents pay far in excess of that. Many people around this city are being charged far in excess of that and it must be addressed.
Mr. Hubert Fitzpatrick:
In many instances, people were building houses from planning drawings. Building regulation has become extremely complex in the past few years, particularly in respect of compliance with Part L of the building regulations. Where some builders were being asked to build houses from planning drawings, that was not adequate and we needed proper design drawings submitted for building purposes. I know that many people building one-off houses incorporated the design fee into the Building Control (Amendment) Regulations costs. It has to be broken down into the work required for the detailed design of the house and the certification costs for going in and overseeing the development. When we break it down on that basis, the costs are closer to €2,500 or €3,000 per house. The one-off housing sector is certainly seeing it in a different light. People in that sector view the design costs as part of this compliance issue. I will be happy to go through this with the Deputy.
My question is about the role of the local authorities. Does Mr. Fitzpatrick not accept that a good licensing system, similar to that in the United Kingdom and the North of Ireland, brings the costs down and is as efficient as, if not more efficient than, the present system? Many say it is a divvy up for the sector.
I want to make observations rather than ask questions. I thank the witnesses for the presentation this morning. We are all here to put some kind of formula together so that people can have a home, whether social or private housing. Eugene Cummins of Roscommon County Council and Dick Brady of Dublin City Council were here last week. Mr. Brady said there are more than 22,000 sites available for local authority housing across the city. Do the witnesses have any idea what kind of sites they are and what size housing estates can be built on them? Some I imagine are very small.
There are small sites across the city which lay there all through the boom and still have nothing on them. Mr. Parlon said reviewing the sites would be very important for the construction industry. I agree but is it not true that many larger construction companies do not want to build any kind of housing because it is not profitable enough and the builders who were building small banks of houses unfortunately do not have the money any more? Mr. Parlon made that quite clear. Have there been any formal talks with the councils about the sites they have?
Have the witnesses any idea of the number of sites there are and the capacity of housing they would hold?
Something which jumped off the page at me around social housing was that a tenant should not be allowed have a sale of a house if it is below the replacement cost. Like my colleagues, I have dealt with people who have lived in social housing all their lives. Many of them have lived in those houses for 40 and 50 years. It is disappointing that anybody would want to prevent them from buying their houses, on which they have probably already paid half a mortgage or a full mortgage. People living in social housing should have the right to buy if they have lived in a house for more than a certain amount of time. Dublin City Council conducts a very fair process to allow its tenants to buy. I am only familiar with it and South Dublin County Council.
I agree with the witnesses about living over shops. Although it is very important, in many country areas and small urban towns, there is just not the population, unfortunately. Many young people have left and have come to the cities because that is where the work is. There are a number of reasons people do not live in the countryside and we will not go into them.
On first-time buyers, many young people were caught up in the property boom and bought houses at extortionate prices. They now find themselves not living in those houses and having to rent them out. Some are having to move back home with their parents because of the mortgage and so on. Have the witnesses any suggestions about people who are in negative equity and what can be done to help them? As Mr. Fitzpatrick said, many of these young people are falling back into social housing. Many have had to give back their keys reluctantly while some wanted to give them back because they just could not live.
Returning to Part V, I agree with others that it should be 20%. The witnesses' presentation indicated that the operation of Part V contributes to restricting new residential building activity and puts upward pressure on all costs. We have dealt with the costs. I would question the argument about it restricting new activity. My sense of the building industry is that for other reasons altogether, it would prefer to have private estates without any element of social housing. Is that not the real truth in terms of why the witnesses would prefer to see Part V restricted in some way?
On the suggestion of a 1% levy, in the past with Part V, when local authorities were in a position to take money instead of delivering housing, that money just went into a black hole and no houses were delivered. Why would the witnesses' suggestion be any different? Is there not a real case for saying that when there is building activity on a site, those concerned should at least deliver something while the planning and the development is under way?
Regarding the suggestion to reduce VAT, if that could incentivise the industry it would be very welcome. What guarantee could the witnesses give us that it would not be absorbed? There is a poor track record in that when incentives were given to home owners - first-time buyer's grants and so on - typically, those incentives were added on to the price of the house and did not benefit the consumer at all.
Section 3 of the witnesses' presentation deals with development levies. While estimated costs are included at the end of the paper, this section seems to suggest that there would be no cost to a change in that development levy. It is stated that local property tax should be appropriately structured so that adequate revenues are raised. We currently have the property tax and the levy so there is an income there. If it is taken away, there is a loss of income, so there has to be a cost. Are the witnesses suggesting that the property tax should be increased to take account of any reduction in this levy?
My line of questioning is similar to that of the last two speakers.
Would the witnesses accept that there is an over-reliance on local authorities to provide social housing? As Deputy Byrne said, Mr. Eugene Cummins and the County and City Management Association came before the committee last week. They stated that local authorities are not developers and even if they had adequate resources to build on their lands the regulations stipulate that they can only use 10% to 15% for social housing. There is a perception that the federation would prefer to stay away from the issue of social housing and hand it over to the council, which is why it wants to reduce the amount of Part V housing.
I would like the witnesses to expand on the proposal that the sale of any existing housing stock to tenants should not be below replacement level. As Deputy Byrne said, some people have lived in houses for 20 or 30 years. It was only this year that the Government reintroduced the scheme whereby tenants could buy their houses.
The committee has a remit to deal with the whole of Ireland. We keep referring to starter homes priced at €300,000. In my constituency, Waterford, one could buy a newly built three-bedroom semi-detached for €165,000 or a four-bedroom detached house for €240,000. People still find those houses too expensive, but I want to put prices into context because although the issue of price is prevalent in Dublin it is a problem all over the country.
Many of my points have already been raised. I disagree with the abolition of Part V and the rule on providing 20% for social housing. Not only does the rule provide homes, but some of the best estates throughout the country are places where Part V was at 20%. I agree that if it is to be replaced by a levy there is no guarantee the money will be spent on social housing.
Labour costs and wages were mentioned. The average worker in the sector is not a millionaire. We need to be strong on that point. People working in the sector have suffered many wage decreases and many, in particular those in rural areas, are unemployed and may never have an opportunity to re-enter it. I do not want the impression to be given that the cost of building only involves labour costs because it certainly does not.
Urban regeneration is a good idea. We know part of the problem is the supply of housing, but we also know there are a large amount of vacant properties in rural and urban areas. Regeneration would be great for many villages and towns. It would increase employment and activity. I would like the witnesses to give us more information on how they see that working. They may not have the information with them today, but I ask them to forward it to the committee. It is an excellent idea. Not only is it more immediate for those who are facing homelessness or are currently homeless, it also feeds into a wider social argument about regenerating our towns and villages. Any constituency with a mix of urban and rural areas will have places that have become like ghost towns. I would like more information on how regeneration would work in practice.
Mr. Tom Parlon:
Deputy Byrne raised a number of issues regarding small sites. I look out for sites while I cycle and walk around the city. I see sites that have been idle for a long time, and are now being sold off. There are now fewer costs involved in developing a site because the chances are that water and sewerage networks are connected and street lighting has been installed. Such sites lend themselves to development.
The Deputy also referred to first time buyers who bought expensive houses. The figures show that the number of people in negative equity are on the decline, something of which I have personal experience. Price increases are one factor. I understand they have now stabilised fairly well. All of the indications are that interest rates, which are another factor, will remain very low. There is now pressure on banks to reduce mortgage rates and so on, something I hope the new Government will deal with. I hope there is some light at the end of the tunnel for those affected.
Deputy Ryan referred to Part V and asked whether people do not want social housing in a development.
From reading some of the transcripts of previous meetings, I know that the committee has had lively discussion about that before. Whether it is people objecting or people not wanting to buy, it is an issue. We provide the product and we put it up there. As far as we are concerned, we do not have any prejudice in that area. If the Government says that we must do X, Y or Z, we do it. It may have implications otherwise.
What previously applied to social housing is not the case anymore because nearly 90% of the people who are now on housing lists are individuals who do not comply with the Central Bank's mortgage regulations. It has no other stigma attached to it anymore. It is simply that people can ill afford to buy. This is an issue that will become more apparent. The industry and the builders do not have any issue. It is a purely economic point we are making. I know there is opposition to it. I would expect that if there was a 1% levy, it would be entirely ring-fenced and would go directly into housing, rather than anywhere else. There were many local authority levies collected in the past that disappeared into other obligations that the local authorities had.
One question that arises all the time relates to the fact that if the VAT is reduced, what guarantee is there that it will be reflected in the price of houses? That is a tricky one. One of my colleagues has already said that if the VAT were to change in the next while, it would be reflected in the prices that people have offered to pay and in their mortgage deposits. There was a VAT change in the hospitality sector. I have heard the Minister for Finance say several times that if he sees the prices of hotel rooms or meals rising, he will have a rethink in this regard. In terms of the taxes coming in, the large amount of people involved and the fact that every hotel room is being filled with a shortage of them around the country now, my understanding is that the Exchequer return has given a major boost to the industry. I hope that model will be looked at in terms of what applies to the housing industry.
The industry needs a profit margin. If one does one's figures now to build 100 houses, gets a chartered surveyor to do the costings and factors in the VAT at 13.5%, saving a bit on the levies would make a difference. The Society of Chartered Surveyors Ireland suggested that if there was a €6,000 local authority levy across the country, it would save €7,000 or €8,000. If the financing costs were halved, it could save €10,000 or €12,000. If the VAT was reduced to 9%, it would save close to €12,000 as well. Taken together, these would add up to nearly €30,000 in savings. If that €30,000 means that the bank says, "Go ahead, build those 100 houses", one still has to take a chance on building.
The other thing is that there is no speculative building of 100 houses. These two gentlemen beside me might rap my knuckles when we leave, but if they had planning permission for 100 houses, the chances are that they would build a showhouse or two to show off the style of houses and then they would build a few more. They would get on to their agent and he would receive people. Somebody told me recently that approximately 1,100 people came to look at some houses but that only 70 deposits being put down in respect of these. There are an awful lot of lookers and people who aspire to buying a house or who are in need of a house but, for one reason or another - be it inability to comply or whatever - they are unable to do so. The chances are that one would build a showhouse, show it and somebody would come along. As soon as one has a deposit and a contract signed, one will build on and on. The bank would certainly not allow one to build an extra ten houses over and above what one has until the contracts are signed. That is probably not such a bad idea, but we need to speed up the process. If we intend to build on a large scale, it needs to be sped up in a big way. A reduction in VAT would certainly give an incentive to provide the stock. I understand the VAT reduction in the hospitality sector was introduced for a year and then rolled over. We would suggest that such a VAT reduction in the housing industry be on a similar time limit. If there is evidence that the savings are not being passed on in the price of houses, then it is up to the Minister for Finance to change that.
Deputy Butler raised the issue of over-reliance on local authorities. Unfortunately, those authorities did not build many houses for a long time and are still not doing so now. We would support local authorities becoming involved in direct build projects. In terms of joint venturing, they would get very good value if they came up with designs and put them out to tender. They would get good value from the private building sector, who would provide those houses. There are people in the industry who have the required skills and capacity to do so.
I appreciate exactly what the Deputy is saying about this committee examining the national picture. We are a national organisation. We recently brought our roadshow around the country.
One needs to be very careful about how one describes the recovery in the industry because it is not being felt down in Tullamore, Sligo or Waterford. It is lucky that there is a motorway from Waterford to Dublin because a lot of builders from Waterford and elsewhere come to Dublin to seek work on a daily basis. One certainly would not be able to build a house for €240,000 in Waterford until the stock referred to is used up. If there is a social need, the various housing authorities and housing agencies should take advantage of it.
Mr. Hugh O'Neill:
There was a recent session on costs and I am sure the Society of Chartered Surveyors will be able to add to this point. There is a lot of misleading information on costs and there are many instances where roads and services had already been put in place but the cost was written off. Every builder in the past number of years has set these works aside because of the cost of completion. They became a contribution to the debt and, if the funder was happy, a lot of these costs were written off, giving rise to losses. There are many examples of this, even in Dublin.
Mr. Tom Parlon:
Deputy Funchion asked about wage increases. It is supply and demand. We are engaged with the unions at the moment in dealing with wage increase demands. There is a new SEO in place instead of the old REA and the demand is upwards. If you are a tradesman at the moment you can certainly negotiate good terms for yourself. The Deputy also asked about urban regeneration and Mr. Fitzpatrick will refer to that. We see major scope for it. In the past, ghost estates came about as a result of over-generous tax incentives to build where there was insufficient demand, and the industry suffered as a result. Any such scheme would need to be well tailored and, as Mr. Fitzpatrick said, would need to be very specific. In a town like Bagenalstown in County Carlow, where there is scope to renovate 20 units above a shop, the people with the skills and know-how to do it live within seven to ten miles of the town. If the units were good quality living spaces I am sure people would take them up.
Mr. Hubert Fitzpatrick:
Urban regeneration would need to be strictly defined with a red line around a particular area to be incentivised, depending on what is needed for that area, so that there is no over-supply. On the question on Part V, the industry is not walking away from social housing. The industry is suggesting that local authorities retain a right to acquire up to 10% of the units in all those developments to ensure social development in those areas.
Another question was on the restructuring of the local property tax and the section 48 levies. An extensive list of infrastructure was prepared by all the local authorities to be funded by section 48 development levies. With the changed economic climate, one needs to look again at that list and determine what is essential and what is desirable. Let us focus on the essential infrastructure to be provided under section 48 provisions, rather than fund an extensive list which is clearly not affordable in the current climate.
Mr. Shane Dempsey:
Deputy Cowen commented on the availability of funds. There is a market failure in terms of access to finance, particularly for SME developers and in the regions.
It is our belief a number of European Commission funds, financial instruments for cohesion funds, could be merged and blended together to provide low cost finance for small and medium enterprises, particularly in regional areas. That is essential to make it financially viable again to build in a balanced way across the country, rather than for building to be concentrated in the greater Dublin area, Cork or Galway. We would be happy to work with the committee in investigating that issue further.
I thank Mr. Dempsey, Mr. Fitzpatrick, Mr. Parlon, Mr. O'Neill and Mr. Neville from the Construction Industry Federation for appearing before the committee. I thank them not only for their answers to the questions put but also for the document they supplied. As they will have noted, there is a diverse range of views on some of the suggestions they have made, some of which we will probably explore a little further during the next session. I again thank them for their attendance and submission.