Oireachtas Joint and Select Committees
Tuesday, 31 May 2016
Committee on Housing and Homelessness
Dr. Ronan Lyons, Trinity College Dublin
We are in public session. I again remind colleagues about mobile telephones, which must be switched off or put in flight mode. I draw to the attention of the witness the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, he is protected by absolute privilege in respect of his evidence to this committee. However, if he is directed by the committee to cease giving evidence on a particular matter and continues to so do, he is entitled thereafter only to qualified privilege in respect of his evidence. The witness is directed that only evidence connected with the subject matter of these proceedings is to be given and is asked to respect the parliamentary practice to the effect that, where possible, he 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 statement the witness has submitted to the committee will be published on the committee website after this meeting. Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official, either by name or in such a way as to make him or her identifiable.
I am pleased to welcome Dr. Ronan Lyons, assistant professor at Trinity College. I thank him for coming before the committee. I apologise that the previous session he was scheduled to attend had to be cancelled due to Dáil business. I thank him for accepting the cancellation and for reappearing. It is much appreciated by the committee.
If Dr. Lyons wishes to make an opening statement I am sure my colleagues will have a number of questions for him then.
Dr. Ronan Lyons:
I thank the committee for the invitation and the opportunity to speak. I know the committee is very busy. This is a very important task and the committee has limited time, so I very much appreciate and am honoured to have the opportunity to talk to members. I apologise for any typos in the document. It was prepared for the first invitation and I only had about a 24-hour window. If something does not make sense, members can pull me up on it and I will fix it later on.
My aim today is to try to present what I would call a system-wide view. That is not to denigrate the contribution of other stakeholders who have a particular perspective, but given my role and the research I do, I thought it might be useful to try to bring a systems perspective and to think about how we would build a healthy housing system that gives a meaningful right to housing for all Irish people. To do that, it is important that what we do and what I say is based to the greatest extent possible on theory and evidence rather than prior belief . For what it is worth, I am not politically affiliated and I try to the best I can to set prior beliefs aside and see what the evidence tells me, because from past experience, prior beliefs can often take one in the wrong direction.
I will make a brief mention of my background. I am an economist with a specialisation in housing. I have looked at the Irish economy in particular. I did my PhD in Oxford between 2009 and 2013 on the recent Irish housing bubble and crash, and I took a post in Trinity College in 2013 and I have been there since. The vast majority of the research I do in Trinity College is looking at the housing market and the bulk of that is the Irish housing market, although that is shifting a little bit.
Some members might be aware of my role with daft.ieas well. I work with it, and have done since long before I even undertook the PhD. I have worked with daft.iefor about 12 years. The aim of the reports I do for it is just to measure the market, to give the facts and figures. There is a commentary as well but come hell or high water it is about the figures. In the early days it was not popular when the figures got published because prices were falling. That is the work I do with daft.ie. I also work with public and private bodies on particular aspects of housing, broadly defined. In the last couple of years I did some work on social housing, student accommodation and housing for older persons, as well as the bread and butter general housing market.
The context to the housing shortage is well known. It is what I would call system-wide shortage. It does not matter whether we are talking about market housing or social housing, student accommodation, general housing, nursing home beds or hotel rooms, it is just a shortage of accommodation. One might even call it a shortage of space but when one looks at the office sector, there is no problem at the moment providing office space and, in fact, 500,000 sq. m of office space is either being built or is about to be built. That is an important difference between residential and commercial, which I can come back to.
I use one number to focus my comments. If we take the greater Dublin area, roughly speaking between 2010 and 2020, there will be approximately 100,000, perhaps more, new households formed, not all of them families. I use the terms demand and supply as I am trained as an economist and I cannot shake them. Against that extra demand for 100,000 new units, we will probably see perhaps between 25,000 and 30,000 units built in the same ten-year period. As members well know, this is critically important. That is what got me thinking in a more systematic way.
Committee members have had my document for perhaps a couple or weeks so what I thought I would do is give a quick overview of it and then I am sure members will have questions on the document and I can explain myself a little bit better. What I hope we can agree on and what I hope everyone in Ireland would agree on is that what we want the housing system to do is provide a meaningful right to housing for all. One could write it into the Constitution but that would not necessarily change anything on the ground.
What we want to do is put in place the policy that brings about the housing, and the access to housing.
A healthy housing system is one where, when there is new demand, there is new supply. The system responds by building new accommodation of the type needed so if foreign direct investment, FDI, is creating 1,000 new jobs, all of those new people have somewhere to live. I have new colleagues coming from abroad in September to start in Trinity College Dublin and they are currently flying back and forth from New York to try to find somewhere to live. One of them told me yesterday that this is the worst market they have ever seen, and they have lived in New York and Oxford. Those are two notoriously unhealthy housing markets, and this one is worse. Also, if we want to take in Syrian refugees, do we have somewhere to accommodate them, or do we just decide that the population is growing in terms of natural increase?
Whether they are high income or low income, Irish or others who choose to live here because they see employment opportunities, we should have a housing system that responds. That is the barometer I would like policy to move to and that is where the four key policy areas come from. I will outline those briefly and we can then open the floor for discussion.
The first is making sure we have a safe system because that means we have a safe level of house prices. We all know that from 1995 to 2007-08, house prices rose far too much. That is demonstrated in one of the graphs below paragraph 0.8. Also, in the graph above paragraph 1.1 members can see that the Irish housing bubble was off the scale. It is fundamentally important, therefore, that we do not go down that road again.
In that context, the Central Bank rules are very important but an important tweak to those is required, that is, focusing on loan to value and moving away from loan to income. The reason for that becomes clear when we think about land, the final area I will discuss, and consider the price of housing in Dublin versus the price of housing elsewhere. In that environment, we cannot have a loan to income system that works countrywide. It will only work in either Dublin or the rest of the country. The mortgage rules are very important but tweaking them to focus more on loan to value than loan to income would make them even better. Even if they are not changed, we are unlikely to go down the route of creating the same bubble. If it is a case of taking them as they are or having none, I would definitely take them as they are but I would tweak them slightly. I regard that as work under way. The Central Bank Governor has said he will review the rules, and I will be talking to him about those.
In terms of the urgent areas for policy, the first relates to the cost of construction in Ireland, or what I have called in the document an efficient construction industry, because if the Central Bank is capping house prices relative to people's incomes and nobody is capping costs relative to people's incomes, we will end up in a position where house prices and rents are high but nobody is building. There is a common misunderstanding in that regard. Even the ESRI has said it seems to defy economic logic that there are big increases in prices of rents but no increase in supply. It makes perfect sense if costs are too high.
If I could do one thing here it would be to impress upon the Minister, or whoever is responsible for implementing a report, that until we have an open, Government-sponsored audit of construction costs in terms of the different elements of building an apartment block, a semi-detached home or a rural one-off and compare that to other countries, we will not know the most important actions we need to take to boost supply. There are many figures available but there is a good deal of disagreement also. As a result the Government is able to ask how it is supposed to know which are correct if some figures are provided by a State agency and others are provided by developers. Whenever I mention something on radio to do with a safety certification or something else, some people ring me to tell me I am right while others ring to say, "No, it only costs this amount". There is such disagreement in terms of the evidence we need the Government to have its own evidence, and it cannot then disavow its own evidence. It will say, "Here is where the costs are and here is where the priorities are". It could be to do with regulations or wages but I suspect there are other issues that are driving up costs, including lack of efficiency in a more general sense.
The first area is mortgage rules. The second area is cost of construction. The third area which, along with cost of construction, is the key priority for this committee and for the new Minister, relates to subsidising housing for those who do not have sufficient income. We can bring construction costs down in line with our incomes, in the same way the Central Bank has capped prices relative to our incomes, but there will always be a fraction of the population who cannot afford that level of construction costs.
I have worked it out in some detail in the document. If one takes a particular family earning, say, €45,000 per year, it cannot affordably spend more than €1,000 per month on its rent. However, if it costs €1,600 per month at a break-even rate to provide them with accommodation, we are stating there should be a subsidy of €600 per month for that household. We do not have a subsidy system which is anything like that. We have a subsidy system that pushes it on to those who buy new properties, namely, the Part V provisions, and that does not even take account of one's income, once one qualifies, whereby somebody with no income gets the same subsidy as does somebody whose income is just below the threshold. Once we sort out construction costs, to make a meaningful right to housing for all we need to have a subsidy that covers the gap between people's income and the cost of providing them with accommodation. One should not be spending more than one third of one's disposable income on a monthly basis on one's housing.
I acknowledge I am pushing matters generously in respect of my five minutes but this point also renders somewhat irrelevant the debate about how much the Government, as opposed to housing bodies or the private sector, should be building directly. I see local authorities predominantly as providers of land for approved housing bodies to build social housing. Were we to have a subsidy that matches construction costs and one's household income and which states a person's household circumstances are such that he or she needs a subsidy of X per month, this would be the fundamental collateral a housing body needs to tell international capital markets that it can provide 1,000 homes for those on lower incomes and will be able to pay back the markets. I am aware, having worked with Clúid in the past, that there was lots of interest from international capital. It was thought that as this is a country with lots of unemployment, there must be lots of social housing but Clúid was obliged to say that unfortunately, our system does not work like that. However, it should work like that and Austria and New York city have versions of this kind of system, whereby the less one earns, the more help one gets to make sure there is effective demand and not simply notional demand for housing.
I have referred to mortgage rules, construction costs and housing subsidies. The final area is the cost of construction. The cost of a home is not simply the hard building costs, it also is the cost of land. This ties back in with the mortgage rules. If one looks back at the figures for the average price of a house in Dublin versus the average price for a house outside Dublin, even just 30 years ago they were approximately the same. I have included the figures in the submission and it was something like €48,000 for an average house in Dublin and €45,000 outside Dublin. I acknowledge the Dublin house would have had a smaller garden or perhaps one bedroom fewer but I refer to the sticker price, that is, the price one pays. One trades location for size, one chooses to live more centrally and one has a smaller property. At present, the premium for living in Dublin is 70% or 75%, rather than 5% or 10%. Ultimately, I believe that comes down to how we use land. This is not a politically easy thing to fix because it entails changing the way we do property tax. However, I believe the politically most acceptable way to do this is to ignore the homes and to at commercially used land and to treat development land for residential purposes as being equivalent to commercial land and to tax them the same way, that is, with a land value tax.
I got into a row with Dublin City Council about this because I pointed out that Dublin Industrial Estate, Dublin 11, comprises 170 acres within Dublin City Council limits and my contention is it is very poorly used land. There is so much empty industrial space of the M50 and the national road corridors that were the estate destroyed in an earthquake tomorrow, all the occupants easily would find new industrial space on the M50. It is where the cross-city Luas line will terminate and I find it astounding that the terminus of the cross-city Luas line is in an industrial estate that is half used. It is close to the new DIT campus and to O'Connell Street and is phenomenal potential residential land but the way the city council currently thinks is it would be obliged to acquire that land via compulsory purchase order, CPO, there are huge title issues and it does not want to get into that. However, with a land value tax, one puts all the logistical pressure onto the private sector. It means that if one wishes to stay in such valuable land as a half-used industrial estate, one must pay the price to society. Alternatively, if one wishes to develop it, one must buy them out and it is a combination of the two; that is what a land value tax does. Moreover, by doing that, we could get land significantly cheaper but we also would be obliged to review land use restrictions.
I was quite concerned to read yesterday that again, some of the members of Dublin City Council are trying to bring in more restrictive height restrictions.
International evidence shows the best way to keep housing affordable is to allow it to build up where it will pay for itself and not willy-nilly. Unfortunately, we seem to be moving away from that. In the next two years, if we target construction costs and how we subsidise social housing, and, in the next five to ten years, if we reform how we use land, we could have a healthy housing sector which will provide a meaningful right to housing for all.
I welcome Dr. Lyons’s thought-provoking analysis, much of which I agree with. What happened during the boom was that people in construction made a fortune and the system allowed it to happen. Everyone was happy, except the person who was paying a mortgage or who could not get a house. State-owned lands, as well as those owned by local authorities, semi-State companies such as Irish Rail, and the HSE, should be made available at a fixed price for social and affordable housing programmes. Many people want to buy their own house but they cannot because they cannot secure a mortgage or do not have the 10% savings for one.
The fixed-price construction makes much sense for a three-bed house or an apartment. Take Gormanston army camp, for example. It has 200 acres of land beside a motorway and railway. It is near enough to Dublin and other facilities. Making houses available on this site to people who can just pay the mortgage on the building cost of the unit makes the most sense. It would help those who need to get a step on the ladder. What are Dr. Lyons’s views on that?
Dr. Lyons was correct about a mix of social housing and New York. When I was there, I went to one of the most expensive apartment blocks which had a zero carbon impact and a unit could cost up to $200,000 in rent. Up to 10% of all its inhabitants were social housing applicants. They could not be identified by any means too. Everyone had a chance to get into fine quality accommodation for their family needs and so forth. We need to radically change our view on social housing mix. There are too many vested interests here and we have all fallen on hard times as a result. We have to make housing affordable for people and use the State’s resources to do that. If that is given to the right and qualifying people, then it will give them a major start-up.
I thank Dr. Lyons for his presentation. I look at the housing system as a system. One of the important points for our committee to consider is that what one does in one bit of the system just does not impact on that element, but affects the system overall. One of the items we are examining is that, because of the historical failure to invest in the adequate provision of social housing, other aspects of the system have become congested and lopsided.
There is the ongoing dispute about the cost of private builds. Three major players on the industry side, NAMA, which will be annoyed with me for calling it on the industry side but it reflects the thinking in it, the Construction Industry Federation and the Society of Chartered Surveyors Ireland talk about a Dublin three-bed, 1,200 sq. ft. housing unit with €330,000 being the all-in cost. While I support Dr. Lyons’s proposal to have a government-backed database to have up-to-date prices, the difficulty is that the Government may take some decisions on measures to bring down these costs before such a database exists.
Can Dr. Lyons tell the committee his view of some of the proposals to reduce costs from some of the bodies quoting those higher-end figures, particularly the VAT and development levy reductions, and whether he is supportive of them? Does he see downsides in terms of the loss of revenue to local authorities or the Exchequer?
It seems that people need to get their heads around a percentage of housing stock being in the social sector. Based on Dr. Lyons's research on more stable housing systems in Europe, is there a standard? We have about 10% currently. Do we need 20% or 30%? Before we get into the question of who provides it, what is the sufficient supply of social housing to help stabilise the overall system? In that context, my concern with Dr. Lyons's proposal for the approved housing bodies is the fact that even if they were operating to the maximum of their ability and were able to get the credit they say they want, they would only be able to produce about 4,000 units per year and it would take them several years to get to that point. Given the level of housing need, why does Dr. Lyons seem to write off local authorities also filling that space but on a much larger scale in addition to the approved housing bodies?
Dr. Lyons said the least about the private rental sector. Again, it is one of the least regulated parts of our system. I am interested in hearing Dr. Lyons's thoughts on the record about how we could stabilise that sector in terms of security of tenure and rent certainty for tenants and make the supply end more professionalised and stable and less volatile.
I welcome Dr. Lyons and thank him for his submission. I agree with some of his comments and strongly disagree with others, particularly the transfer of land from local authorities to approved housing bodies. I cannot see the logic in this and would like to see the reverse happen. Long before we had the kind of situation we have now, local authorities built a large number of houses and lent an equal amount of loans to enable people to buy affordable houses. That happened for many years and it worked extremely well. We did not have a housing crisis because they were able to meet their obligations and plan ahead and they knew what the requirements would be in the same way as we are supposed to know what school place requirements and health service requirements will be. In recent times, we have lost sight of it. One of the problems was that we shifted from the local authorities to what was effectively a privatised system that simply did not work and that is not working now.
Worse still is the legacy of the housing bubble, namely, the inflation of potential development property. This has not gone away. We have a social obligation to provide an access route to housing. We do not necessarily have an obligation to ensure that everyone makes a profit during the course of it. To what extent has Dr. Lyons studied the degree to which various properties were acquired during the bubble and turned over on numerous occasions before a sod was turned? It gave a new artificial value to potentially building property and more particularly, it was done at a time of very low interest rates, as is the case today. This made it much more attractive to people. We can list a number of prime housing sites in this city and adjoining counties where this happened. I am concerned about that because I do not want to see us go down the same road and be in an even worse situation.
Has Dr. Lyons quantified the employment potential of the building of housing because it is of considerable importance as well? He mentioned market-led demand. I would rephrase that. It is the housing requirement. It is almost a life-and-death issue. It is the requirement for a roof over the heads of many people in this country.
Dr. Lyons identified the control of costs. During Keynesian times, J. K. Galbraith identified the control of costs and rightly claimed that one could not introduce incentives into the marketplace to support and boost some parts of the economy without controlling costs because otherwise, it would lead to massive inflation.
I agree with that part but I have deep concerns about the other parts.
The degree to which the proportion of household income dedicated to paying the mortgage or the rent is increasing and the cause of that has been dealt with by Dr. Lyons. The rollover speculation to which I have referred previously is one of the causes of that problem.
I was commented on unfavourably when I referred, for instance, to people on a Dáil Member's salary being unable to pay a €400,000 or €500,000 mortgage today. That is correct and it is simple to work out. A person earning €100,000 a year takes home €50,000. The guideline used to be 2.5 times the income of the main earner, which works out at €250,000. There is no possibility in the current market of somebody buying a house with that repayment potential. That needs to be addressed. It is massively beyond the reach of the average house purchaser or renter. Renting was put forward as the answer to our prayers. That was wrong and did not work. More than 150 years ago, there was a war about the right to own one's home and the security associated with that. That issue is as alive today as it was when Michael Davitt and Parnell were involved.
A number of people were suggested for this session on financing a house, in particular. More property interests have testified before the committee than independent witnesses we had suggested. I acknowledge Dr. Lyons works for daft.ieand he made that clear. It would have been good to have had balance in the contributions. Representatives of landlords, chartered surveyors and the CIF have appeared but other groups we suggested such as Construction Workers Alliance Ireland and Dublin Tenants Association have not been invited.
Dr. Lyons has proposed getting rid of Part V and the rent supplement and replacing them with a single housing subsidy. One third of the population who need assistance to afford a home would get this subsidy. I will go into the repercussions of that later but would it not be cheaper to build council houses? It is extremely expensive to provide a subsidy on this scale. Dr. Lyons mentioned a figure of €600. The State has paid billions of euro to private landlords over the past number of years in rent supplement. The advantage of the subsidy is people would acquire a permanent asset rather than having the State subsidise private landlords. This would also give security of tenure to families.
I have a case of a family in homeless accommodation who have been allocated a house in Swords but their children go to school in Ongar. They have to consider switching the children to another school or driving between Swords and Ongar each day. Dr. Lyons will be aware how important school is in the life of a child. His proposal means there will not be permanent security for people in a house in a community. They will just get this subsidy.
If one compares paying differential rent to a council with Dr. Lyons's proposal, his proposal will be cheaper for people. I am all for reducing costs.
Dr. Lyons mentioned that ghettoes are being created by public and council housing. It is something that features in the minds of a lot of people and it has become evident there is a lot of stigma attached to social housing. Social housing is probably not a good term because it suggests that people have serious social problems. It is something that will have to be addressed because there is opposition to council housing now because of these things. Another option, which existed in the past, is that there would be a more diverse range of incomes in public and local authority housing. This could be achieved by raising the qualifying income for eligibility for council or social housing and having more diversity of incomes in the council estates by having more affordable mortgages or differential rents to the council, which was the case for many decades. Dr. Lyons seems to be arguing that the other advantage of the income-based subsidy is that it would not matter whether the house was publicly or privately built. From all the evidence we have heard, the private rented sector is where the problem is located. People are experiencing insecurity and the trauma of trying to pay rents. People are becoming homeless right now because there is so little security for people to protect them from eviction. I have not heard anything put forward by Dr. Lyons that would get rid of those problems. His solution seems to be more private housing because he is arguing that the subsidy would go to approved housing bodies-----
-----rather than to councils. Dr. Lyons has said that there has been some interest from private investors in the social housing market. Will he expand on what he means by that? Does he mean getting involved in it or buying houses up? The position is not clear.
Dr. Lyons raised a number of issues about loan ratios and property prices. He implies in his submission that reducing the cost of building a house would not necessarily address this. There are difficulties associated with lowering the cost of building a house, which is argued for by the construction industry. We would all like to see the costs lowered but how they are lowered is important because it can lead to more simply being loaded onto the profits rather than prices and rents going down. If one wants proof of that, one need only look back on the boom when the costs for developers were dramatically reduced through tax incentives, regeneration and other schemes. It did not lower the cost of a house or rents in 2006 and 2007 when prices were rising dramatically.
Dr. Ronan Lyons:
One of the points raised by Deputy O'Dowd ties in with one of Deputy Coppinger's points about State-owned land and is clearly a live issue in this committee. I will not fight to the death over the issue of the local authorities versus approved housing bodies but the provision of social housing should not be left to the market. Most people are in agreement on that, given the failed experiment in other countries and, in particularly, what happened in Ireland in the last generation. The reason why approved housing bodies get a slight nod over local authorities is because in the past local authorities built and lent at scale and were also significantly more financially autonomous.
They could do these things. The approved housing bodies can now fill that role because the local authorities are so dependent on central government that I do not see them having the capacity. I would be more than happy to be won over by a local authority that can do this. While I know there are many small approved housing bodies, equally there are many small builders in the for-profit construction sector. The point is not about the small ones, but about the big ones. The top three, four or five approved housing bodies can work in partnership with developers and get significant scale, which was one of Deputy Ó Broin's points.
I have no quantitative forecasts on how much they could do overnight. It is just too much of an unknown. We do not know the parameters to be applied to that. The developer at the top of the Cherrywood development is Hines, an international Boston-based company. It is working with not only approved housing bodies, but also health care providers for older people and so on. It has all this housing stock and wants to ensure it is all used, so it is talking to those bodies. It is building thousands of homes. The only thing missing in that jigsaw, the only thing stopping Clúid looking for 1,500 of those homes and not 150 is the link between how Clúid pays Hines and how Clúid gets paid. Unfortunately, the present systems of differential rents, rent supplement and Part V do not make that link.
Deputy Coppinger asked what it meant that there was private interest in social housing. This is almost identical. I think the credit union is an example of this. The credit unions claim to have - I cannot remember the figure now - €3.5 billion and want to know why they cannot use it for social housing. They are not gifting it; they expect to get paid back. It is just other private sources of money saying, "If you need social housing, we're looking for 4% or 5% return, so go off and use it, and pay us back at 4% or 5%." That is all I meant by that. It is not that they would own it.
They are lending the money and not renting the buildings to the housing providers, which should be local authorities or approved housing bodies. I believe approved housing bodies can be more flexible because they can go from market to market and establish partnership relationships with developers to provide large-scale social housing that is, as Deputy Coppinger mentioned, not ghettoised. I would have a concern. Clearly not every local authority project that was built in the past is a ghetto. However, where I live backs onto O'Devaney Gardens, which is a classic example of what not to do. In terms of rebuilding it, the most obvious thing to do with such a site which is close to the park and close to the Luas is to have people of all incomes there. As in the example of New York that Deputy Durkan mentioned, people do not know who is who in mixed housing and segregation is much less likely. I do not think the solution is to raise the thresholds for the current systems.
In addition, I do not think it is financially viable to subsidise somebody on €15,000 a year - €600 a month. I cannot remember the exact figure; it might have been €500 a month. That would bankrupt the taxpayer. I am talking about an income and cost-based subsidy because that is the best direct link to meet people's needs. Every household has a need for housing and that need has a cost. Unless those two things are connected, it is not possible to ensure there is a meaningful right to housing for all households.
There is one important point that only comes up partly there. We need to think about building apartment blocks. This is true for social housing as well as in the privately owned and rented sector. It has almost never been financially viable to build apartment blocks in this country. The only time it was ever done was either in very high-income areas - there are some 1960s and 1970s apartments built in Dublin 4 and Dublin 6 - or when there were tax incentives. We have a real problem because the Housing Agency predicts that two thirds to three quarters of the housing demand will be for one and two-person households. We have enough family homes but just do not have families living in them. That is a big problem. This is not about forcing older people out of their homes either. People who want to stay in their homes can do so. However, there are many older people who would love to downsize.
There are no options for them either. There is a lack of options at all levels and ages.
Deputy Ó Broin asked specifically about the measures that have been put forward by the industry. I might at this point respond to a point made by Deputy Coppinger. I do work with daft.ie. I am here today not in any industry sense but because I care about the housing needs of people on all incomes, high and low. I do not know if agency is even aware that I am attending this meeting: it is not that type of relationship. I try to be independent and evidenced based. Among the measures being talked about by the industry is a reduction in VAT on land. I have looked at the figures. Even if VAT on land were abolished or land was made available free such that the only costs were in respect of construction and professional fees, it would still not be possible to build apartment blocks in Cork or in Limerick and rent them at current market rents in the hope of meeting one's costs. We have a huge problem around the core direct cost of building. I would probably listen more to the quantity surveyors than the Construction Industry Federation on that one.
Somebody needs to get into the nitty-gritty of how we build in Ireland in comparison with other cities and to find out what has gone wrong. The cost of building of a house did not decrease during the property bubble; it increased significantly. Roughly speaking, in 1995 the average house was worth €120,000 and, as best we can tell, it cost approximately €100,000 to build. The price of a house then increased from €120,000 to €360,000 and, it appears, the cost of construction doubled. When the price of a house halved from €360,000 to €180,000, cost being at €200,000 became a real issue. The reason lots of houses were being built during the boom is not because the price of a house was so high but because costs were low. Costs were quite high relative to incomes. It was because so much money was being thrown at us at that time that prices rose as high as they did. For this reason the focus on costs is crucial now.
Deputy Coppinger asked if reduced costs would lead to increased profits. I would not look to the boom to see how that works, rather I would look at who is building now. The main firms that are building now build on a percentage basis. They work out their costs, on top of which they include a margin and if the cost does not meet a particular threshold they will not build. If costs are lowered this lowers the euro profit they make on a building. It does not increase it. In regard to property currently being built, it is true that profits on such property will increase but almost nothing is being built in comparison with need. Society wins - I am not too fussed if the developer also wins - because more homes are built and overall house prices and rent levels decrease.
When we recall the property bubble, we think of lots of building, which we associate with rising prices but, as outlined in the chart on page 3 of my submission, prices during the bubble were pushed up by credit. Members will have seen the impact of all of the building in the following five years. When the credit stopped, additional building, particularly in areas outside of the main cities, decreased, which, in turn, lead to a decrease in the price of housing. The experience in every country has been that increased supply leads to lower rents.
Deputy Ó Broin mentioned the private rented sector. While I did not mention it specifically, I believe it has a key role to play. It appears that property ownership of approximately 70% is sustainable but that anything above that would be financially unstable. In regard to the remaining 30% and what portion of people rent because they are on low incomes or for lifestyle reasons there is no golden rule. The private rental sector is hugely important. I am not opposed to security of tenure. I am of the view that the current rent certainty measures are mild and that stronger measures could hurt the people they are aimed at helping because they would halt the building of new supply. Overall, I think the legal side is second fiddle to the market side. Nobody was worried about security of tenure in 2009 because rents were falling 10%, 15% or 20% year on year and if one was a tenant, one was king of the market. The real problem is lack of market power on the part of the tenant. If we increase supply, we give people more power. I agree with backing that up with security of tenure but as we professionalise our landlord base, that is happening anyway. Agencies want to maximise occupancy. Real estate agents such as Kennedy Wilson that are tasked with letting accommodation on behalf of landlords who do not have nieces or whomever coming to the city to attend UCD in the autumn are not interested in turfing people out of that accommodation. They want people in the accommodation they are seeking to let. So, we are pushing an open door with professional landlords.
I have what is probably a minor point on the extent of flipping and whether it and excessive trading drove up the value of properties. The evidence from other countries would say it did. Unfortunately - and this is where the academic in me comes out - we just do not have the data to be able to say that. I know Deputy Noel Rock and I asked him to put a parliamentary question on this last week. Could we get the Revenue Commissioners' records from 2000 to 2009? We have them from 2010 onwards but we do not have them from that period and cannot answer key questions around the bubble without that data. It is a small point but the issue is symptomatic. If we do not view publicly-owned data as something we can use to improve our future decision making - if we view it as an archive that we must protect from other people - we will end up making bad decisions.
Dr. Lyons can tell me if he answered this when I was out of the room. The issue relates to the Central Bank mortgage rules, as the witness mentioned the focus on the minimum deposit. What exactly was he suggesting in that respect? What is his opinion of the O'Devaney Gardens site? Does he favour building on it?
The witness mentioned the Dublin Industrial Estate, the city council and height issues. Much of the committee's consideration regards what can be fast-tracked but there is also the view that what we do must have a sustainable roadmap for the future needs of the city. I have seen Dublin go through considerable change. There are places that would have been a hive of activity around the quays. I remember in the 1970s driving into the docks for collections where the ships came in. All that has been redeveloped. There is still a considerable amount of industrial and brownfield sites in the city centre and its proximity. At the same time we have had regeneration through modern office blocks, with the likes of Google in the city. I wonder if we need a more aggressive policy of land use for the Dublin city area, particularly as brownfield sites with low densities are probably a thing of the past. How do we get the mix with the population required to support it and how do we plan for that so we are not always playing catch-up, with public transport in a mess?
We are still attracting foreign direct investment and companies are still locating in new and modern office blocks that are being built, as the witness correctly noted. How do we convert brownfield sites to residential property or go about planning that so as to sustain us over five, ten or 20 years? That should cover the questions.
Dr. Ronan Lyons:
I would love to stay longer but I know there are other witnesses coming before the committee. With regard to the minimum deposit, if I were to start from scratch, I am not sure I would have designed the process going up from 10% to 20% on a sliding scale. Having said that - and I believe the Governor is of the same view - once the rules are in place, they should only be changed for important reasons. I would probably leave them as they are. People speak about a 20% deposit for a first-time buyer but that would only happen if that buyer was buying a property worth €10 million. It is lower for any feasible amount used by people to buy a property; it is closer to 12%. One could argue it could go down to 8%. Again, I am not going to fight to the death over that. The 10% point is there and I would be reluctant to change it, as then it becomes an issue that can always be tinkered with. People know it is there and those in their early 20s act as if it will be there in ten years.
The O'Devaney Gardens site brings up wider issues. We need to build reasonably high density in that site and we can consider what other cities would do with that site, which is close to light rail and parklands. We can put in schools and other public services. I described myself once as a "please in my back yard" as I can look out on everything. I have a wonderful view of the city but I should not have. There should be something that people live in and get value out of in that space. It is not that the building should have 20 storeys but it should have pretty high density when compared with the rest of Dublin.
I mentioned the Dublin Industrial Estate.
That got me into hot water in the past. I will give another example of land use that I believe encapsulates what you are talking about. Dublin Bus has seven depots. Six of them are in city centre areas. Three of those are not near any terminus of the core Dublin Bus routes and the other three are near a couple of them. However, most of the Dublin Bus core routes start at the outside of the city, so close to Harristown or one out near Lucan would make sense. The six central ones have one feature in common - they were all previously Dublin United Tramways Company depots. In Ireland we have a land use policy that is just last use. Whatever was done ten or 20 years ago is the benchmark now. We must be a great deal more aggressive.
I am not arguing for market-led development, but my worry is that we have gone too far to the other extreme whereby the planner knows best. I am happy with a planner-led system, but a planner-led system where the market, as in people, can put in their suggestions. If a developer offered to buy a site and put in 400 apartments, of which 100 will be social, they should have a way of doing that. In the UK there is what is called a "right to contest"-----
Thank you for your presentation this afternoon, Dr. Lyons, and for your attendance. Again, I apologise for having to cancel your appearance previously.
We will suspend the meeting briefly before meeting our final witness of the afternoon.