Thursday, 19 January 2017
Ceisteanna - Questions - Priority Questions
5. To ask the Minister for Housing, Planning, Community and Local Government his views on whether the current level of investment in the construction of commercial property is having an impact on the development of residential property in particular in the greater Dublin area; and if he will make a statement on the matter. [2400/17]
At the moment in Dublin, the analysis of the commercial property market shows us that we are dealing with a bubble in commercial property that exceeds the bubble we saw in 2006 and 2007. There is all manner of downsides to this. There are very few winners. The only winners are some foreign landlords and even they will become losers if and when the bubble bursts. Specific to the Minister's portfolio, I think we are all agreed that there needs to be more residential development in Dublin as well as many other places. However, because there is so much more profit to be made in Dublin from commercial property development because of this bubble than there is from residential property development, what I am hearing from investors and developers is that they will, of course, direct their assets to commercial which, therefore, crowds out residential developments. Is the Minister aware of this, does he think it is a serious issue and does he think there needs to be a push back to have these foreign landlords and commercial property developers pay tax in this country to stop crowding out residential development?
Undoubtedly, we have seen an extraordinary acceleration in investment in and delivery of commercial property not just in Dublin but in Cork. On one level, that is a really good thing because those commercial properties are filling up. It is part of facilitating a significant amount of foreign direct investment jobs and the expansion of the number of Irish companies across the capital. I have read the paper produced by the Deputy on this issue in response to the Finance Bill. The rents being paid for commercial property in parts of Dublin compare with some of the other top capitals in Europe.
The Deputy asked whether this is crowding out and preventing investment going into residential build. I am not sure there is a crowding out effect. I think there is certainly a more attractive option for investment in commercial property than in residential property but the way to address that is the key issue. What we are trying to do is to ensure that the viability of residential investment is significantly improved. In terms of sites and zoning, there is enough planning permission for Dublin for 27,000 residential properties today but there are only 4,500 or so under construction. The sites are there but for a whole series of reasons, some of them are not being moved on. It is encouraging to see that in the last quarter of last year, planning permissions for apartment complexes in Dublin, of which we need a lot, were up 300% so we are starting to see an appetite for risk and investment in residential property in Dublin. We have seen extraordinary increases in rent for residential properties which has changed that appetite. We are now introducing a brake on that rental inflation through the introduction of rent pressure zones. We need to make sure the incentive remains in place to ensure that money is investing significantly in residential property.
There is undoubtedly extraordinary viability in building commercial property as investment in Dublin right now but I am not sure that if that had not happened, we would have seen a faster acceleration in terms of residential property. Perhaps it might have happened but I do not think so. There is no shortage of capital globally to invest in good propositions. They have simply chosen to invest in commercial property because of the economics of building commercial property in Dublin. This has been the case for the past two to three years. We are starting to see that appetite grow in the context of investing in residential property. We have put €200 million into an infrastructure fund, reduced development charges significantly and streamlined the planning process.
I do not know either, which is why I asked the question.
We do not know how much crowding out is happening, but there is a bunch of things we do know. We know that the profits per square metre or per acre of development land for commercial property in Cork and Dublin vastly exceed the profits to be made from residential. We know that some of this is being driven by a tax-free status that has been given to property developers for highly dubious reasons.
We know that commercial rents for SMEs in Dublin have doubled in the past two to three years and, of course, we have seen a massive explosion in residential rents. We know that many bad things are happening because of this commercial property bubble. However, we do not know how bad the potential crowding out is. We know it is likely given normal incentives for a developer to hold land. The Minister has said there is a swathe of land for 27,000 residential units in Dublin and yet only 4,000 are being done. Part of the reason may be that people, knowing they can make five times more money from office than residential, are holding it in order to try to get a change of planning.
There is a property bubble, which now appears to include Cork. We know there are adverse effects. It is reasonable to assume that one of those is the crowding out of residential development.
I thank the Leas-Cheann Comhairle for his patience.
I will finish on this. Would the Minister consider commissioning a reasonably quick report to investigate this and assess the level of crowding out that might be happening?
We need a lot of extra commercial property in Dublin and in other cities. IDA Ireland has indicated that accessing suitable properties is now a big issue. There is a pipeline of companies that want to come to Ireland and provide good jobs here. One of the challenges is being able to build office and other commercial accommodation for them quickly enough in areas such as Dublin and Cork. There are very few good-quality office developments that are not being filled.
I do not think we should approach increasing residential property investment and provision by reducing the delivery of commercial developments. The straight answer is that we need both. We have a lot of zoned land, much of it with planning permissions in place. We know a significant number of planning applications are up for decision to ramp up significantly the provision of residential property. Last year about 15,000 residential properties were finished, which is about 1,000 more than people were anticipating last summer. I think we will be ahead of expectations again this year.
I agree we need to strike a balance. The problem is the profits for commercial development so vastly outweigh the profits for residential development that we are not getting that balance. We agree there has to be a balance between high-quality grade-A office space and other commercial space, and good homes for people to live in. However, if a developer can make five to ten times more by building an office block than by building three-bedroom semi-detached houses, he will build the office block.
I have plenty of anecdotal evidence that developers are choosing not to develop residential because of the profits. On that basis would it not make sense for the Minister to commission a short report to look into the potential harm that the commercial property development bubble is causing?
I will look at that, but I will not to commit to that report on the floor of the House now. I will look at and come back to the Deputy.
It is important not to draw conclusions from a Dublin market and make national decisions on that basis. We have a real shortage of good-quality commercial accommodation outside Dublin at the moment and we need to attract the investment to deliver that. The kinds of return available in Dublin are not available in many other cities, which is why I believe many companies should consider expanding outside Dublin to places such as Cork, Limerick, Waterford, Galway and so on-----
----- and Wicklow, where they can lease similar property for 40% less.
We have seen virtual stagnation in residential property delivery until recent months. We are starting to see a big change in that now. There is a series of strategies to build on the small momentum that is now there.
I am not sure that by trying to reduce the momentum on the commercial property side we will necessarily get a corresponding increase in residential, given where land is zoned, not zoned and so on and given the availability of finance at the moment at relatively low cost for-----
There are 40 minutes left and we are about to start Other Questions. Every other Deputy is here and we will be lucky to get through about six of those questions. I am not referring to those who have not asked a question, but I ask those who have and the Ministers to watch the clock.