Private sector may never be able to supply 35,000 homes, housebuilder warns

The private sector may never be able to build the 35,000 housing units needed to meet demand in the Irish market, a leading Irish housebuilder has claimed.

Stephen Garvey, the chief operating officer of Glenveagh Properties, said he did not believe the private sector had the resources or the manpower to build much more than 20,000 housing units a year.

“I think the market will struggle to do 20,000 units. I just don’t see it on the ground,” he said after the company published its financial results for 2018.

“If you look at the UK, they always said they needed 300,000 but the market never could produce it,” Mr Garvey said.

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“Maybe we’re living in an era where housing will never outstrip demand,” he said.

His comments raised serious questions about the Government’s housing policy, which is almost entirely reliant on the private sector.

The Central Statistics Office (CSO) estimates there were just over 18,000 new dwellings completed last year, a 25 per cent jump on 2017.

Demand

But this is still well short of the State’s long-run housing demand, put at 35,000 units per annum by the Economic and Social Research Institute (ESRI).

Mr Garvey said even if there is an ongoing shortfall in supply this is unlikely to lead to the rampant property price inflation seen in recent years as the Central Bank’s mortgage rules would anchor people’s purchasing power, keeping prices more in line with wage growth.

The Central Bank’s macroprudential rules were introduced to control credit expansion in the banks and to control house price inflation, “and they’ve probably achieved that to a certain degree,” he said.

“For a sustainable housing market, house construction has to be matched with mortgage lending,” Mr Garvey said, noting this would mean the industry delivering 30,000 to 35,000 houses and banks providing €15 billion in mortgage credit. At the height of the boom, Irish mortgage lending was nearly €40 billion.

In its results for 2018, Glenveagh said it generated €84 million in revenue on foot of selling 275 units. Its target had been 250.

The majority of these units were in developments aimed at first-time buyers, a market that continues to generate strong demand, it said.

The company, which listed on the Dublin Stock Exchange in 2017, said it had a landbank capable of facilitating a further 12,600 housing units and that it was actively building on 14 sites during 2018 with more than 1,100 units under construction.

Since Glenveagh’s listing, the company has invested €615 million in site acquisition.

It said it had exchanged contracts to acquire two sites off-market at Leixlip and Newbridge in Co Kildare for €50 million, known as “Project Arrow”, which had planning permission for 793 units.

Long-term success

The company posted a pre-tax loss of €3.56 million for the year ended December 31st, with central costs of €17.2 million and depreciation of €200,000. The company also incurred exceptional costs of €400,000 related to the equity placing in August 2018.

Gross profit for the year was €15.3 million, with a gross margin of 18.2 per cent. Glenveagh is targeting 20 per cent gross margin in 2020.

"The firm foundations we laid during the year gave us significant momentum heading into 2019 and position us favourably for long-term success," said chief executive Justin Bickle. "We remain very confident about the residential market backdrop in Ireland, as well as our ability to execute on our business plan."

Mr Bickle said 2019 was off to a fast start, with 451 homes signed, closed or reserved.

“We believe that our focus on starter homes in the private build-to-sell segment, private rental opportunities across our business, and mixed-tenure schemes for local authorities is the right one to allow us to become a profitable and resilient homebuilder across the cycle,” he said.

Looking ahead, Glenveagh said the market backdrop remains very favourable, with starter homes showing significant demand.