Don't blame builders for lack of affordable housing

Talking Property: There are hundreds of Part V affordable houses unoccupied in Dublin because local authorities won't agree to pay builders' legitimate costs, says housebuilder Matt Gallagher who also blames excessive administrative delays for the shortage of affordable housing

By Matt Gallagher, Chairman National Committee, Irish Home Builders Association

There has been a considerable amount of debate recently concerning the lack of supply of affordable housing available under Part V of the Planning & Development Act 2000. Commentators have criticised and blamed the builders for this. The realities are that the system and its administration are causing most of the delays. I should add that this is mainly confined to urban areas.

The main problems are:-

1. Agreeing Part V house prices. The Local Authorities in some urban areas are dictating to builders the prices they will pay, ignoring Section 96 of the Act, which sets out allowable costs and ignoring the fact that building costs can be different for similar sized accommodation due to design, site conditions, density, services etc.

2. The inordinate delays in processing Part V Agreements. Local Authorities are totally un-business like in this regard.

3. Inconsistency across Local Authorities in applying the options available.

4. Local Authorities getting into the private house sale business.

From the outset Part V was designed to provide houses at affordable prices to categories of purchasers on the margins to allow them to get onto the housing ladder. The process should be fairly routine. What is in fact happening is anything but routine. Some Local Authorities will not agree to legitimate prices and costs sought by the builder. The builder in the meantime has to carry on his business and continues to build in the hope that he will have reached agreement by the time the houses are finished. In many cases, this is a forlorn hope. The result is that there are hundreds of Part V affordable houses built in the Dublin area which are unoccupied because of lack of agreement on price and other issues.

In other cases, ready to go sites have not been started because of the uncertainty. This has resulted in a tightening of supply and less affordable housing being delivered.

Some Local Authorities decided to interpret Part V in such a way as to ensure that only purchasers who qualified for Local Authority loans could have an affordable house. They appear to be applying the criteria of the 1999 Affordable Housing Scheme. To achieve this, they believe that they have to force down the price they are paying for the homes, ignoring the clearly stated allowable costs under the 2000 Act. They then purchase these houses and after adding on their own 'costs' for 'administration', they sell them on. What they are doing is wrong and involves bureaucratic double handling with all its delays. They are creating a new affordability trap for those who are marginally above the artificial salary limits they are setting.

The Taoiseach and the Minister for the Environment have begun to recognise the problems and the Taoiseach himself launched a new Bank of Ireland mortgage aimed at affordable buyers recently. The Minister for the Environment steered through the Housing (Miscellaneous Provisions) Act 2004 through the Dáil before Christmas allowing Banks and Building Societies to enter the affordable market in giving loans of up to 97% of the affordable price. Minister Dick Roche has also stated that builders can sell direct to affordable purchasers.

As previously mentioned, the system being operated at present consists of the Local Authorities using their bureaucratic powers and muscle to purchase affordable houses at unlawful prices, adding costs to them for 'administration' and selling them on to their definition of an eligible purchaser.

There is no reason whatsoever why the system should not be stream lined along the following lines:-

1. Builders submit their costs for approval to the relevant Local Authority to determine the price to be charged for a particular home in accordance with legislation. This to be agreed no more than 8 weeks after submission.

2. Local Authorities to prepare lists of eligible purchasers available.

3. Builders to sell houses directly to eligible purchasers from lists supplied at pre-agreed prices. Obviously the clawback provision to prevent profiteering will have to be in the contracts. This will protect the Local Authority position.

4. Total confidentiality. This is to protect the privacy of the purchasers. People are sensitive and this must be respected.

However, nothing will change until Minister Roche issues Directives not Guidelines to the Local Authorities.

These Directives must oblige Local Authorities to allow costs to builderes, as defined under Section 96. They must oblige the preparation of proper lists of eligible purchasers who can be sold houses direct. They must also provide consistency of application across the country.

There are two further areas which need to be looked at and re-vitalised. These are the 1999 Affordable Housing Scheme which provides for new housing for first time buyers on Local Authority land and the Shared Ownership Scheme which provides for partial purchase (at least 40%) and renting of the remaining equity from the Local Authority until it has been purchased. This is an excellent method for people to get onto the housing ladder but it has fallen out of favour because the rental element is now too high relative to the repayments. This needs to be adjusted urgently to make this more attractive.

Builders in the past have entered into Joint Ventures to develop Council lands for all tenures of housing with notable success for all concerned. An audit of Local Authority lands and property holdings might be a useful exercise now to identify new possibilities.

Finally, why not let builders do what they do best - build and sell affordable houses. We built and sold nearly 80,000 last year.