The publication of Dublin City Council (DCC)’s new development plan sent chills through the property sector last week. Under the plan, developers will be banned from building new apartment blocks which are only for rental. The impact of this will freeze future apartment developments in Dublin and mean renters and first time buyers will have fewer options and higher costs.
While this reaction may seem extreme, what we know is that construction is central to improving conditions in the housing market. This is simply a fact, it’s not a matter of debate. Despite this, the council seems intent on turning off the construction tap.
The fundamental issue with the development plan is the proposal to ban apartments that are built solely for the rental market. A ban on build-to-rent will effectively prevent new stock from being added to an undersupplied segment of the housing market and drive up competition for homes. The reasoning for this policy is that the council wants to prevent new rental projects in areas where there is an overconcentration of existing rental property.
There are two problems with this reasoning. Firstly, what is an overconcentration of rental property? There is no explanation in the proposal, nor is there justification provided as to why the council would seek to reduce or restrict the availability of rental property.
This leads to the next issue; what is wrong with renting? Meeting the demands of the population who want to own homes is of course critical, but it should not come at the cost of punishing people who want to rent.
The number of properties available to rent is at a record low in the city. We need to be encouraging supply, not killing it
Renters come from all walks of life. They are mostly young people in the earlier years of their careers. They may have moved to Ireland temporarily to work, or they may be people who for various reasons need to move out of their current home. Restricting the supply of property available to them will increase their costs. It’s a plan that punishes renters as well as first-time buyers who are trying to save a deposit.
No justification is provided in the policy proposal for this sudden move to restrict the construction of rental properties because there is no evidence to support it. The number of properties available to rent is at a record low in the city. We need to be encouraging supply, not killing it.
The Development Plan also seeks to reserve sections of all permitted residential development for individuals wishing to purchase units. On the face of it, this may appear like a good idea. Why not level the playing field for the first time buyer against big foreign property funds?
The answer to this question is simple: because it won’t work. As it stands right now, it is not possible to construct an apartment in Dublin that can be sold at a price that an average first-time buyer can afford.
The council has said they want apartments to be built within 500 metres of major employment and transport interchanges like Tara Street Station, but already build costs for a basic two-bed apartment in the Greater Dublin Area is €411,000 according to the Society of Chartered Surveyors.
Construction costs, even if the land under the building was free, are so high that selling apartments isn’t viable, especially in high-demand city-centre locations. Again, this isn’t a matter for debate, the council has these facts to hand and unless something dramatic happens it is going to be worse in six months, not better.
So if the council accede to this plan and effectively ban apartment rental projects, who will it help? It won’t help young renters, because it won’t increase supply or drive down rents. It won’t help first-time buyers, because without deflation of construction costs they won’t be able to buy the units, which under this plan won’t be built.
Warnings about investors pulling out of Ireland are starting to come to fruition, as seen by the withdrawal of billion euro investor Allianz
The policy is silent on the supposed benefits it will bring, and to whom.
The plans will have massive consequences for the construction of new homes. There will be no more apartments built and planning applications will fall off a cliff.
The council may reassure itself that they have lots of developments with planning permission in the pipeline, but if planning for any of these schemes lapses, as they inevitably will, these homes can be struck from the ledger.
Looking closer to home, we recently completed 376 apartments in Clongriffin in the space of 20 months. The scheme is already at 99 per cent capacity, providing homes for almost 1,000 residents. The reality is that these are homes that would not have been built under DCC’s new proposals, nor would any of our other recent developments.
There is undeniably a regulatory chill going through the construction sector. Warnings about investors pulling out of Ireland are starting to come to fruition, as seen by the withdrawal of billion euro investor Allianz.
The constantly changing regulatory environment and ill-conceived plans by local authorities are enough to make developers and investors alike abandon plans to build much-needed homes.
We are already struggling to meet housing targets. Increasing construction and boosting supply lie at the core of any solutions to our housing crisis. We just need those in charge to recognise this.
Rick Larkin is director of property developer Twinlite