How to make Irish housing genuinely affordable...

This article was originally published in issue 23 of Passive House Plus magazine. Want immediate access to all back issues and exclusive extra content? Click here to subscribe for as little as €10, or click here to receive the next issue free of charge

Anyone who has ever attended a management course will recall being encouraged to ‘think outside the box’ for solutions. One could be forgiven for thinking that the government is engaged in such an exercise currently. Each week so-called ‘radical’ housing solutions are proposed, from bedsits to ‘professional hubs’ etc.

Housing has a number of sectors, from homeless housing (100% subsidised), to rent assistance (rent supplement) with two people working, all the way to private home ownership. At the moment, just under 96,000 households receive some form of rent assistance and this figure is increasing by 250 per week. Just ten local authority social homes were built in Dublin in the first six months of 2017, and 455 nationally from all sources. If demand isn’t met, expect sharp price and rent inflation.

Affordable housing, based on one person full-time employed and a second person part-time, is defined as having a maximum cost of €240,000. For a single person working full-time it’s €170,000 (under current macro-prudential rules).

Industry costings confirm that private speculative developers can’t deliver affordable housing. Easing the requirement for car parking spaces, along with other reductions of standards and levies will not bridge this gap. In the private sector, cost savings add to the bottom line and to site values — they do not get passed on.

There are alternatives that reduce costs significantly; when this occurs all the pieces fall into place —so-called ‘cost-rental’, social and affordable housing can be achieved. There are two main affordability components: cheap land and low build costs.

Land cost

First introduced in 2002, Part V refers to the provisions relating to housing supply in the Planning and Development Act 2000 (amended). Part V requires 10% of all private residential developments over ten units to be sold by developers to the state at a reduced price (prior to 2015, the figure was 20%).

Developers can comply with the requirement either by selling or leasing dwellings on-site to the local authority, leasing existing dwellings off-site, or the sale of 10% of the site involved. The site cost is calculated at ‘existing use value’, a pre-determined formula. Part V was refined in 2015 to preclude cash or land elsewhere being provided as compliance.

For example, developer proposals for two-bed social housing units in Cherrywood will see the units costing more than €350,000, but the ‘existing use value’ ranges from €160 to €1000 per site depending on location.

The purchase of land at reduced price is the ‘default’ compliance option, only when other avenues have been exhausted. But since December 2015, local authorities and An Bord Pleanála ‘must have regard to’ ministerial guidelines issued under Section 28 (revised) of the 2000 Planning Act. So, a guideline to make land purchase the ‘preferred’ option could be introduced that reads as follows:

“The ‘preferred’ option for Part V compliance is the purchase of 10% of the land of schemes of ten or more units. Transfer of title for sites adjacent to main entrance for the purpose of Part V schemes is to be a condition of the planning permission. The land transfer is to be completed within six months of the decision date of the permission or the application will be deemed invalid”.

This would clearly help local authorities to acquire more development land cheaply.

Build cost

It typically takes local authorities just 18 weeks to get planning permission for housing developments under Part VIII of the Planning and Development Act. They can also directly procure housing, i.e. act as ‘developer’ directly employing design teams and contractors.

Housing minister Eoghan Murphy recently confirmed direct procurement ‘all in’ costs of €190,000 for two-bed local authority homes.

Another alternative is the co-operative model. This year the O’Cualann Co-op in Ballymun sold 59 homes, with two-beds starting at €145,000 to families not on the housing list, after being sold serviced sites cheaply by Dublin City Council. A typical co-op margin is 5%, whereas a developer’s minimum profit is typically more than 20%.

In both models local authorities control the process and dictate affordable prices for end-users and discounts are passed on.

The result?

Social and affordable housing could be provided in locations like Cherrywood for less than €170,000, half the cost of privately provided social housing. Eight hundred serviced sites could be purchased by the state for the cost of one two-bedroom apartment in the same location.

Co-ops avail of mainstream bank funding — affordable schemes like that completed by O’Cualann are ‘off-balance sheet’. State housing can be funded at very low interest rates, repayments will cost less than the current average housing assistance payments at €600 per month. Social housing bond financing is used in the UK but has yet to be explored in Ireland.

Part V could be reinstated to 20% to include affordable housing, and local authorities can determine tenure mix project by project.

Co-op or state housing isn’t radical and doesn’t involve shared facilities, reduction in standards, high rise ‘shoe-boxes’ or professional ‘hubs’. Thirty per cent of all housing in Germany is co-operative housing. Ireland has built more than 300,000 local authority homes since 1923 (130,000 remain in state ownership).

A management consultant would be the first one to point out that if all solutions currently being considered by the government are deemed radical and ‘outside the box’, then perhaps the box itself is the problem.