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Irish Government Is Hitting Housing Targets But Missing Real Need

Cherrywood, with 1,221 build-to-rent apartments, is being backed by APG to the tune of €450M.

The Irish government's housing targets are not fit for purpose and it “needs to get real, needs to plan for expansion”.

That was the view of Brian Hughes, who laid out the extraordinary population growth in Ireland since 2016, which is coming to a head in Dublin, at Bisnow’s conference on residential development on 10 November.

Dublin has flourished in recent years by creating attractive conditions for major international companies to set up large offices, notably in the digital and tech sectors. And the demographics of many of those coming for such work means that they are looking for city centre living in modern housing.

The danger of Dublin is that it will quickly lose its competitive edge if it can’t provide housing for companies eager to get employees back to work.

First, the good news. The government’s Housing for All programme for 2022 to build new homes is on track to hit its target of 33,000 units annually by 2030, according to the Central Statistics Office.

And Dublin is leading Ireland, with more than two-thirds of all apartment completions in the city and Dublin completions up by 113%.

The latest report from the CSO found that over the first three quarters of this year, new home completions stood at 20,807, higher than the 20,560 total for the whole of 2021 or any other year since its tracking began in 2011.

Housing for All is the government’s housing plan through 2030, with a stated objective that every citizen should have access to quality homes to purchase or rent at an affordable price, built to a high standard and in the right place, and offering a high quality of life.

Its goal for this year was to reach 25,000 units and dwelling completions across the country, an increase of 50% in the first nine months of 2022 compared with the same period last year.

Now, the not-so-good news.

Despite the positive outlook, in September the Society of Chartered Surveyors Ireland warned that it believed new housing output will need to steadily increase to 45,000 units per annum by the end of the decade if housing targets outlined in the government’s plan are to be achieved in its lifetime.

And Goodbody Stockbrokers has also weighed in to warn that the output of new homes may fall “well short” of the government’s 33,000-unit target as rising construction costs and interest rates continue to dampen investment.

In its latest housing commencement tracker, the broker highlighted another drop-off in new home starts in October, when construction commenced on 1,841 new units nationally. 

This represents a 31% decline year-on-year, with apartment commencements down 29% and housing scheme starts down 23% in the three months to the end of October compared with the same period last year.

“Viability of apartment construction has been compromised by increased construction costs and yields recently. Viability may also be an issue in terms of housing construction, but other factors, such as land availability, is also playing a role,” Goodbody said.

Launched last year under its Housing for All strategy, the government has pledged to spend €20B on social and affordable housing over the next five years, including €4B in both 2022 and 2023.

However, Hughes said that in reality the population had risen between 2016 and 2022 by 361,700, of which natural growth accounted for 171,300 people and immigration for 190,300 more.

And nowhere is the pressure for housing more acute than in Dublin, he said. Overall, Dublin’s population has been growing by 7.6%, while housing growth over the period was 6.2%. Furthermore, Dublin’s Central Business District is growing ahead of the suburbs and the city has the largest gap between demand and supply.

While Hughes saw huge potential for a Dublin/Belfast “corridor of expansion”, he pointed out that at 1 million population, with an additional 250,000 in the city’s suburbs, Dublin has at least 1 million more people than Cork.

“The National Planning Framework’s strategy to limit Dublin’s growth to 250-260K in 2016-2040 is self-harming Ireland’s economy. The Framework is a load of nonsense,” Hughes said.

“If you want an own goal, it’s NPF.”

Brian Hughes called out current new housing targets as being inadequate.

In Hughes’ view, the housing framework needs to be “seriously revised”, with Dublin’s population actually growing at around 17,000 people annually, and he forecast that this will accelerate.

The city’s soaring workforce has been the biggest factor, with south Dublin unsurprisingly having the lowest housing vacancy rate, while the north side offered potential for densification, he said.

“We need to be building 48,000 houses a year. The real dilemma is where to house all the workers needed to build the properties,” he said.

There are, of course, some green shoots. Plans for more than 850 state-subsidised dwellings at one of Dublin City Council’s biggest sites are due to be submitted in December.

Developer Glenveagh will seek permission for the 853 homes at Oscar Traynor Road, Santry, through a deal approved by city councillors in November 2021 and, if permission is granted, work should start by the end of 2023 and the full scheme will complete at the end of 2027.

Meanwhile, Ingka Investments has committed financing of €100M as part of an initiative that will see the construction of up to 150 social housing units across the greater Dublin region within the next three years.

Each project is “construction-ready and relatively compact in scale”, averaging around 50-70 units each, Ingka Investments said in a statement. The company is one arm of the Ingka Group, which includes retail giant Ikea.

The social housing initiative will be executed and delivered by Aurium Capital and construction is expected to commence in the coming weeks with an estimated total delivery of 150 social housing units over the next 36 months.

Those schemes add to a spate of projects around the city, but overall construction is still playing catch-up.

“The first nine months of the year, we surpassed the total completions for 2021. But that’s clearly nowhere enough. There are a number of factors, including inflation and pricing in the cost of schemes. So far house end sales have been absorbed. Now there is a drop in starts but not a drop in demand,” Home Building Finance CEO Dara Deering added.

With that imbalance continuing, residential prices recently topped the peak they reached in 2007, shortly before an economic crash that almost bankrupted the nation.

“Affordability and viability are two sides of the same coin. Housing for All has been a significant boost for the delivery of houses," Irish Institutional Property CEO Pat Farrell said.

"Now the focus needs to be on getting those numbers up. And there are levers within our own control. For example, VAT is about 18%, and perhaps something could be done [to help with construction costs]. We need to think the unthinkable."

The political reality is that capped rents mean landlords are constrained to 2% reviews, 2% against 7 or 8% inflation," he said. "Over next 24 months we need to get our reduction in costs. We lost our muscle after the financial crisis and we saw how catastrophic that was. The fundamentals are incredibly strong, and pricing will find itself a settled position." 

Beyond Ingka, a number of major international firms are taking matters into their own hands. A company associated with Goldman Sachs, which moved its European asset management business to Dublin after Brexit, is reported to be looking at a €400M development of nearly 1,000 apartments on a shopping centre car park in North West Dublin, according to the Sunday Times.

Of course, Dublin is no stranger to housing crises, but this one is markedly different to 2008’s bursting of the Celtic Tiger bubble, which was fuelled by oversupply and credit problems. This time, there just aren’t enough houses to meet demand.

Activity on residential projects has dropped in four of the past five months, according to the latest BNP Paribas Construction Purchasing Managers Index reported in November, although business confidence levels rose to an eight-month high and there was particular cause for optimism in residential construction.

Prime Minister Leo Varadkar has also pledged to accelerate action on housing, citing plans to build more social housing and extending the 'help to buy' scheme. In addition, the central bank will relax its income-to-loan requirements from next year, making mortgages more accessible for borrowers.

Job cuts in the tech sector, which accounts for about 6% of the workforce in Ireland, could also ease some housing pressure, although that would be a double-edged sword as it would signal challenges for the economy.

Right now, the industry appears to be in a standoff. More houses are needed and most agree that the pace needs to be faster than the government’s framework. However, the industry is not keen to put its foot back on the pedal until there is more certainty about inflation and costs.