OUTLOOK RESIDENTIAL PROPERTY - ISSUE 7. MAY 2014 - AIB

 
OUTLOOK RESIDENTIAL PROPERTY - ISSUE 7. MAY 2014 - AIB
OUTLOOK
AIB’s Series Of Sectoral Research Reports.
www.aib.ie/outlook

ISSUE 7. MAY 2014.

RESIDENTIAL
PROPERTY

In association with:
OUTLOOK RESIDENTIAL PROPERTY - ISSUE 7. MAY 2014 - AIB
OUTLOOK
CONTENTS

  Foreword                                                            The Need for Innovation
  02   Ken Burke, Head of Business Banking, AIB.
                                                                      20    decline in the number of people undertaking third-
                                                                           A
                                                                           level construction-related courses could undermine the
                                                                           construction industry’s need to be more innovative,
  Executive Summary                                                        according to Jerry Mehigan and Peter Flynn.

  03    esearch carried out by Property Industry Ireland and
       R
       Sherry FitzGerald shows that while the outlook for the         Improving Standards
       residential property market is improving, there are many
       challenges that need to be overcome.                           21    ony Reddy discusses the Building Control (Amendment)
                                                                           T
                                                                           Act and its impact on standards in the construction
                                                                           industry.
  The Challenges Ahead
  04   The results of the AIB/Property Industry Ireland Survey.      Open for Business
                                                                      23    IB is keen to support the development and construction
                                                                           A
                                                                           of new homes, says Mags Brennan, Head of Sectoral
  Improving Consumer Sentiment                                             Strategy, AIB.

  07    emand for new housing is rising and first-time buyers
       D
       are driving it, according to a survey by Sherry FitzGerald     Foundations for Growth
       New Homes.

  Stability Returns
                                                                      24   T he Construction Industry Federation and its members are
                                                                            now looking forward to a period of growth, according to
                                                                            Hubert Fitzpatrick, Director of Housing, Planning and

  10    otwithstanding the supply shortage, stability is now
       N
       returning to the Irish housing market, according to
       Marian Finnegan of Sherry FitzGerald.
                                                                            Development, CIF.

                                                                      Developing Through the Downturn
  The Outlook for Home Buyers                                         26  
                                                                          Despite the challenges of the marketplace, there are
                                                                          many opportunities, according to Michael Pender of the

  12   
       Jim O’Keeffe, Head of Mortgages, AIB, gives his view on
       the outlook for the mortgage market.
                                                                          Galway-based Kenny’s Commercial Holdings.

                                                                      Socially Responsible
  A Blueprint for Change
  14   P roperty Industry Ireland makes the case for change in the
        Irish construction sector.
                                                                      28   T he importance of social housing in any national housing
                                                                            strategy should not be overlooked, says Simon Brooke,
                                                                            Head of Policy at Clúid Housing Association.

  Planning for Change                                                 The Community Bank
  16   L eading planning expert Tom Philips argues that the Irish
        planning system needs significant changes before it can
        become effective.
                                                                      29    IB is playing an active role in building communities
                                                                           A
                                                                           around the country and supporting social housing needs,
                                                                           writes Mags Brennan.

  Fail to Plan, Plan to Fail                                          Economic Viewpoint
  18   T he Irish construction industry and all the relevant
        stakeholders need a long-term development plan if
        Ireland is to house its growing population and avoid the
                                                                      31    number of leading economic indicators all point
                                                                           A
                                                                           towards a recovery and this should bode well for the
                                                                           Irish housing market, writes OIiver Mangan, AIB’s Chief
        mistakes of the past, says Mark FitzGerald.                        Economist.

                                                                             OUTLOOK     l   RESIDENTIAL PROPERTY SECTOR 2014           1
OUTLOOK RESIDENTIAL PROPERTY - ISSUE 7. MAY 2014 - AIB
OUTLOOK
    FO R E W O R D

     Supporting the Housing Market

    W
             elcome to the seventh in our series
             of reports covering key sectors within
             the Irish economy. The aim of these
    reports is to analyse key components of
    the Irish economic landscape and provide
    opinion, guidance and advice from some of
    the stakeholders within each sector. They also
    provide some important insights into how
    AIB is working to support these sectors. We
    are pleased to partner with Property Industry
    Ireland and Sherry FitzGerald New Homes on
    the publication of the Residential Property
    Sector Outlook Report.

    An important part of these reports is the
    research which for this sector has been
    carried out independently by our partners.
    The research results highlight a key issue
    impacting the residential property sector
    currently which is a lack of availability of new
    homes in urban areas. This is attributed to
    a fall in the development of new housing
    in recent years. The research also points to
    there being a lack of availability of viable       Jan O’Sullivan TD, Minister of State, Department of Environment, Community and Local Government;
                                                       Bernard Byrne, Director of Personal Business & Corporate Banking, AIB and Ken Burke, Head of
    development sites, development finance,            Business Banking, AIB.
    particularly equity finance and challenges in
    the planning system.                               We recognise the importance of the property           those looking to build homes or buy them.
                                                       sector to the creation of jobs, the supply of         AIB is the market leader in mortgages and
    The research highlights that there is a            homes and the Irish economy. Indeed it is             has a significant pipeline of fully approved
    shortage of three or more bedroom houses,          estimated that an additional 10,000 new jobs          customers looking for suitable homes.
    particularly in urban areas, and that the          could be created in the sector in this year alone.
    building of housing developments needs                                                                   As we go to print the Government is just
    to increase at pace to meet current and            AIB recognises the importance of supporting           launching its “Construction 2020” strategy.
    future needs. Market estimates suggest that        communities across the country and an integral        We welcome the strategic approach the
    between 16,000 and 20,000 houses will need         part of this support is the provision of finance to   Government is taking to the sector and look
    to be built annually to meet current demand        housing associations to help them in their efforts    forward to working closely with Government
    and population growth over the next five           to provide much needed social housing. Very           and key stakeholders to support the planned
    years. The recent Housing Agency report            little development of social housing has occurred     initiatives and actions that will help the
    (April 2014) on housing supply supports            in recent years and current data would suggest        recovery of the sector and the Irish economy.
    the requirement for an average of 16,000           that there are more than 80,000 people on the
    units/houses per annum across urban areas          social housing waiting list.                          My thanks to our partners Property Industry
    between 2014 and 2018.                                                                                   Ireland and Sherry FitzGerald New Homes
                                                       As one of the largest banks in Ireland, AIB           for their support on this important initiative
    Through the launch of our E350 million             recognises that it has an important role              to support the sector. My thanks also to
    residential new homes fund this year,              to play in supporting this vital sector, and          everyone who participated and took the time
    AIB is demonstrating its support for the           its future growth potential. Through our              to partake in the surveys. I hope you find this
    development of homes where demand                  dedicated sectoral experts and relationship           report useful.
    requires it. Responding to demand AIB has          managers across our branch network,
    also mobilised three specialist new business       business centres and corporate operations we          Ken Burke
    teams in Dublin, Cork and Galway.                  have the knowledge and expertise to support           Head of AIB Business Banking

2       OUTLOOK       l   RESIDENTIAL PROPERTY SECTOR 2014
OUTLOOK RESIDENTIAL PROPERTY - ISSUE 7. MAY 2014 - AIB
OUTLOOK
E X E C U T I V E S U M M A RY

 BUILDING THE FUTURE

W
        ith the Irish residential property sector now entering a period      accommodation as rents continue to increase, particularly in urban
        of growth and consumer sentiment improving, a number of              centres.
        factors are conspiring to inhibit the supply of much-needed new
housing stock, particularly in the key urban areas where demand is at        There was a very large response rate to the Sherry FitzGerald survey
its highest according to two separate research studies carried out by        but the participants and results are more Dublin centric as 78% of
Property Industry Ireland (PII) and Sherry FitzGerald, in association with   respondents are looking in Dublin, 12% in Cork, 8% in Galway and 3%
AIB.                                                                         in Limerick.

A shortage of suitable building sites around the country has been            With house prices in many areas outside of Dublin at six year lows,
identified as one of the biggest impediments by developers to the            investors are also keen to buy according to the survey. In Limerick, for
supply of new housing according to the PII survey. Other issues              example, 16% of the respondents indicated that they were investors
identified by the PII include the availability of equity and development     while this rose to 19% in Galway, falling to 11% in Cork and 9% in
finance and the need for changes to the Irish planning system.               Dublin. Some 35% of these investors also feel there is good value to be
                                                                             had in the market at the moment.
PII, which represents a wide range of firms operating in the wider
construction and property industry in Ireland, also noted that developers
are anticipating an uplift in overall activity once the programmed
disposal of appropriate sites commences by the banks and NAMA and
as developer finance becomes available. They also point to the growing
appetite of international investors and the introduction of REITs as
possible drivers of investment.

Likewise, consumer sentiment is also changing but with demand
outstripping supply in many areas according to the Sherry FitzGerald
Sentiment Survey.

This pent-up demand is largely being driven by first-time buyers who
accounted for almost half of the respondents to the survey and there
are small differences between the four key urban areas that were
surveyed. In Galway, for example, 51% of all aspiring house-purchasers
are first-time buyers while in Dublin they accounted for 47% with
Limerick at 46%. The majority of first-time buyers, at 79%, are currently
living in rented accommodation.

The demand for rental accommodation, due to the lack of supply of
housing stock for sale, is also negatively impacting the social housing
sector because more and more people are unable to afford rental

    Some of the other key findings of the Sherry FitzGerald research include the following:

    l 45% of house-hunters are looking for two/three bed houses             l Over half the market have a budget of up to E350,000.
      while 22% are looking for four bed houses. Just 8% are looking         l Respondents believe that house prices are increasing and this is
      for houses with more than four bedrooms. Semi-detached                   particularly noticeable in Dublin where 84% feel house prices are
      houses are the most sought-after.                                        on the increase.
    l Almost three quarters are looking to buy within the next six          l 73% of all respondents believe that Irish people will always want
      months.                                                                  to own their own homes.
    l The biggest issue that people have is the lack of suitable housing.   l When it comes to choosing a bank, the general perception is that
      In Dublin, for example, 80% of respondents feel that there are           the banks are lending and the most important factor is interest
      too many buyers chasing the same houses.                                 rate.

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    A I B / P R O P E RT Y I N D U S T RY I R E L A N D S U RV E Y

     The Challenges Ahead
    While the Irish residential property market is showing signs of recovery
    the sector faces a number of challenges and hurdles if the sector is to grow
    meaningfully over the next few years, according to a survey carried out by
    Property Industry Ireland.

    A
         shortage of suitable building sites around                                                     agencies with operations in the main urban
         the country, the availability of both
                                                       Methodology                                      areas, are the most optimistic with most of
                                                       Between March 1st and 31st 2014, 200
         equity and development finance and the                                                         them forecasting growth rates far in excess
                                                       businesses operating in the Irish property
    planning system are just some of the topics                                                         of what would be the norm in non-urban
                                                       sector were surveyed online by Property
    that are preying on the minds of companies                                                          areas.
                                                       Industry Ireland (PII). These included
    operating within the wider Irish construction
                                                       builders, contractors, developers, estate
    sub sector according to research carried out                                                        Within the property professions, architects,
                                                       agents, architectural and engineering firms,
    by Property Industry Ireland (PII).                                                                 planners and engineers are also upbeat about
                                                       asset managers and companies operating
                                                                                                        the future trajectory of their own practices,
                                                       in financial, legal and accountancy services.
    PII currently represents a broad range of                                                           with many of them believing that the
                                                       They were asked about the nature of their
    large and small stakeholders within the Irish                                                       changes they made to their businesses in the
                                                       business, their views of the issues shaping
    construction industry including developers,                                                         early years of the recession have positioned
                                                       the Irish residential property sector, and the
    estate agents, and professional service firms,                                                      them for growth over the coming years as
                                                       outlook for their business in the year ahead.
    including legal, architectural, accounting,                                                         development and construction activity gathers
                                                       A total of 55 companies completed the
    planning, engineering and financial services.                                                       momentum.
                                                       survey, giving a response rate of 27.5%.
    In many cases, these were firms that were
    directly impacted by the downturn, some                                                             Planning practices, which tend to be some of
    more severely than others.                        businesses operating in both the development      the smaller businesses, are the most optimistic
                                                      and contracting sectors expecting to see a        about the future as they to be involved at the
    When asked about the prospect of an               small decline in turnover this year with a more   early stages of the development process and
    increase in turnover for 2014, most of the        promising outlook forecasted for 2015 as          are therefore early beneficiaries.
    smaller contractors and developers expect         development projects get underway.
    to see a modest increase according to the                                                           Other professional service providers, including
    survey. However, the mid-sized developers and     On the other hand, the country’s estate           lawyers, accountants, bankers, and asset
    contractors do not expect to see any growth       agencies are a lot more optimistic according      and investment managers, meanwhile, see a
    in turnover during 2014 with many of them         to the survey, despite the shortage of            similar pattern to the market as architects and
    saying it will be 2015, following increased       housing in key urban areas around                 planners. According to the survey they believe
    levels of activity this year, before turnover     the country. According to the survey’s            that, as confidence and indeed investment
    increases.                                        respondents, their businesses have already        returns to the market turnover and business
                                                      undergone substantial re-structuring over the     activity will increase this year.
    Among the largest developers, however,            past number of years and this year will see
    sentiment was a little more bearish with many     some growth, albeit from a low base while         The Challenges
                                                                                                        As the construction industry is large and
                                                                                                        diverse, the issues facing the individual
     “As the construction industry is large and                                                         stakeholders are many but often opinion can
                                                                                                        be split as each sub-sector has its own unique
     diverse, the issues facing the individual                                                          agenda and challenges.

     stakeholders are many but often opinion                                                            However some consensus about the macro
                                                                                                        challenges facing the industry revolves
     can be split as each sub-sector has its own                                                        around the lack of suitable development sites
     unique agenda and challenges.”                                                                     throughout the country and, in particular, key
                                                                                                        urban areas where demand is at its highest.

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OUTLOOK RESIDENTIAL PROPERTY - ISSUE 7. MAY 2014 - AIB
This is obviously a major issue and will have
a significant impact on the flow of much
needed housing stock over the coming years.
It is also a topic that is touched upon by other
contributors to this Outlook Report.

Other perceived impediments for developers
and contractors is access to development and
equity finance, an issue that is particularly
unique to developers and contractors.

According to the PII Survey, 85% of the
developers who responded to the survey have
made an application for finance during the
last 12 months. While contractors have made
fewer applications for funding, the survey
shows that a large number of the applications
made to the banks by contractors are also still
pending.

The survey also shows that of the developers
who have approached banks over the past
few months, there is an even split between
applications which have been approved in
full or in part, and those which have been         where financing has been put in place, they           impact of future Government policy towards
declined. However, it should also be stressed      are experiencing complexity and rigidity in           the sector. Many believe that the Action Plan
that a large number of the applications made       the planning system and this is holding back          for Jobs and the Construction 2020 Strategy
to the banks by contractors are also still         development. This excess rigidity in planning         report have the potential to overcome
pending.                                           is echoed by contractors, who also point to           some of the administrative blockages to
                                                   the lack of reform in the Irish planning system       development but wider improvement for the
Not surprisingly planning also loomed large        as a serious impediment to the growth of the          sector could be “marginal” or “minimal” if
in the responses of many respondents to            sector.                                               some of the industry recommendations are
the PII survey with developers in particular                                                             not properly implemented.
of the belief that the current planning            The survey also noted that developers and
system is a factor shaping the outlook for         contractors, by and large, are supportive             Within the property professions, meanwhile,
the sector. Where sites are available, and         but somewhat sceptical about the potential            the greatest issues facing the sector are the
                                                                                                         availability of existing property, and public
                                                                                                         perceptions towards the sector. Many real
                                                                                                         estate agents who responded to the survey,
                                                                                                         point to a lack of confidence among sellers.
                                                                                                         In some cases, they believe, sellers are
                                                                                                         holding off in anticipation of a higher price
                                                                                                         as the market continues to improve. For
                                                                                                         their part, buyers would also appear to be
                                                                                                         uncertain about the future direction of house
                                                                                                         prices.

                                                                                                         It is also clear that while the domestic
                                                                                                         economy is growing and unemployment is
                                                                                                         falling, consumer confidence towards the
                                                                                                         residential market still lags this growth and
                                                                                                         this is also borne out in the Sherry FitzGerald
                                                                                                         Sentiment Survey that is analysed elsewhere in
                                                                                                         this publication.

                                                                                                         In the case of asset and investment managers
                                                                                                         that are actively involved in the sector,
                                                                                                         most are concerned about the ability of

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    A I B / P R O P E RT Y I N D U S T RY I R E L A N D S U RV E Y

    developers and buyers to access financing,           The supply-chain in the residential property         see opportunities to engage in master
    noting that where there is an able developer         sector is long and complex, and as the market        planning and project design, as a larger
    and a willing buyer, there is often an               turns, so the business model of property             number of potential clients prepare planning
    unwilling lender. Nonetheless, they look to          and construction firms must also change.             permission applications and commence pre-
    the successful introduction of REITs into the        A number of developers and contractors               construction stages of development.
    Irish market and the growing appetite of             foresee strong opportunities for the residential
    international investors to assist in driving         sector in the year ahead especially once the         Of course businesses are not totally oblivious to
    new investment into the Irish residential            programmed disposal of appropriate sites             the challenges which still face the sector. Many
    property market.                                     commences by the banks and NAMA and                  recognise that while the market is beginning to
                                                         when developer finance particularly equity           improve, there may be a significant delay before
    Developers and contractors, on the whole, are        finance becomes readily available.                   this translates into business activity. Having
    supportive but sceptical about the potential                                                              gone through a protracted period of what one
    impact of future Government policy towards           A number of contractors cite specific areas in       respondent calls “crisis revenue” there are very
    the sector. Indeed some property professionals       which they expect to see growth, particularly        few cash reserves in businesses left. The speed
    including planners and estate agents believe         healthcare and the refurbishment of property.        and flexibility of businesses working in property
    that Government intervention may be too              Contractors also point to international              and construction is notable.
    late. Other strong future considerations             investment stimulating construction activity
    are expected to be lack of skilled labour,           in the near future, as they are less reliant on      Many challenges facing the sector are beyond
    increasing costs and financial markets.              traditional development finance, and are keen        the control of individual businesses working
                                                         to commence on sites as soon as possible. In         within it. Few businesses are able to dictate
    The Opportunities                                    addition, a large number of property services        the speed of a planning authority to grant
    The property sector is extremely clear that          firms are marketing themselves to overseas           permission for construction to commence.
    there are a number of business opportunities         clients, and working as part of consortia to         Likewise they have no control over the
    that can be seized upon in the year ahead            harness international work.                          availability of suitable sites coming on stream.
    and it is notable how prepared the sector is to                                                           The challenge for these companies is to
    adapt its business models to reflect the new         Elsewhere within the construction and                maintain their viability during a period of
    market realities.                                    property professions, planners and architects        uncertainty. l

      Some of the selected comments from the participants in the                       Recognition by Government of the inter-connectivity of
                                                                                      “
      AIB/Property Industry Ireland survey include the following:                     construction and the jobs market is a positive one. The Action Plan
                                                                                      for Jobs should help reiterate the importance of development in
          The main issue facing the sector is the release of development
         “                                                                            kick-starting and maintaining economic growth.”        (Developer)
         sites so that construction can commence. It is well-known where
         there is a need for new development, but the question is how to               There are limited growth opportunities until the planning system
                                                                                      “
         unlock them.”                                            (Contractor)       is freed-up and Government directs local authorities to be more
                                                                                      commercial in dealing with landowners to getting zoned land to
          The banks are engaging with the sector now. If we can present
         “                                                                            development stage.”                                     (Developer)
         a logical proposition to them, I feel we are being heard. Perhaps
         it’s not enough, or too late, but they are key to the future of the           The market is strengthening and as we see more new buyers, we
                                                                                      “
         sector, but I think they now realise how important they are.”                will also see the commencement of good refurbishment schemes.”
                                                                  (Contractor)                                                            (Architect)

          For the housing industry to recover across the country, the
         “                                                                             My business will return to growth rather than being reliant on
                                                                                      “
         difference between the selling price and the total cost of building          “crisis revenue.” This will help us invest for the future.” (Architect)
         the house is so great, costs have to be reduced or prices need to
         rise. As development becomes a viable business proposition, so the            Based outside of the Dublin area, I would be satisfied if we can
                                                                                      “
         shortage of sites will become an issue.”                 (Developer)        keep consolidating properly, increasing production at a controllable
                                                                                      level which we can finance.”                             (Developer)
          We need to look at the supply of apprentices and professionals,
         “
         to make sure we have the capacity and skills to deliver for the               Build costs, and capacity within the construction sector to deliver
                                                                                      “
         public.”                                                (Contractor)        are major challenges.”                                   (Developer)

          Planning red-tape and delays in planning decisions are holding up
         “                                                                             This year, we are retaining staff by focusing on maintaining
                                                                                      “
         the supply of property onto the market.”        (Real estate agent)         turnover.”                                               (Developer)

          Opportunities will come when we see bank disposal of sites, and
         “                                                                             Need to reform cost of compliance with legislation and planning
                                                                                      “
         bank portfolio sales.”                               (Developer)            from a contracting perspective.”                      (Contractor)

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A I B / S H E R RY F I T Z G E R A L D N E W H O M E S S E N T I M E N T S U RV E Y

 Improving CONSUMER
 SentiMENT
The outlook for the Irish residential property market                                                    Another notable finding of the survey is
                                                                                                         the presence of investors in the market.
is a lot more positive than it has been over the last                                                    In Limerick, for example, 16% of the

seven years and while sentiment among potential                                                          respondents indicated that they were investors
                                                                                                         while this rose to 19% in Galway, falling to
buyers has also improved significantly, the market                                                       11% in Cork and 9% in Dublin.

still faces a number of major challenges.                                                                The survey also noted that 79% of the
                                                                                                         first-time buyers are currently living in rented

S
      purred on by a pent-up demand for new                                                              accommodation while 16% of them were
      housing stock, changing demographics          Methodology                                          living with a relative.
      and a more benign economic                    The Sherry FitzGerald Property Sentiment
environment, the Irish residential property         survey was sent out to the Sherry FitzGerald         In terms of buyers’ expectations and the
market is entering a new period of growth           Residential database of buyers around                price brackets they fall into, almost 60%
following a number of difficult years for the       the country. The database included                   indicated that they were prepared to pay up
industry. While it is unlikely, nor desirable,      approximately 6,000 people in Dublin                 to E350,000 while a further 27% fell into
that the market will return to the heady            and 2,000 in Cork, Galway and Limerick.              the E350,000-E549,000 bracket. Looking at
days of 2006/2007, most property analysts           This database consists of buyers who are             the figures nationwide, it is evident that there
and experts agree that future growth in the         currently actively in the residential property       are more buyers seeking properties in excess
market will be tempered by demand.                  market in Ireland. The overall response rate         of E350,000 in Dublin than elsewhere. Some
                                                    was 21% with approximately 78% or 1,122              52% of the sample in Dublin are looking in
Not surprisingly, 78% of all respondents            coming from Dublin and the balance, 558,             the E0-E350,000 price range while 31% are
indicated Dublin as their preferred location to     coming from Cork, Galway and Limerick.               looking at paying between E350,000 and
purchase a house while Cork (12%), Galway                                                                E549,000. This compares to Cork (19%),
(8%) and Limerick (3%) were the next most                                                                Galway (6%) and Limerick (3%). At the other
sought-after locations. While Dublin does          requirement of 5,663 units by the end of              end of the scale, some 4% of the respondents
account for the lion’s share of respondents to     2014, rising to 8,970 units a year up until           indicated that they were prepared to pay in
the survey, this is also in line with the actual   2018.                                                 excess of E750,000 for a house.
demand in the capital. Indeed the Housing
Agency has forecast that a minimum of              First-time buyers account for almost half             The survey also shows that almost three
37,581 new units will be required in Dublin        of the respondents to the survey and this             quarters of the respondents are looking to buy
over the next five years with an immediate         is reflected in each of the four different            in the next six months. Looking back at the
                                                   geographic locations surveyed. In Galway, for         Sherry FitzGerald Property Sentiment Survey
                                                   example, 51% of the respondents indicated             which was carried out in February 2012 when
 “79% of the                                       that they were first-time buyers while in             40% said they were intending to purchase
                                                   Dublin, 47% of the respondents fell into the          within the next six months, it becomes
 first-time buyers                                 same category, followed by Limerick (46%)             clear that not only has the level of demand
                                                   and Cork (43%).                                       increased, but so too has the urgency to buy.
 are currently
 living in rented                                  Those trading up accounted for the next               In terms of house type, the majority of would-
                                                   biggest cohort, a fact that is often overlooked       be buyers are looking for two/three bed
 accommodation while                               in much of the national debate about the              houses. However, since the Property Sentiment
                                                   housing market. Around 23% of respondents             survey of February 2012 the overall demand for
 16% of them were                                  in Dublin, for example wanted to trade up             two bed apartments has increased from 9%
                                                   while this rises to 25% in Cork while it fell         to 12%. This can be interpreted as a growing
 living with a relative.”                          back to 16% in Limerick and 13% in Galway.            realisation that the ability to find a two/three

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    A I B / S H E R RY F I T Z G E R A L D N E W H O M E S S E N T I M E N T S U RV E Y

    bed house as a first home is not realistic while       In terms of prices, overall almost 80% feel         When asked if they believed the country’s
    it is also reflective of the increasing investor and   prices are increasing and a further 12%             mortgage providers were lending, only
    trade down buyer interest in the market.               say they are staying the same. Looking at           29% said no. It is also interesting to note
                                                           Dublin, 84% feel that prices are increasing.        that the figure is higher in Dublin than in
    Previous research carried out by Sherry                Again, if you compare this to Property              the other locations with 43% of the Dublin
    FitzGerald would indicate that the first-time          Sentiment survey February 2012, when                respondents feeling that the country’s banks
    buyers, who are now older in age profile,              overall only 1.5% thought prices were               are actually lending.
    were looking for two/three bed houses                  increasing, it shows a marked change in
    as many of them had either skipped the                 sentiment overall.                                  When it comes to choosing a residential
    ‘apartment stage’, as a first-time buyer, or                                                               mortgage provider, the issue of interest
    had lived in rented accommodation and                  Not surprisingly, location is deemed to be the      rates was the most important, followed by
    now wanted to buy a ‘house’. Given the                 most important factor in selecting a property.      customer service, the time it takes to gain
    lack of supply and with prices for existing            Listed next is safety/security followed by the      approval and the loan-to-value ratio that
    houses on the increase, there is evidence              desire for a private garden. Accessibility, which   determines how much they can borrow. The
    that some buyers are considering all                   is similar to location, is clearly of relative      existing customer relationship is the least
    their options, including the possibility of            importance also. Obviously, criteria change         important variable which shows that people
    apartment living.                                      depending on status and accessibility of schools    are indeed shopping around for a mortgage.
                                                           is not as important to those trading down.
    On the supply side the research shows that                                                                 The survey also highlights the fact that
    overall 47% of the respondents feel the                In terms of property sentiment, almost 80%          many people feel that the banks are right
    availability of houses is decreasing. The supply       feel that there are not enough properties           to be cautious and that the process is
    side pressure is even more evident among               in their price range and almost 60% say             fair and efficient, while the amount of
    first-time buyers with 55% of them believing           there are not enough in their preferred             detail required was reasonable. However,
    that stock is actually decreasing. By location         location. There is also broad agreement             people still feel it should be easier to get a
    it is clearly evident that the perception of           that ‘there are no new properties coming            mortgage!
    availability of stock is tightest in Dublin with       on’ and not enough ‘that suit our needs’,
    51% saying stock is decreasing and a further           and also ‘there are too many buyers chasing         Finally in terms of overall sentiment, 73% in
    31% believing that it is staying the same.             the same property’. When you look at this           this Property sentiment survey agreed that
    Galway is quite similar followed by Cork, and          by location, 80% of those in Dublin feel            Irish people will always want to own their
    in Limerick the highest proportion at 55% feel         there are too many buyers chasing the same          own home, compared to 62% in February
    stock is remaining the same.                           property.                                           2012. l

8        OUTLOOK       l   RESIDENTIAL PROPERTY SECTOR 2014
OUTLOOK RESIDENTIAL PROPERTY - ISSUE 7. MAY 2014 - AIB
OUTLOOK   l   RESIDENTIAL PROPERTY SECTOR 2014   9
OUTLOOK
     R E S I D E N T I A L P R O P E RT Y M A R K E T

      Stability Returns
     Notwithstanding the shortage of housing stock in key
     areas, a degree of stability has returned to the Irish
     residential property market, writes Marian Finnegan,
     Chief Economist, Sherry FitzGerald Group.

     A
            fter six turbulent years there   rose by 5% in the first quarter of     note the supply side influence
            is now increasing evidence       2014; this follows annual growth       in this strength of price growth.
            of stability in the Irish        of 9.2% in 2013. Notably Dublin        Approximately 30,000 properties
     housing market. Looking back            house prices rose by 6.5% in the       sold in Ireland in 2013, a figure
     on 2013, there is no doubt that         first quarter of the year, following   that represents 1.6% of private
     it was a game-changing year             growth of 14.1% in the 12              housing stock. Such a level of
     for the Irish property market.          months to the end of December          activity is low by either historical
     The year began with a sense             2013.That said, when Dublin            or international comparisons. As
     of cautious optimism but that           is excluded from the national          such the recovery in the housing
     gained considerable momentum            figure, the quarterly growth figure    market is not so much a story
     as the year progressed. This trend      was 3%. The regional centres           of a rapid growth in demand,
     continued to gather pace in the         also experienced upward price          rather it is one of a dysfunctional
     opening months of 2014 and              movement during the first three        supply side response to a               Marian Finnegan

     is reflected in the results of the      months of the year, with positive      recovery in demand.
     price barometer for the opening         quarterly price growth apparent in
     quarter.                                Wicklow, Kildare and Louth also.       The topic of housing supply is         a 53% fall in the 12 months to
                                                                                    the focus of considerable debate,      January 2014, compared with a
     The Sherry FitzGerald barometer         When reviewing the                     with much discussion on the            4.4% reduction in the 12 months
     reveals that the average value          performance of the market in           decreasing stock of property for       previous. Significant decreases
     of residential property in Ireland      terms of price it is important to      sale in the market.                    were also evident in Galway
                                                                                    The results of the Sherry              and Cork of 32% and 33%,
                                                                                    FitzGerald bi-annual census of         respectively. Limerick saw a more
      County      % of Second Hand           County     % of Second Hand
                                                                                    the stock of available property for    modest fall in stock available for
                       Private Stock                           Private Stock
                                                                                    sale in the second hand market         sale, 5%.
                         Advertised                              Advertised
                                                                                    reveals a further tightening of
                   for Sale Jan 2014                       for Sale Jan 2014
                                                                                    the supply of property in most         Moreover, by subdividing out the
      Dublin City              0.5%          Clare                     2.3%
                                                                                    locations nationwide.                  cities from the county data in the
      Dun Laoghaire-Rathdown 0.7%            Cork County               2.4%
                                                                                                                           regional centres, it is noteworthy
      South Dublin             0.7%          Longford                  2.6%
                                                                                    In January 2014, the total stock       that the proportion of stock
      Fingal                   0.8%          Westmeath                 2.7%
                                                                                    of available property for sale         available for sale in Cork city
      Galway City              0.9%          Limerick City             2.7%
                                                                                    in the second hand market              has decreased by 35%, while
      Kildare                  1.2%          Wexford                   2.7%
                                                                                    nationwide stood at 37,883             the volume of stock available
      Meath                    1.4%          Tipperary                 2.9%
                                                                                    units. This represents a decrease      for sale in Galway city has fallen
      Cork City                1.5%          Limerick County           2.8%
                                                                                    of 14,649 units, or 28%, since         significantly by 50%.
      Kilkenny                 1.8%          Sligo                     3.1%
                                                                                    January 2013. The overall market
      Donegal                  1.8%          Waterford                 3.1%
                                                                                    figure represents a housing stock      Some of the Dublin commuter
      Wicklow                  1.9%          Galway County             3.1%
                                                                                    market availability of 2.1% of         counties have also witnessed
      Laois                    2.1%          Leitrim                   3.8%
                                                                                    our overall private housing stock.     notable reductions in the
      Offaly                   2.1%          Kerry                     4.1%
                                                                                                                           proportion of available property
      Louth                    2.2%          Mayo                      4.1%
                                                                                    Most notably, there were only          for sale in the market. Wicklow
      Monaghan                 2.2%          Roscommon                 4.7%
                                                                                    3,025 units advertised for sale in     fell by 40% in the year to
      Carlow                   2.2%          Cavan                     4.8%
                                                                                    the Dublin region. This represents     January 2014, compared with an

10        OUTLOOK       l   RESIDENTIAL PROPERTY SECTOR 2014
8.5% increase the year previous;         Vendor Analysis, Q1 2014                  year to date; this compares with                                                             preliminary and are expected
while Kildare experienced a                                                        10% in the same period in 2013.                                                              to increase significantly as the
48% drop, compared with                                                                                                                                                         year progresses. It is also worth
a 9.5% rise the year                    Other
                                                  MBU                                  First time buyers remain a                                                               noting that the volume of
                                                   5%
previous. Meath also                      5%                                               relatively active cohort in                                                          transactions recorded to date
saw a further 23%                                                                            the market accounting                                                              in the first quarter of 2014 has
                                                                   Selling Investment
reduction in stock,           Smaller House
                                                                           29%
                                                                                               for 21% of the                                                                   risen by 19.2% when compared
                                    9%
after a 20.9% fall                                                                               properties traded in                                                           with the same period in 2013.
in the previous                                                                                   the three month
12 months.                                                                                        period; this compares                                                         A total of 1,855 properties
                          Larger House
                               9%
                                                                                                  with 25% in the                                                               transacted in the Dublin region in
Other notable                                                                                     same period last year.                                                        Q1 2014, accounting for 32% of
reductions in the                                                                                                                                                               total transactions in the period. In
volume of stock                                                                                  An analysis of the                                                             comparison, 1,572 transactions
                            Bank Repossession
available for sale                  11%                                                         profile of vendors                                                              were recorded in the same period
                                                                   Executor Sale
took place in Kerry,                                                     17%                  who sold their property                                                           in 2013, representing an 18%
Longford and Offaly;                            Relocating                                  through Sherry FitzGerald                                                           increase on transaction levels
82%, 49% and 42%,                                   14%                                  in the opening quarter of                                                              year on year.
respectively.                                                                         2014 revealed that 29% of
                                                                                   vendors were selling investment                                                              Looking to the future, it seems
Notably, just 0.6% of the                 Source: Sherry FitzGerald Research       properties; this remained stable                                                             likely that without a notable
Dublin private housing market is                                                   year on year. Executor sales                                                                 increase in the supply of properties
currently available for sale. This is     factor driving price performance         accounted for 17% of the market,                                                             to the market, price inflation in
incredibly low by either historical       in the local property markets.           while 14% of vendors were selling                                                            both Dublin and indeed all of
or comparable levels. Both Cork                                                    for relocation purposes.                                                                     Ireland will exceed levels achieved
and Galway also suffered from a           An analysis of transactions                                                                                                           in 2013. That said, it is early days
shortage of property for sale, with       nationwide that closed during            Upon examination of                                                                          and supply traditionally increases
only 1.5% of Cork city private            the opening quarter of 2014              transaction activity in the                                                                  in the post-Easter market. A
properties advertised for sale and        reveals that 74% of the second           market, there was a notable                                                                  notable increase in supply, in any
only 0.9% of Galway city’s private        hand homes sold through Sherry           reduction in the quantity of                                                                 location, has the potential to
housing stock advertised for sale         FitzGerald were purchased by             transactions closed in the                                                                   moderate current price trends in
in January 2014.                          owner occupiers; this compares to        opening three months of 2014                                                                 the months ahead. Outside the
                                          83% in the same period in 2013.          when compared with the final                                                                 regional centres, current forecasts
This reduction in the quantity                                                     quarter of 2013, with 5,787                                                                  would suggest that 2014 will be
of property available for sale is         Notably, investors bought 19% of         deals transacting in the quarter.                                                            a year of stability after six years of
undoubtedly the single greatest           the properties transacted in the         That said, these figures are                                                                 price deflation. l

                                                                                             VOLUME OF TRANSACTIONS – NATIONAL
                                                                                                                                                                                                                          9914
                                         10000
                                                                                                                                                                              9168
                                          9000

                                                                                                                                                                                                               7899
                                          8000

                                          7000
                                                                                                                                                                   6372
                                                                                                                                                                                                    6205
                                                                           5928
                                          6000                                                                                    5650                                                                                               5787
                                                                                      5565
                                                                                                                                                        5351
                                                                5141
                                                                                                                       4877                                                              4855
                                          5000
                                                     4202                                                                                    4237
                                                                                                            4030
                                          4000
                                                                                                 3427

                                          3000

 “First time buyers                       2000

 remain a relatively                      1000

 active cohort in                            0
                                                       0

                                                                  0

                                                                             0

                                                                                        0

                                                                                                  1

                                                                                                              1

                                                                                                                        1

                                                                                                                                    1

                                                                                                                                              2

                                                                                                                                                          2

                                                                                                                                                                     2

                                                                                                                                                                                2

                                                                                                                                                                                           3

                                                                                                                                                                                                      3

                                                                                                                                                                                                                 3

                                                                                                                                                                                                                           3

                                                                                                                                                                                                                                      4
                                                    1

                                                               1

                                                                          1

                                                                                     1

                                                                                                 1

                                                                                                           1

                                                                                                                      1

                                                                                                                                 1

                                                                                                                                            1

                                                                                                                                                           1

                                                                                                                                                                  1

                                                                                                                                                                             1

                                                                                                                                                                                        1

                                                                                                                                                                                                   1

                                                                                                                                                                                                              1

                                                                                                                                                                                                                         1

                                                                                                                                                                                                                                    1
                                                 20

                                                            20

                                                                       20

                                                                                  20

                                                                                              20

                                                                                                        20

                                                                                                                   20

                                                                                                                              20

                                                                                                                                         20

                                                                                                                                                        20

                                                                                                                                                               20

                                                                                                                                                                          20

                                                                                                                                                                                     20

                                                                                                                                                                                                20

                                                                                                                                                                                                           20

                                                                                                                                                                                                                      20

                                                                                                                                                                                                                                 20

 the market.”
                                                 1

                                                            2

                                                                       3

                                                                                  4

                                                                                             1

                                                                                                        2

                                                                                                                   3

                                                                                                                              4

                                                                                                                                         1

                                                                                                                                                    2

                                                                                                                                                               3

                                                                                                                                                                          4

                                                                                                                                                                                     1

                                                                                                                                                                                                2

                                                                                                                                                                                                           3

                                                                                                                                                                                                                      4

                                                                                                                                                                                                                                 1
                                                 Q

                                                            Q

                                                                       Q

                                                                                  Q

                                                                                             Q

                                                                                                        Q

                                                                                                                   Q

                                                                                                                              Q

                                                                                                                                         Q

                                                                                                                                                    Q

                                                                                                                                                               Q

                                                                                                                                                                          Q

                                                                                                                                                                                     Q

                                                                                                                                                                                                Q

                                                                                                                                                                                                           Q

                                                                                                                                                                                                                      Q

                                                                                                                                                                                                                                 Q

                                         Source: Property Price Register

                                                                                                                              OUTLOOK               l    RESIDENTIAL PROPERTY SECTOR 2014                                                   11
OUTLOOK
     M O RTG A G E S

      ThE OUTLOOK
      FOR HOME BUYERS
     As a key player in the Irish residential mortgage market, AIB has developed
     deep insights into the market as well as a number of customer-focussed
     solutions writes Jim O’Keeffe, Head of Mortgages, AIB.

     T
           he Irish residential property   The decline in housing output       The combination of supply issues
           market has continued to         appears to have levelled off with   and stronger employment growth
           improve over the last 12        total completions last year of      in Dublin in particular has resulted
     months against the backdrop of        8,300 units versus 8,488 units      in a marked increase in property
     stabilising economic conditions       recorded in 2012. This represents   prices particularly in the greater
     and improving consumer                a fall of just over 2% compared     Dublin area with a strong demand
     sentiment.                            to declines of 28% and 19%          for three-four bedroom family
                                           in 2011 and 2012 respectively.      homes in established locations
     This, in turn, has led to a modest    Meanwhile survey data such          and this is borne out in the
     recovery in the mortgage market       as the construction PMI are         findings of the Sherry FitzGerald
     and 2013 concluded with               also supporting a pick up in        research for this publication.
     over E3.1 billion in mortgage         residential construction.
     approvals in and E2.5 billion in                                          Residential property prices, as                               Jim O’Keeffe

     market drawdowns. While this          Although house building is          measured by the CSO, ended
     is some way off the peak years        showing signs of recovery           2013 with prices up 6.4%               Economic backdrop
     when we saw mortgage lending          the reality is that the current     compared to a year earlier.            improving: Recent data
     in the region of E40 billion, the     levels of output are well below     However the real underlying story      on the Irish housing market
     general consensus now is that         the household formation             is that the two-speed property         suggest that the market may be
     a normalised mortgage market          requirements. AIB estimates         market which has emerged in            stabilising. House prices, rents,
     where there is access to new          potential housing demand at         the country with Dublin prices up      transactions and construction
     housing supply would be closer        20,000 units per annum which        18% from their trough whereas          activity are either stabilising or
     to E7-E8 billion a year. However,     means that a significant increase   the rest of the country (excluding     improving. At the same time,
     we are still a long way off the       in housing output over the          Dublin) are up just 3.6%.              there are increasing signs that
     type of housing supply required       coming years will be required to                                           the downturn in the domestic
     to support this level of mortgage     bridge the current demand versus    From AIB’s perspective, we have        economy may have bottomed
     lending.                              supply gap.                         maintained our position as             out, with improving labour
                                                                               market leader with over 40%            market data, including strong
                                                                               share in sanction activity over        job growth, providing a more
                                                                               2013. A significant pipeline           supportive backdrop for the
                                                                               of sanctions in principle has          housing market going forward.
      “The combination of supply issues and                                    carried over into 2014, where
      stronger employment growth in Dublin                                     the customer is fully approved,        House prices and rental yields
                                                                               having the affordability for the       trending upwards: The CSO
      in particular has resulted in a marked                                   mortgage but is awaiting a             House Price Index for February
                                                                               suitable property. We estimate         2014 continues to show a further
      increase in property prices particularly                                 that this pipeline of activity         overall increase in property prices
                                                                               roughly equates to our lending         nationally by 8.1%. In Dublin,
      in the greater Dublin area.”                                             for two quarters.                      residential properties dipped

12       OUTLOOK       l   RESIDENTIAL PROPERTY SECTOR 2014
slightly by 0.6% in February          it appears that many of these        customer mortgage seminars          We operate throughout our full
however were 13.3% higher than        seem to be international and         throughout the country, we          AIB and EBS network of offices,
a year ago. In contrast, there was    institutional buyers or ex-pats      are evidencing a growing            with fully-trained mortgage
a 0.9% increase in residential        who see value in the current         confidence among those              coordinators in all outlets, in
properties outside Dublin (4.2%       market. It has been a challenge      interested in buying a home and     addition to our direct banking and
higher than February 2013).           for our mortgage customers as        this is further supported by the    broker channels. Both the bank’s
                                      very often a seller will opt for     increased number of mortgage        credit criteria and pricing are highly
Although prices have clearly          the cash buyer over a mortgage       lenders re-entering the market.     competitive across all customer
stabilised, there is no doubt that    buyer and this has again             Supply of suitable stock will       and product segments. l
a two-tier recovery is evident,       impacted our ability to actually     remain a stumbling block in the
with Dublin and other larger          drawdown mortgages for the           short term and a continuation
                                                                                                                Lending criteria, terms and
urban centres leading the way.        customers we have approved.          of current price trends in Dublin
                                                                                                                conditions apply. Allied Irish
Nationally, the price fall from the                                        may lead to affordability issues
                                                                                                                Banks, p.l.c. is an authorised
peak is now 47%, with Dublin          Buyer/Seller profile: Buyers         in some cases. First Time buyers
                                                                                                                agent and servicer of AIB
at 50%.                               continue to be dominated by          will continue to be the largest
                                                                                                                Mortgage Bank in relation
                                      those purchasing a primary           purchasing segment but we
                                                                                                                to origination and servicing
The evidence of stock shortages       home, mainly first-time buyers       expect increased activity in
                                                                                                                of mortgage loans and
(in terms of houses in particular)    but also by people on the move,      both the Mover and Investor
                                                                                                                mortgages. AIB Mortgage Bank
in Dublin and some other urban        whether they are trading up or       markets.
                                                                                                                is regulated by the Central
regions has resulted in an            down. Investors, meanwhile, are
                                                                                                                Bank of Ireland. Allied Irish
expansion of the rental market        starting to make their presence      AIB in the Mortgage Market
                                                                                                                Banks, p.l.c. is regulated by the
and upward price pressure also        felt again but this is coming from   AIB continues to be very active
                                                                                                                Central Bank of Ireland.
(17% off their lows).                 a very low base. A significant       in the mortgage market and has
                                      number of vendors are either         had an average market share
                                                                                                                Allied Irish Banks, p.l.c. and AIB
Cash Buyers: We have a                executor sales or investors.         of circa 40% in drawdowns
                                                                                                                Mortgage Bank subscribe to
significant amount of evidence                                             over the past two years. EBS,
                                                                                                                the Voluntary Code of Conduct
of the number of cash buyers          2014 Outlook                         which is owned by AIB, is also
                                                                                                                on pre-contractual information
currently in the residential          AIB is optimistic that the           fully re-engaged while Haven
                                                                                                                for home loans. A copy of the
property market with a range of       market will continue to stabilise    has re-established itself in the
                                                                                                                Code is available on request.
30% to 40%. In recent months,         and grow. As we undertake            intermediary market.

                                                                                     OUTLOOK     l   RESIDENTIAL PROPERTY SECTOR 2014                   13
OUTLOOK
     PII VIEWPOINT

      A Blueprint FOR Change
     The results of the AIB/PII Survey of companies operating
     in the Irish residential property industry reinforces the
     widely-held beliefs that the planning system in Ireland is
     in need of an overhaul, writes Dr. Peter Stafford, Director
     of Property Industry Ireland.

                                                                                                                          Dr. Peter Stafford

     M
             any of the                     a very small number of qualified       Development Board which                evaluate the complete taxation
             recommendations to             planners are endeavouring to           would be made up of planners,          of the delivery of property, to
             Government made by PII         undertake a large legislative          economists and experienced             provide coherence across local
     in our reports “Planning a Better      reform programme including a           international construction and         authorities and transparency
     Future” (2012) and “Towards            review of the National Spatial         property professionals who will        for developers, purchasers and
     a National Property Strategy”          Strategy and the National              provide a national supervisory         consumers.
     (2013) have acquired a new             Development Plan.                      role to local authorities in an
     urgency, given the shortage of                                                attempt to streamline and              PII recommends the
     residential houses in many key         In addition, it is the belief          harmonise planning processes           standardisation of planning
     urban areas, and the importance        of PII that there is a lack of         and costs. It would also work          fees and charges, as well as
     of creating a functioning              leadership in decision-making          with investors and developers          timetabling and administration
     property sector that contributes       and accountability in planning.        to support the commencement            through a centralised National
     to Ireland’s economic recovery.        Currently decision-making,             of viable, sustainable projects        Zoning Authority, working
                                            especially in relation to the          that are in the national interest      in tandem with a National
     On May 14th, the Government            provision of infrastructure,           as well as working to overcome         Infrastructural Authority to
     published its “Construction            is fragmented between the              obstacles in a process that has        centrally co-ordinate the
     2020” stimulus package. While          local authorities and national         clear timeframes, leadership and       planning and sequencing of
     the report contains important          departments and agencies. This         transparency.                          the delivery of infrastructure.
     changes and recommendations,           lack of accountability, transparency                                          In addition the creation of
     PII feels it misses some important     and enforceable, statute-based         PII also believes that the             a national Development
     opportunities to improve the           deadlines for decisions by             introduction of the Local Property     Commissioner, to work
     supply of new property onto the        planning authorities and An Bord       Tax, as an income stream for local     with providers of strategic
     market.                                Pleanála adds uncertainty and          government, provides ample             infrastructure, should be
                                            ultimately increases the cost of       opportunities to review the            created to facilitate exemplar
     A key recommendation, put              property delivery.                     development contributions and          development and work to
     forward by PII, is for a renewed                                              other charges which developers         overcome obstacles to viable
     focus on the country’s inefficient     PII would like to see strategic        have to pay. In addition, there is     development.
     planning system. As it currently       clarity, so that the local             a wide variation in policy, practice
     exists, this is severely restricting   authorities are accountable            and procedure between local            In addition, PII believes that any
     the ability of the industry to grow    for the implementation of              planning authorities in terms of       gains that occur from rezoning
     and deliver the required level of      development plans while An Bord        costs, planning processes and          and the provision/enhancement
     housing that Ireland will require      Pleanála, and other agencies,          levies. Uncertainty in terms of        of infrastructure, are captured
     over the next 20 years.                are held responsible for making        timetabling, sequencing and the        back from site owners by a
                                            decisions within the periods that      basis for costs ultimately adds to     combination of CGT “windfall”
     PII believes that there is currently   are set out in statute.                the cost of delivery and erodes        tax of 80%, Development Levies
     an over-supply of qualified                                                   any savings that have been made        and Part V requirements. This is
     planners in local planning             PII has recommended the setting        to the cost of construction. It        not a well thought-out system
     authorities while at national level,   up of a National Planning and          is now an opportune time to            as the 80% tax acts as a serious

14       OUTLOOK       l   RESIDENTIAL PROPERTY SECTOR 2014
inhibitor to bringing viable sites    In addition as student population     PII also believes that there are      a staged payment process. This
forward for development.              increases, an even greater            opportunities to review the           would assist in the cash-flow of
                                      demand will be placed on the          administrative provisions around      projects, improving their financial
One of the reasons for the            private rental market which in        them. While new mortgage              viability and speeding the process
increase in house prices and          turn will push up rents. Currently,   products are becoming available,      of delivery. The conveyancing
rents, particularly in urban areas,   planning processes and project        this is of little consequence if      process for supply of bridging
is the lack of provision of social,   financing requirements make           there are no new properties for       finance should be reviewed as
affordable accommodation              it difficult to provide student       purchasers. PII believes that there   the current process is inefficient,
as well as purpose-built              term-time accommodation. PII          are opportunities to create a         especially for those who are
student and active retirement         believes that it would be a quick     new form of deposit guarantee         seeking to downsize, thus further
accommodation. Ireland needs          win for all the stakeholders to       scheme through which the              tightening the stock of available
a supply of affordable housing        address the shortage of student       purchaser pays the developer on       property. l
not just for those who are less       accommodation and in doing so,
well-off, elderly or incapacitated    it would go some way towards
but for its growing student           moderating rents.
population as well.
                                                                             A key recommendation, put forward
                                      However, teamwork is needed
Government has recognised             between universities, city             by PII, is for a renewed focus on the
in Construction 2020 that the         councils and planning authorities
current Part V requirements           to improve the planning                country’s inefficient planning system.
are not delivering this               requirements and therefore the
accommodation in the way              financial viability of student
                                                                             As it currently exists, this is severely
in which it was intended.             accommodation and rental
                                                                             restricting the ability of the industry to
However PII believes that there       accommodation for post-
is potential for private pension      graduates and visiting academics       grow and deliver the required level of
funds to invest in social and         and their families.
affordable housing, including                                                housing that Ireland will require over
accommodation for elderly and         As financial viability returns to
actively retired people.              many development projects,
                                                                             the next 20 years.

                                                                                      OUTLOOK       l   RESIDENTIAL PROPERTY SECTOR 2014                15
OUTLOOK
     I N T E RV I E W

      Planning for Change
     If the Irish construction and property market is to grow and
     develop a sustainable long-term future with substantial
     employment potential, the whole Irish planning system
     needs a major overhaul according to Tom Phillips, one of
     the country’s top planning consultants.

     T
           his year marks the 50th                                            restrictions on staff redeployment    decisions within the periods set
           anniversary of the Local                                           posed by the Employment               out in statute,” he says.
           Government (Planning                                               Control Framework needs to be
     & Development) Act which                                                 addressed. It doesn’t have to be      Another key issue, according to
     was enacted in October 1964.                                             about looking for new planners;       Phillips, is the need for planners
     Although amended on several                                              it’s about redeploying the existing   to understand and take greater
     occasions, the Act has remained                                          ones, particularly into the           cognisance of the commercial
     largely intact since it entered                                          Department of the Environment.        viability of development and local
     the statute books 50 years ago.                                          As it stands, the Department          area plans and how they can be
     While it might have been fit for                                         planners are doing excellent work     reconciled with the commercial
     purpose in 1960s Ireland, there                                          but they are totally and utterly      needs of the industry.
     is a general consensus within                                            overworked. Meanwhile you
     the wider construction industry      TOM PHILLIPS                        have a planning department in         “There is no point in having
     that it’s now time to revisit it    local authorities around the         this country – Templemore Town        a plan that isn’t viable. And
     with a view to implementing a       country, compared to those           Council Planning Department –         there are several examples, I
     major overhaul of how planning      available to the Department of       which processed just six planning     would argue, of plans which
     is managed and executed             Environment, Community and           applications last year and just       are prepared by planners in
     throughout Ireland, according       Local Government.                    four the previous year. I recently    local authorities who, with the
     to Tom Phillips, the well-known                                          worked it out that Ireland has        greatest respect to them, either
     chartered town planner and          “For a start , the Department of     a planning authority for every        believe that it’s not their duty or
     urban designer who heads up         Environment is seriously under-      52,000 people. That’s crazy           don’t understand the viability
     the Dublin-based town planning      resourced while certain local        and simply wrong. I welcome           of certain developments. A
     consultancy Tom Phillips +          authorities are over-resourced.      the fact that the Government          development might look fantastic
     Associates and is a director of     For example, there are just          is committed to reducing that         on paper, but financially it may
     Property Industry Ireland.          three planners working in the        number to 31 in 2014 under            not stack up because there is
                                         Department of Environment            its local government reform           no incentive for developers
     While the existing planning         and yet there are 88 planning        initiatives,” he adds.                to do it and there is nothing
     regime is inherently a good         authorities around the country,                                            in it for them. So why would
     system, there are many aspects      few of which have less planners      “With respect, there is a real lack   they bother? The mind-set of a
     of it that could be improved with   than the Department. That’s just     of leadership in decision making      planner is not the mind-set of
     nothing that can’t be overcome      wrong,” he says.                     as well as a lack of accountability   a developer. I would argue that
     if the various stakeholders                                              in the current planning regime.       there has to be a much more
     embrace change on a number          “The Planning Act will be 50 years   Decision making is fragmented         holistic approach to planning
     of key fronts. There are many       old this year and I think there      and often split between local         that takes into account the needs
     things wrong with the planning      is a golden opportunity to use       authorities, Government               of a community, the needs of
     system in Ireland, he says, but     this anniversary to get our house    departments and agencies.             the developer, the requirements
     nothing that can’t be overcome      in order on the planning front.      We need to see some strategic         of financial institutions and the
     if the various stakeholders         In terms of providing adequate       clarity and accountability when       requirements of the planners. So
     embrace change on a number          resources to implement the           it comes to the implementation        I’m not looking for developers
     of key fronts. One of the most      planning recommendations of          of development plans and that         to dictate what they want in
     pressing issues, however is         the Mahon Tribunal – including       the various planning agencies,        plans. But saying that if you
     the level of resources that is      the establishment of the office      including An Bord Pleanála, are       zone land, set out financial
     currently deployed within the       of the Planning Regulator – the      held accountable for making           contribution development levies

16       OUTLOOK      l   RESIDENTIAL PROPERTY SECTOR 2014
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