If you build it, they will come …..
With apologies to Kevin Costner – you have to build them, the would-be occupiers are already here.
There is no single solution to meeting the housing needs of the population – just a series of joined-up actions that are readily achievable if the will is there.
What we need now is for the three main players in the game – The Government, the Central Bank and Nama, to put their heads together and agree a realistic stimulus policy to allow movement in the entry section of the market.
This needs to be the direct opposite of the present “don’t just do something, stand there” approach.
Nama need to accelerate sales of land on the open market as well as selling through loan sales.
In conjunction, there is a need to fast track planning within the correct zoning for urban land bought within the next two years.
This combination alone will allow medium-sized developers to purchase land and build – and remove the risk of sites going into further cold storage.
The SCSI have estimated the cost of delivery (including margin) of a three-bed semi in Dublin at €330,493 – almost equal to the €334,000 average cost of the same home in the recent REA Q1 Average House Price Survey.
A couple on a combined average industrial wage income of €74,000 can borrow 3.5 times their income, meaning a total of €259,000.
Adding a deposit of €35,000, gives them a maximum buying power of €294,000.
So how do you bridge the gap between delivery cost and average buying power?
Firstly, we need to revisit the multiplier and raise it to 4.5 times income, as it is in the UK.
Secondly, we need to acknowledge that the market is being stalled by second-time buyers being unable to move out of their starter homes due to the restrictions of the Central Bank rules.
They need the same 10% deposit derogation as first-time buyers and the notional €220,000 limit needs to be raised to reflect the reality in the area of most need – Dublin.
Lastly, the argument against reducing Vat on new builds is that it will reduce income to the exchequer.
Building and selling 100 houses at a 50% Vat reduction raises a lot more income than none at the full rate.
As Mr Costner might have said: If you build it, they will buy. If you don’t, we are looking at a field of nightmares.
Michael O’Connor – REA O’Connor Murphy, Limerick and Chairman of Real Estate Alliance