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By Ruth Baily
News that house building commencements are up is very welcome. In the first four months of the year commencements are up by 132% across the country with growth in every county. Although off a low base, any growth with in the industry is good news.
The CIF still estimates that there will be approximately 10,000 units completed in 2014. This will be the first year since the record lows of 2011, 2012 and 2013 to see growth in completions. If 10,000 units are completed this year it will be a 17% increase on 2013 when 8,301 units were completed, however this is nowhere near what the market needs.
According to both the Government and the ERSI, to meet demand we need 25,000 completed units per year. When a market requires 25,000 units to be built each year and only 10,000 are being built then there will be problems.
There are major supply issues in the market at the moment, causing problems like increased rental prices and the rising cost of homes in particular areas. The lack of housing supply is leading to first time buyers and young families being shut out of the market.
In order to really get construction moving again and deal with the supply shortage the barriers to commencement need to be tackled. Finance is still a major barrier for many companies, banks are simply not lending for development.
Construction companies must be in a position to put up between 40% and 60% equity for a project. Very few construction companies who have managed to survive though the crash are in a position to do this. Any financial reserves they may have evaporated in order to keep the businesses afloat.
Another problem is the development levies, which are still pegged at boom time levels. This has a significant impact on the cost of building. The margin between the cost of building and house prices is still very tight in Dublin and in other parts of the country the house prices do not meet the build cost. In these conditions development levies do not reflect the market realities and they need to be re-evaluated.
The planning process also needs to be looked at. There should be a relatively simple process for having permission reallocated from apartment blocks to houses for example – to meet the market requirements. In Dublin at the moment there is planning permission for 30,000 units, but 21,000 of those are apartments. If the builders wish to build houses they must go through the whole planning process again, which can take as long as a year. Even after that there is no guarantee they will receive permission for the revised plans. Fixing this issue would encourage a lot more building and lead to a lot more supply.
At the end of the day, builders want to build. Addressing some of these barriers would allow them to get building and we will start to see the positive figures announced today being sustained. Only then will supply meet the demands of the market and only then will we have enough housing to meet the demographic needs of the country.