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Opinion: The last thing this housing market needs is a subsidy for developers

The Social Democrats are asking the government to scrap the subsidy for developers – Cian O’Callaghan explains why.

Cian O'Callaghan Social Democrats TD Dublin Bay North

WE ALL KNOW that this government is a big fan of supporting developers – but I have to confess to being surprised by the extent of the generosity they are showing to their favourite demographic in their latest policy wheeze.

Private developers, those captains of industry who are supposed to be inveterate risk-takers, are being given a State handout. A large one. With no strings attached. In fact, all the government wants them to do is take the money – up to €144,000 per apartment they build – and run straight to the bank.

In return, the State will get precisely nothing. There will be no reduction in the cost of the apartments and no commitment that they will be affordable for ordinary workers. In fact, those hoping to eventually purchase a two-bed apartment will need incomes of more than €100,000.

Pushing the prices

In effect, the government has proudly announced the creation of an Unaffordable Housing Scheme – and is rewarding developers for constructing apartments that they, apparently, can’t afford to build but that the State is happy to heavily subsidise.

Meanwhile, buyers desperate for a property will be rewarded by having to fork out for an overpriced apartment in the knowledge that their own government has diligently worked to keep prices, and their mortgages, artificially high.

The scheme is such bad value, and so bizarre, that I decided to ask the Taoiseach a few questions about it in the Dáil. I wanted to know if there had been any independent analysis of the policy; if there was any other country anywhere on the planet that had done something like this or if any independent expert had endorsed the scheme. He gave me no answers and instead spoke in general terms about the importance of supply.

The supply issue

Supply is critically important. We all acknowledge that. But so is value for money – for both the taxpayer and house hunters. How can the government justify gifting up to €144,000 per apartment to private developers – when it could instead buy out these sites at a fraction of this cost to ensure the delivery of homes that are sold at prices that people can afford.

Finance costs, for State-backed projects, are much lower than those available to private developers and this could be harnessed to ensure these planning permissions are built out.

The State seems incapable of securing value for money. When it’s not bailing out developers to the tune of up to €144,000 per apartment; it’s leasing social housing from them for up 30 years and locking in exorbitant rents for decades.

For anyone keeping count, this is the third time in seven years that we have been told that apartment building is unviable for developers. In 2015, former Housing Minister, and Labour leader, Alan Kelly announced that he was reducing standards for apartments. Mr Kelly said people needed to “get real” as he slashed the minimum size of studio apartments by a whopping 27pc.

Why did people need to “get real”? According to Mr Kelly, apartment sizes had to be cut to make it profitable for developers because there was “no point in having standards in place if nobody is going to build them”. However, Mr Kelly promised that his changes would make apartment building affordable for purchasers. We all know how that turned out.

Next up, in 2018 former Fine Gael Housing Minister Eoghan Murphy slashed standards for apartment buildings even further. Mr Murphy introduced lower standards for build-to-rent developments in order to – you guessed it – make them more affordable and boost supply.

Prevalence of build-to-rent

Build-to-rent developments are cheaper for developers to construct as the minimum size of apartments was again slashed; the requirement to mix apartment sizes was removed leading to a proliferation of huge developments of tiny studios and one-beds, and there is no requirement for balconies or outside space.

Perhaps unsurprisingly, in Dublin City, in particular, developers are now building build-to-rent developments at the exclusion of almost everything else. Dublin City Council recently revealed that 82pc of the planning permissions granted or applied for in 2020 were build-to-rent. That is 82pc within two years of standards being slashed.

Of course, this leaves a huge problem for people who would like to actually buy a house or an apartment in Dublin – because most of what is now in the pipeline will not be available to buy. The only option, for an increasing number of people, is to rent these low-standard apartments at a premium rent in perpetuity.

Is there anyone in government who has any idea of what they are trying to accomplish with their housing policy? Because, from the outside at least, it looks as if the overriding priority is fuelling house price inflation in a desperate attempt to attract more developers, looking for bumper returns, into the market.

We saw how that policy objective turned out during the Celtic Tiger years. Spoiler alert: It wasn’t good. One would have hoped that Housing Minister Darragh O’Brien would have learned lessons from the last time his party crashed the property market. Apparently not.

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Cian O’Callaghan TD is the Social Democrats’ spokesperson for Housing. 

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Cian O'Callaghan  / Social Democrats TD Dublin Bay North

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