Affordable Housing Problem is all down to supply.

17 September 2014

Michael Noonan T.D.,
Minister for Finance
Government Buildings
Merrion Street
Dublin 2

Re; Your letter dated 8th september Ref; 14/3425/MF

Dear Minister,

I wish to thank you for your further letter in relation to the above. I will endeavour to give a detailed example of how it may be possible to assist with the shortage of affordable housing. For this example I am using my own home-town of Clonakilty Co Cork.

The first step of the process is for the Planning Authority, in this case Cork County Council to identify a number of sites in the town to be zoned for “Affordable Housing”. The authorities are already zoning lands for a variety of development such as medium, low and high-density residential development, commercial development, sports etc. The “Affordable Housing” zoning would be a new type.

What will be an affordable home for people will vary greatly across the Country and to address this variance an independent group, board or committee will need to be set up to establish an affordable price register for each urban settlement across the country. For the purpose of this example an affordable 3 Bed starter home in Clonakilty town would be in the region of €200,000. In my proposal this would mean that no completed unit could be sold for in excess of that price which would be constructed on this type of zoned lands. This stipulation automatically regulates and stabilises the price of this zoned land.

As with all development one of the sites will then need to be offered to the market. The zoned land “windfall tax”may need to be reviewed in this regard to encourage land owners to offer their land to provide these homes. Developers will then analyse the project to establish what they can afford to pay for the land in order to construct the units and generate a profit.

In this example it is a 10 no. unit development and the build, site development works and all associated costs are coming in at €135,000 per unit. The sale price is €200,000 (176,000 nett of vat). The Developer will be aiming in the current market
for a 10% profit margin on his/her spend so will value the site at €25,000 per unit or €250,000 for the entire site.

Summary;

25,000 Site cost
135,000 Site development / finance etc
15,000 Profit
175,000 Total plus vat comes in just under the max. €200,000 selling price.

Of course the Developer will need an incentive to take on this type of project, that is why I am suggesting some form of tax relief for the projects such as profit tax free or a special vat rate on sales.

The competition in such a proposal will take place between developers and determining which of them can produce the units most cost effective leaving them with more profit and particularly if the profit may have a tax exemption.

I believe this product will be attractive to developers as there will be demand for their product, even though the price is capped they would have fast turnover with first time buyers along with local authorities queuing up to purchase the units. Units would be sold on a first come first served basis from a qualifying list of applicants.

Social Housing will also need to be dealt with in some shape or form, but that is matter for the planning authorities of each local area and weather or not they would continue to include random social houses in the various affordable housing estates is matter entirely for them. The Local Authority would be the developers customer in this case similar to the current part V regulations.

The main advantage of this proposal is that it regulates and stabilises the value of the land. If land is not developed it should be de-zoned in three year cycles but there should always be a number of zoned sites in each urban area.

The scheme will also allow the private sector to invest and provide affordable housing as opposed to the State having to heavily invest to purchase land, seek planning permission, tender works etc. This is widely viewed as a far less cost effective route of any infrastructural development than it is for the private sector.

The scheme will ensure that there are always a number of sites identified in each urban area for the specific purpose of affordable housing.

The scheme will provide a significant boost to the construction industry and will also incur significant indirect taxes to the exchequer.

While I appreciate it may be difficult politically to float the idea of giving tax breaks to developers, we must realise that developers are essential to assist with providing homes for people. Without them it simply cannot be done.

While the lack of affordable homes is not a significant problem at the moment in the constituency I represent, I do feel this proposal may benefit the larger cities and the country as a whole to remedy the existing crisis.

Sincerely,

______________
Jim Daly T.D.