NIRSA Report on Irish Property Market Planning

The report is to be discussed on Prime Time this evening from 9.30pm.

@Ronan L.

“Leaving aside the peak to trough fall for a minute, would Ireland’s house price bubble have been worse if only one aspect were avoided – i.e. planning – and not another – i.e. lending?”

In my reading of the report I had the same thought. The report stresses planning policy leading to excess building, whereas finance-oriented economists have stressed the massive credit inflow to Ireland, mediated by poor bank risk management. (To be fair, the report mentions both causes but mostly discusses the first).

Perhaps the poor geographic distribution of house construction can be attributed to bad tax polices, poorly managed and corrupt planning processes, etc. as highlighted in the report, and the massive credit inflow and banking industry misbehaviour had a larger role in the aggregate (vs regional) over-heating of the property development industry.

Ronan
“Why were county councils building so much?”
Because since 1977 one of hte main sources of income has been builders levies also.
Also, lets not forget that for many people in the most “afflicted” areas getting a rezoning and flogging the top field to some fella for a buncha houses was a good way to bank some cash in areas that generally dont have a lot of same. Same for councils really.

Jagdip
Those of us that, even belatedly, done so get the lash of jto!

Ronan – the map is interesting and clearly reflects the influence of the Rural Renewal Scheme. The argument here had little if anything to do with house prices – it was one of regional development, rural renewal and encouraging population and economic growth. What the map doesn’t show is the significant oversupply in some cities – Cork City 13.7 years, Dun LR 8.1, Dublin City 8.9. Oversupply of both housing and zoned land is not just a rural issue.

Gregory – One of the central points of the report is that *both* the fiscal and planning levers to oversee development in Ireland largely failed. The report seeks to provide a counter-balance to some of the economic analysis of the crisis that has predominated to date, not to prioritise one form of analysis over the other.

Jagdip – the point of using the 96-06 household increases (not population) is that it is latest data we have re. county level household distribution. The report makes it clear that households have not grown by anywhere near this rate in the 06-09 period and so the model represents somewhat of a best case scenario (similarly a base vacancy rate of 6% is generous, as is an obsolescence rate of 6/1000 – the rates used by DEHLG). It will be interesting to recalibrate when Census 2011 data becomes available.

Readers might be interested to read what Colm McCarthy, then of DKM, wrote about our planning laws in October 2003:

“What Government can and ought to do is loosen the very restrictive zoning laws. It is a myth that development land prices are determined in a free market. The market is heavily regulated through the planning system, and a wholly artificial scarcity is created. In many US cities which are growing at Dublin-style rates, land prices (and hence new house prices) tend to be lower, because there is permissive zoning.
It is interesting to speculate on the shape our cities and towns would have taken, and on the housing market which would have emerged, if the 1963 Planning and Development Act had never been passed.
It is arguable that cities and towns would be more compact, that houses would be cheaper, that long-distance commuting would be far less prevalent, and that public transport would be more cost-effective.
The town planners would no doubt argue that the built environment would be uglier, and perhaps it would. But it is not tenable to maintain that Irish-style restrictive zoning is costless.”

@PLM
That is sobering. Has Colm McCarthy changed since 2003? Or were these views mostly reflective of DKM?

@ColmMcC
In case you look in – Dunnes are selling Gordon’s 70cl for 17 euro in response to Lidl’s 17 euro Bombay Sapphire… decisions, decisions…

@Rob,

Of course there is no criticism in using the most recent data over a decade and projecting with that. However the period you use is the one with what was probably the strongest population growth in the State’s history. I just make the point that it would have been helpful if you were to qualify your projections and say that if the most recent experience (2009) turns out to be representative then another (let’s call it the “worst” scenario) is that we have enough houses for the next 100 years and zoned land for 300 years (and that is the scale of the issue potentially).

I would have said that managing a future with a more or less static population against people’s desire for new construction and the overhang would present as great a planning challenge as one where you’re planning for strong 1996-2006 growth (understood slight difference between population and family formation, though feel it’s more or less academic).

Was this report written by Karl Marx?

I’ve always taken great cheer from the fact that old Karl was long dead, but it seems that his spirit lives on in Irish academia. This report is left-wing political propaganda, pure and simple, although no doubt the taxpayer is funding it.

The gist of the report is that key decisions on Ireland’s housing needs should no longer be made by those who actually work in the industry that builds the houses that satisfy those needs and who therefore know something about it (henceforth referred to as evil developers), but, instead, that those decisions should be made by a vast new model army of
bureaucrats, planners, economists, clones of Frank McDonald, jobsworths, pen-pushers, academics, bloggers and such like. The theory being that, whereas the evil developers miscalculated Ireland’s housing needs and built too many houses, the bureaucrats and planners and academics would
be able to calculate for each 5-year plan the exact number of houses required to meet the country’s housing needs. No they wouldn’t! What would happen, if control of housing was left to these people, is that very
quickly massive housing shortages would develop. There simply would not
be physically enough houses to house the growing population to modern standards of accomodation. If anyone thinks this is far-fetched, it is precisely what is allready occurring in the UK, where the regime in relation
to housing policy is allready quite similar to what the people behind this
report want to see in Ireland.

Let’s stand back for a moment and look at what the evil developers have
achieved in relation to meeting Ireland’d housing needs over the past few decades, and then compare that with the current situation in the UK. Let’s
take as our starting-point the 1971 census:

number of households in Ireland in 1971: 726,363

number of houses in Ireland in 1971: 705,180

number of housing units built pre-1914: 315,811 (44.8pc)

number of houses with no indoor toilet: 261,592 (37.1pc)

number of houses with no fixed bath/shower: 314,465 (44.6pc)

To repeat, these appalling figures are from 1971, not 1871.

The first thing to note is that in 1971 the number of households exceeded the number of houses by 21,183. That meant that 43,366 households (or 5.8pc) had to share a house with another household. By that, I don’t mean that they had separate flats in the same house. No such luck! I mean that they shared the same house, same bathroom, same kitchen, same everything. The second thing to note is the Dickensian nature of the housing stock. Not far short of half the houses were built pre-1914, had no indoor toilet and no fixed bath/shower.

So, that was 1971, but what happened after 1971?

What happened after 1971 was a population boom, such as no other European country has experieced in the past century. In 1971, there were just 726,363 households in Ireland. By 2010, there were 1,650,000 households in Ireland. Between 1971 and 2010 the number of households increased by +127.2pc. For those with poor eyesight, that’s not plus 27.2pc, but plus 127.2pc, well over doubling. No other country in Europe came remotely close to this rate of growth. In most European countries the number of households only increased by about 20pc between 1971 and 2010, less than one-sixth the rate of growth that occurred in Ireland.

So, in 1971, not only could about half the housing stock be accurately described as slum, but, although unknown at the time, the country was to experience an unprecedented population boom, resulting in the number of houesholds increasing by +127.2pc by 2010. I can just imagine if this site had been around in 1971 and a report had been published predicting that the number of households would increase by +127.2pc by 2010. Given the
existing Dickensian nature of the then housing stock, with 5.8pc of households having to share a house with another household, and with almost half the houses then available having been built pre-1914 and
lacking an indoor toilet and fixed bath/shower, the site would have been deluged with posts claiming that there there was no chance whatever of building enough houses to accomodate the growing population and that by 2010 overcrowding and slum conditions would be the norm. But, thanks to the evil developers, Ireland did build enough houses in that time, not only enough to accomodate the massive +127.2pc increase in the number of households, a growth rate no other European country came remotely close
to matching, but also enough to virtually eliminate the 1971-backlog of pre-1914 built houses, houses with no indoor toilets, and houses with no fixed bath/shower. In fact, Ireland built slightly more than enough to meet these objectives, resulting in the modest surplus of houses that is now the subject of so much discussion and criticism, and resulting in Ireland having by far the most modern housing-stock of any European country.

With the benefit of hindsight, we can quantify approximately how many new houses Ireland needed to be built between 1971 and 2010, and compare this with the number actually built.

number of households in Ireland in 1971: 726,363
number of households in Ireland in 2010: 1,650,000

1st estimate of number needed: 923,637

number of houses in 1971 shared by 2 households: 21,183

2nd estimate of number needed: 944,820

number of ‘slum’ houses in 1971: 300,000 approx

3rd estimate of number needed: 1,244,820

allowance for holiday houses: 80,000 approx

4th estimate of number needed: 1,324,820

So, to eliminate house-sharing by different households, to eradicate slum conditions, to accomodate the additional 923,637 households, and including a modest allowance for holiday homes, with the benefit of hindsight we can calculate that Ireland needed to build 1,324,820 new houses between 1971 and 2010 (to be precise, between 1971 Q2 and 2010 Q1), In fact, the actual number of new houses built by the evil developers in that time was 1,400,750. So, between 1971 Q2 and 2010 Q1, the evil developers built 5.7pc more new houses than Ireland needed to eliminate house-sharing, eradicate slum conditions, and accomodate an additional 923,637 households. That’s right, 5.7pc too many. So, let’s lynch them, let’s put Frank McDonald in charge of the planning police, let’s put Joan Burton in charge of population prediction, and let’s transfer control of the house building industry to the bureaucrats, planners, economists and academics, who’d have calculated the number of houses needed far more accurately. Except that they wouldn’t! They’d have massively underestimated the growth in population and massively underestimated the number of new houses Ireland needed to build, and instead of a
modest surplus of 80k to 100k houses, Ireland would have a massive housing shortage, just like the one now developing in the UK where the regime in relation to housing policy (planning, taxation, decision-making etc) is allready quite similar to what the people behind this report want to see in Ireland.

For example, from the following links:

A lack of new homes being built in Britain has left millions of people living in overcrowded conditions, The National Housing Federation has said.

http://www.londonwired.co.uk/news.php/17241-Housing-shortage-risks-overcrowding

The UK has long been plagued by a housing shortage but the situation is set to get far worse. The next couple of years will see an acute shortage of housing, particularily in the London area.

http://www.walletpop.co.uk/2010/06/04/shortage-of-family-homes-to-worsen/

Regarding the above quote from Colm McCarthy calling for looser planning regulations, people might be interested in this recent paper on the link between the US housing bubble and land-use regulations:

http://www.uofaweb.ualberta.ca/economics2/pdfs/WP2010-11-Huang.pdf

The abstract reads:

“In a sample covering more than 300 cities in the US between January 2000 and July 2009, we find that more restrictive residential land use regulations and geographic land constraints are linked to larger booms and busts in housing prices. The natural and man-made constraints also amplify price responses to an initial positive mortgage-credit supply shock, leading to greater price increases in the boom and subsequently bigger losses.”

@ James Conran, Brian Lucey,

On the contrary, as pointed out by Brian Lucey, the councils had an incentive to approve planning permissions due to revenues from the development levy.

Sincere apologises for Length: Be careful when you approach this guys. Be careful also in making direct comparisons between Europe and north America. For instance, allow me to use the example of European Energy Performance in Buildings Directive 2002, as an example to demonstrate. In north America, president Obama and the federal department of energy of the US take a very up front approach towards finance for retrofitting. In Europe we take a very indirect approach by comparison. In north America, the energy conservation policy is driven very much by payback analysis, break-even points and risk management of doing/not doing energy retrofits. In some cases, up to 30% of retrofitting costs are carried by the federal government. We saw for instance in the recent RTE Prime Time comment piece on dept. of sports, where many communities who could invest their own money received a disproportionate amount of grant money available. The RTE Prime Time episode featured examples such as Darndale soccer club which could not access funding for soccer balls and goalposts. Though some GAA clubs in county Kerry were able to access funding for club houses costing half a million euro. It is the same in north America – how much of DOE’s federal funding is ending up as solar panels on the roofs of priveleged home owners? Bearing in mind, that both utility companies in some states and federal DOE funding is received on projects. In Europe, in terms of energy retrofits we took a different approach. We created a system of asset ratings, Building Energy Ratings, which would indicate to potential renters or buyers that a property had high or low energy consumption. It was assumed that markets would incoporate this information, and potential customers (rent or sale) would factor this newly available information into their financial decision making. In turn, the impact of EPBD 2002 legislation would affect developers to approach their projects differently. It is important to understand, as pointed out by articles by Bill Nowlan and others, in Irish newspapers, the levies associated with planning permissions, were a form of land taxation. In other words, it was meant to operate like the EPBD 2002 legislation. The property developer as a customer would understand that levies would be attached to any planning permission s/he sought for the land they would purchase. In other words, the property developer was supposed to factor in that cost into the market price they were willing to pay for land. In other words, if the market value of land was ‘X’, and the planning levy was ‘Y’. Then the maximum amount a developer should be willing to pay for the land was ‘X minus Y’, in the simplest equation. It is the same when you or I go into an auctioneer and look at leaflets. We want to know the age of the dwelling, the location, the asking price and Building Energy Rating. We mark down in our minds, according to how we compute the said information. Planning levies were supposed to operate like that. But yes, lending institutions enabled borrowers to become over-leveraged. Yes, local government began to depend on property related taxation, as much as central government did. The plannign levy may have poured at least some cold water on the land market. But if the local government is free to re-zone more land via development plans, then of course, it can lead to a very vicious cycle. We needed to achieve a sustainable balance between land zoning and planning levies. We didn’t obviously. BOH.

@JTO

Why do you consider the slum households from 1971 (300,000 you say) would need to be substituted with new house completions?

Isn’t it more likely that folks would have added boilers/central heating/double glazing/extensions or septic tanks or connected to the mains (electricity/water/sewage) rather than knock their houses down and build new ones? Outside of *minor* regeneration in city areas I can’t think of any real demolition of houses from around the 1970 period.

So if you add that 300,000 back in, haven’t we have ended up with a mighty oversupply in relation to existing or short term need (I think NIRSA are saying there’s enough housing for years based on the 1996-2006 rate of household formation)? And some if not much of that huge oversupply is the wrong place.

NIRSA seem to have done a pretty good job of researching and highlighting those two characteristics particularly in relation to the post 2000 period.

@The Optimist.
The sad thing about your observation is that you are a socialist who thinks he is a capitalist.
Every complex organisation since the days of Babalyon has had a Bureaucracy – it is the nature of the beast.
In this strange world of total debt money you want to give total control of the executive functions of a state to the people who issue debt that also happen to be a very complex bureaucracy.
I accept in a world with at least some real money we could get a simpler understanding of the true cost of a enterprise and therefore have a simpler cheaper mechanism of control but I am afraid that is not the world we live in.
I would remind you that the only western country that managed to put up at least token resistance to the money powers were elements of the Paris executive who have a long experience of at least sharing power with these men and not surrendering it.
If you remember they fought the ECB for many years and partially succeeded in getting a large fiscal debt while us good boys in Ireland ran fiscal surpluses so that the banking fraternity could extract all of the surplus from the ECBs teachers pet.

@Gregory Connor
You want me to be polite while our society is crumbling around us – fair enough.
By the way in the interests of balance you may need to call attention to a previous thread where John suggested that I was a wacko environmentalist while not engaging with my argument.
In fact I am conservative to the core and believe that subservience to a banking oiligarghy is a wacko postion.
Vive de Gaulle.

NIRSA has been advising the Department of the Environment throughout the boom, yet they never bothered to sound alarm bells. A cynic might think that they were more interested in protecting their lucrative consultancy projects rather than to give independent advice. Now that the damage has been done and a Green minister is in place who might react somewhat differently to such advice compared to previous encumbants they come out with this assessment.

Can i just say that whatever JtO has been up to States-side over the past few months, its clear that everyone else should be doing it too, given the amount of energy and enthusiasm he has returned with! His flair and comfortableness with statistics is magnificent, and his analysis, while i know not all agree with, is much needed on these often downbeat pages.

@Eoin,

I would like to endorse your JtO encomium. I frequently imagine teeth being ground as his posts are read – mine included occasionally, but they exhibit a quintessentially Irish positive approach to life and what the fates may hurl at us. The late Nuala O’Faolain described it as “not so much a capaciousness of belief but rather an ability to suspend judgement endlessly, which is precious”.

We can all bewail the state of the economy and mutter about what should have been done and what should be done, but, even after the battering it has taken, the domestic economy today is very different to the economy of the mid to late ’80s and likely to be much more resilient. And I’ve being receiving some anecdotal evidence of a thriving grey and black economy – which might surface in the official statistics eventually.

Yes, the economic hardship is severe for many – but it too will pass, and yes, we could and should reform the system of democratic governance and the process of policy decision-making and have much greater transparency and accountability, but would such a transformed polity be really Ireland and Irish. What would we lose in the process? And would we miss it if it were gone?

Maybe the Tailor was right: Tóg bog é an saol; agus tógfaidh on saol bog duit.
.

@John the Optimist

Thanks once again for saying it as it is.

I was reading this Report and coming accross words like cronyism,neoliberalism etc and then I began to think is this 2010 or 1910 where we are in some Class war and were the authors going to introduce us to Bolsheviks. What went on in Ireland over the last 10 years was done in the open for all to see. Where were all of the “with hindsight experts ” and ” naysayers” during those 10 years. Just like everyone else in Ireland they were enjoying the party of high salaries, low taxes and ever increasing budgets for their pursuits.

Keep it up John you are a breath of fresh air here as Eoin says !!!!

@Scorpio and TBR

NIRSA is an academic research institute, not a consultancy. The vast majority of its funding is from research grants from funding agencies like the IRCHSS, HEA and the EU. It does not have lucrative consultancy contracts – they are mopped up by the commercial sector. It’s mandate is to provide critical social and geographical analysis of what is going on in Ireland. It has critiqued government policy all through the boom period in articles, books and reports, as well as working with and advising government depts, local authorities and state agencies to try and suggest changes to policy. The fact that its past output has not been picked up in the media, whereas the latest working paper has, does not mean it has suddenly changed its spots. It is extremely rare for academic geographers and sociologists to get a media voice in Ireland.

As for using words like neoliberalism and cronyism, economics and economic policy does not exist independently of politics and ideology – it is important to acknowledge that and analyse the entangling of the two.

This “Haunted Landscapes” paper is by far the best analysis so far and it is also the best critique of NAMA to-date!

@ John the Optimist

You make a very good point that the “evil” devolopers cannot win. When they cut output they are accused of driving up prices and when they increase output accused of driving down prices. The issue obviously is to have good information on population and any changes thereto whether caused by migration or economic factors and to build to meet the needs of the country. God save us from the bureaucrats/academics if they are given control of the system when you have people with political agendas running the system. We will be back to the planned slums like Ballymun again.

Jto says:

And, even more difficult though it is to believe now, back then, left-wing politicians and commentators like Vincent Browne and Fntan O’Toole were attacking the evil developers for not building enough houses and claiming that they were doing so to keep prices up. And then in the mid 2000s, the evil developers failed to predict the dramatic slowdown in population growth and built too many houses.

I will give readers a big hint. The same hint probably, as I have been dropping for over a year now at the Irish Economy blog site. Get your hands on a book about dynamic systems thinking, such as The Fifth Discipline, by Peter M. Senge. His chapter on the beer game would provide an excellent model with which to develop a theory on house supply and demand in Ireland. I don’t know exactly what the cross-section of the readership at the Irish Economy blog site is like. But I know that if no one here has read Peter M. Senge, then I can conclude we have not read sufficiently well enough about supply and demand, to see the full picture. JTO, is correct. We like to see the developers as the evil ones in Ireland. Not because the developers are evil. But as long as the developers are there, it removes the spotlight from Mr. and Mrs. Joe Soap in Ireland. And their contribution, which is necessary through property taxation, water charges, refuse disposal charges and so forth. In those kinds of taxation were properly organised, the payments would have been factored by first time buyers into their decision making process. In other words, we could not have found ourselves in a situation where nurses in Boston speculated on second homes back in Ireland. We could not have found ourselves in a situation where house prices spiralled. It was because the house prices spiralled, that we got over-production. The higher the price rose, the more over production we got. It had nothing whatsoever to do with developers deciding what inward or outward migration was going to do. It was simply to do with prices. The reason that market prices spiralled was because we had no effective way of taxing property. The only people it was politically correct to go after were the developers. They got a planning permission levy charge slapped onto them, which was supposed to cool them down a bit. But everyone else, simply kept partying like it was 1999. JTO has got a point. We need to stop beating up on ‘evil’ developers and get real about how we share our taxation burden, in a way that prevents future house price spirals and consequent over-production. I guarantee you, there are leagues of build-er(s) waiting right now, with spades and shovels ready to go, once prices begin to climb upwards again. With business plans ready to submit to the same lenders we are now bailing out. Tha is the saddest part. Check out Peter M. Senge’s writing though. Have a crack at that ‘beer game’ of his. It really would open one’s eyes. BOH.

The case that the planning system should be examined and reformed with the same seriousness that is being given to the banking crash, is very strong.

It was inevitable that in a small country with 88 planning authorities and a culture where conflict of interest is almost an alien concept, there would be serious consequences for the economy and much of the population, when there was a spike in demand for development land.

Development land is the main driving force of corruption across the globe and Ireland has been no exception.

In Ireland, the rezoning system has been used to create an artificial scarcity of land and during the boom site costs as a proportion of the cost of a house jumped and a small number became immensely wealthy from the system.

Restrictive planning is a big factor in house price inflation and in England, Tory controlled shires have traditionally restricted housebuilding to preserve the so-called green belt while in the cities, it has been in the interest of the Labour Party to keep populations hemmed in to preserve their core support base. In one year in recent times, there was no new house built in David Cameron’s constituency!

In Ireland, local government power had been transferred to county and city managers to reduce the opportunities for corruption but local councillors were left with the power to rezone agricultural land for development. It gave the often uneducated elected officials, a powerful means of raising funds, ostensibly for election campaigns.

RTÉ’s Prime Time programme in Nov 2007, disclosed statistics about the involvement of elected representatives in the land development and property business.

A total of 22% of councillors dealt in or developed land through their day jobs as estate agents, landowners and builders. In Mayo, that figure rose as high as 45%, in Offaly it was 44% and in eight other counties it was 33% or more.
Prime Time found that in Clare, declarations of interest showed that 97% of elected members had no beneficial interest even in their family home. In ten counties, two-thirds or more of the councillors had not declared an interest in the family home.

In Scandinavian countries, if a councillor intervened behind the scenes to influence a planning or rezoning decision it would be considered corruption – a criminal offence – but in Ireland, it’s the norm.

So in a country that is estimated to be 4% urbanised and despite the huge rise in new stock, Ireland has poor housing conditions compared with other countries with similar living standards, with floor areas per person of around a fifth less than the western European average, even though a large number of dwellings (45%) are detached houses.

The UK’s Policy Exchange think tank, argued during the boom that the Irish planning system creates too many ‘starter homes’, of often mediocre quality on monotonous estates, and allows insufficient quantities of larger, better quality properties. The lack of better properties has fuelled house price inflation, it argued, so that the high headline housebuilding figures gave a misleading picture of the true supply situation.

The quality of some apartments built in Dublin during the boom is a national disgrace; occupiers have not only to deal with negative equity but very limited storage space and poor soundproofing. In the Gas Works development in South Dublin, bicycles have to be stored on balconies. At least they don’t have to worry about storing coal in the bath — that’s if they have one!

Hugh Pavletich says:

It is very pleasing indeed to see the public conversation finally getting underway in exploring the real structural reasons why the housing bubbles got underway in Ireland.

It is extremely important to recognise that the housing bublles are not unique to Ireland – and that the Irish learn from other jurisdictions – and most importantly, the appropriate solutions to these problems.

What the planning system still is waiting for is its Black-Scholes model. How do you value a planning permission in itself, based on its maturity and its underlying connection to the physically constructed article. In Ireland, the planning permission term is standard for all kinds of construction, whether it be a new shopping centre, a domestic house, a dozen homes or a multi-storey office building. The rule related to ‘maturity’ states the construction shell must be completed to roof level by the time the five year expiry date comes. In other words, it puts pressure on the holder of the planning permission to organise construction within a set time period. But of course, it is far easier to organise the resources to finish standalone homes to roof level, in five years, than it is a larger and more complex project. In other words, what you witness in domestic homes, is a larger period in which to trade the said legal ‘option’. That is exactly what we witness in reality in Ireland. The overwhelming volume of planning applications are for low rise residential construction. The successful planning applications are traded extensively. Because if you wait four of the five years after receiving the permission to build, chances are, in a bubble market you will make significant profit on this option paper. As pressure on the market becomes more intense, builders will pay more for a certificate which gives them permission to build. This is one of the reasons why we have so many ghost estates in the upper Shannon region today. There was an intense amount of trading of those options, prior to the estate being built. The fact that so many were only half completed is very interesting too. Because the half completion of a ghost estate effectively locks in the permission, which otherwise would have expired after five years. It becomes an economic decision – is it cheaper to go back through the whole process of re-applying for permission – or is it cheaper to take a chance and half build the houses. In many cases remember, the party who executed construction purchased the option to construct, from a separate party who walked off the stage with their maximum profit after four of the five year term of the option. Bear in mind also, that four year mature planning permissions are actually more valueable to a build-er than are one year maturity planning permissions. Because the less mature planning permissions tend to have the latest building regulation standards attached to them – which means higher costs of construction. Also, the less mature planning permissions also had higher levy costs attached to them. So the party who lodges the planning application, tries to lock in as much savings as they can, at the lower levy rate and earlier building regulations – and can then extract more profit from the sale of the planning permission. Basically what we need in Ireland is different ‘maturity’ dates set in different areas and in different types of construction. This is why I referred to the Black-Scholes derivative trading valuation technique. BOH.

@Ronan L

Another thought that has been growing on me lately, particularly after reading the 2008 OECD review of the public service here, is that these issues are often only possible because each individual organisation in the public service doesn’t have to worry about where the money is coming from – “that Finance’s job”. Rezoning, planning permissions galore, none of these decisions had any direct consequences for the councils.

All public bodies and institutions function rely on a recurrent budget. It would be nice in the private sector too.

Planning has long been broken in Ireland. For a country with a very small population it beggars belief that the process has continually thrown up the same anomalies.

The current planning system almost completely overlooks aesthetics. It might be advantageous to have a laissez faire model (allowing more liberal zoning but with greater interest in design aesthetics and innovation) emphasizing architectural and build quality aspects than the current model. It couldn’t hurt to experiment for a set period of years and then assess the results.

Paul Quigley says:

In addition to the very much more complex gaming of permissions for housing developments, we had gaming of the credit system which supported it all. Misrepresentation of credit status at both lender and borrower end was actively fostered by ‘our’ banks.

Thanks for the Pierre Bourdieu reference. Thanks also for the Karl Polanyi reference. You have offered that reference to me before, and thanks for the reminder to follow up on it. Lets look at how the lenders fit into the beer game, from a system dynamics point of view. Normal market operation would indicate, where asset is high, a shortage may exist. The unusual thing about the Irish property market, was the more supply that came on the market, the higher the price seemed to go. Of course, we know over the course of the building boom, our lenders were lending at higher and higher loan-to-value ratios. In doing so, they were supporting a market which sent every increasingly inaccurate signals to suppliers in that market. Producers most usually do their business plans based on price trends, and the trends that producers saw, were all positive for them. Of course, the producers were banking with the same institutions as the consumers. That is one dis-functionality that existed in the Irish market. The other, was the introduction of planning levy charges to support fiscal situation for local authorities. If you look at it in terms of Senge’s beer game, and bear in mind the fancy new headquarter buildings that all local authorities procured for themselves during the Celtic Tiger – what you see is the beer factory was really building that new production line I talked about. The new local authority headquarters was staffed with professional planning departments, who would keep the wholesale warehouses supplied with adquate acreage of re-zoned lands. The wholesale warehouses, as I said would hold onto their stocks and release it to the builder, at an optimum maturity of four years. Giving the builder, who like the corner liquor store, a year to get the construction half built up to roof level, and thereby lock in the planning permission to the site. Even though the teenagers ended up with more expensive beer than they would have liked. The reason that we have the National Asset Management Agency, is to relief the corner liquor store. The wholesale warehouses, largely got out in time. The beer factory facility, the local authority, has ended up with a production line which is useless. All of their re-zoned land, which has to be de-zoned. That is, the production line will need to be dis-mantled at additional costs to taxpayers. Also, I noticed Dublin City Council introduced standards for larger apartments in 2006. Right at the very height of the boom, just prior to demand dropping off a cliff. If you look at it like Peter M. Senge’s beer game model, the request had passed all the ways back up to the beer factory. A new production line was created, to supply a bigger bottle, just when the party was over! Of course, most warehouses knew the bigger bottle was on its way. Therefore it forced the warehouses to push as much of its stock through the corner stores as it could, before its price was de-valued. Byt its actions the beer factory had encouraged the oversupply of 2006/07 even more. BOH.

@ De Roiste

The piecemeal system of rezoning coupled with hoarding in a rising market, had a major impact on prices.

In May 2004, Mary Harney said in an address to her party members at the launch of the Progressive Democrats’ Local Elections’ Manifesto: ‘“In this manifesto, we are… committed to ending private windfall profits arising from re-zoning decisions.” In an ad-lib, she had the gall to warn that she might have the Competition Authority investigate hoarders of development land.

The same politician had binned several Competition Authority reports.

Absolutely nothing was done to change the corrupt land rezoning system and today, a public tribunal inquiring into planning corruption, remains in office since 1997 and ZERO has been done to change Ireland’s crack cocaine.

In April 2004, the All-Party Committee on the Constitution unanimously concluded that constitutional change was not necessary before the introduction of legislation allowing for the compulsory purchase of land required for development by local authorities, at existing use values plus 25%.

Harney’s colleague Tom Parlon, the former farmers’ leader, who in 2001 forced the Government to agree terms that made land account for 23% of the national roadbuilding budget — double the average in the EU – – had said in 2003 that any change in the existing bonanza system for farmers’ would be “an approach..gift-wrapped in an ideology somewhere left of Stalin, which has no place in a modern dynamic open economy like Ireland.

Any measure giving the State the power to control the value of private assets would have major negative ramifications for thousands of property owners and would be a jump back to the dark days of the 19th century.

A Shakespeare aptly wrote: “The devil can cite Scripture for his purpose.”

Economist Jerome Casey, the editor of the Building Industry Bulletin in a report in 2003, said that site costs account for 42.5% of a house nationwide. Casey said that ‘typically in the mid 1990s, Durkan Brothers sold apartments off O’Connell Street for £35,000 to £40,000 (€44,440 to €50,790) for which the site cost was £5,000. Currently, both the Irish Council for Social Housing and private house builders are reporting city house site costs at up to 50% of the house price. Outside the cities, site costs can represent up to 40% of the house price. For the country as a whole, site costs may now constitute 42.5% of the house price, an increase of almost 30 percentage points on the pre-boom position.” In Dublin that increases to 50%. Overall the Irish figures were grossly out of line with the rest of the developed world.

In his report Casey said the major issue was that just 25 individuals or companies controlled more than half of the housing development land in the Fingal area. That includes Balbriggan, Lusk, Donabate and other well- known areas targeted for development on Dublin’s expanding north side.

@De Roiste and others

It is worthwhile to state again that Irish development planning-zoning corruption and mismanagement only partly explains the recent property boom-bust cycle in Ireland. At least equally as important, probably more important, was the enormous credit inflow into Ireland and the related bank industry regulation and risk control mismanagement. The NIRSA report focusses on the planning-zoning side but, as the authors state, this is not the whole story. Sorry to repeat myself (and others) on this.

Reforming planning-zoning is extremely important but it should not be treated as the only cause of the recent boom-bust cycle. The macro credit side is critically important in understanding that cycle.

Michael Hennigan says:

I’m sure the rest of the contributors understand the impact of the international credit boom and in Ireland the direct link between the property bubble and the banking crash.

I agree, and I am sure most of the inhabitants of the island of Ireland, at this stage, have a good overall picture of the planning problems, the banking problems and the fiscal deficit problems. However, what many people do not realise, in relation to supply chains of any kind, is how messed up they can become, without anyone on purpose attempting to ‘game the system’. This has been proven time after time, in controlled conditions, using participant who are economics students and so on, and understand how the game works. I was led into this area of study at first, because authors such as Peter M. Senge have written texts on the new green-er economy. It appears as though, a lot of unnecessary embodied energy and Co2 emissions can be eliminated through better understanding of how supply chains work, and their associated problems. Think of all the ghost estates featured in the NIRSA reports. All of the energy it required to build ghost estates in the beginning, all of the energy it will require to devise a plan, and the energy it will consume to demolish many of them again. In a world of decreasing energy resources, it seems a bit strange to be doing that. So there is an environmental responsibility upon all of us, to study this supply chain issue and ask the question, how is our world going to cope, if we continue to operate as usual? BOH.

@ Scorpio,

I didn’t mean the number of references attributed to NIRSA. I meant the number of references at the end of the Haunted Landscape document which aren’t attributed to the NIRSA. Rob and his colleagues, had to look at research from a multitude of different sources and compile it together into a meaningful NIRSA document.

That to me was impressive – because the NIRSA have taken on board so many diverse references in their study. From private sector, public sector and at many different levels within both. I can understand how that was difficult to do. The intention of the authors, in gathering such a diverse range of references, I submit, was to demonstrate that planning policy can exist in such a complex matrix of different influences. I think the Haunted Landscape document is one of the few, which seriously tries to tackle that issue of the diversity of influences. BOH.

Scorpio says:

There was also a lot of ongoing debate about the planning system and issues such as urban sprawl, long distance commuting [-break-] Indeed the Planning and Development Act 2000 does not get a mention.

I agree. I suppose, what is required from someone with the time and resources is a further document, which refers to the Haunted Landscape document, but can rectify the problem of omission of the references you rightly pointed to. On John McHale’s thread on the NDP, I referred to an article by Locan Sirr and Conor Skehan in the Irish Times newspaper. I attended a few of seminar events, on the subject of ‘tall buildings’, where Dublin city council planner was present, and Conor Skehan with some others were throwing around ideas. It wasn’t so much the discussion of ‘tall buildings’, but the question: What is a sustainable density of development? Which proved very interesting. The conclusion many came to, was that huge building heights with many floors were not necessary at all for quite high densities to be achieved. Not long after those seminars, I happened to be standing on the roof of a shopping centre in Newbridge town in county Kildare. I looked out over the trees and rooftops which surrounded the town and it struck me, how low the density was in the town. I wondered if high densities may be possible in the future. There is also the question of course, about densification of suburban areas in the large cities. Obviously, there are many economies to be gained in that way. But as many of the bust building contractors on Pat Kenny’s RTE TV show, The Frontline, were eager to point out – the Irish planners persauded them to build many housing units in large midland towns. But the problem is, the planners also allowed many once-off housing units in the hinterland. With the result that developments at edges of the large towns found little or no demand, and we ended up with un-sold residential units. There are an incredible amount of facets to the discussion, and I could type on for at least another few thousand words. But it is worth bearing in mind, it wasn’t Irish tenants or occupiers which made high density residential work in Dublin. But the influx of people from other countries, where they were used to higher densities. We can argue at length about the low quality of high density residential development in Dublin city. In the past, my former boss Mr. Carroll asserted he was building units that low paid public servants could afford. That was in the early 1990s, and that was the case he argued. But it could also be argued, that in the 2000s, the low paid public servants moved out, and rented the same units to the influx of urban migrants from abroad. Many of whom had been used to higher standards of residential development at home. That is where some of Michael Hennigan’s points above are well made I believe. I visited one of Mick Wallace’s most recent developments a couple of weeks ago, and I was impressed as usual. Though Mr. Wallace has only developed a couple of sites, I believe what he was doing, was appropriate and sustainable for Dublin city. Thumbs up. We did begin to learn towards the end of the bubble. The trouble is, by then a whole plethora of the financiers had gone bust. With the consequence, that our talent pool of designers and professionals has been disbanded and made redundant. BOH.

@ BO’H The rules for extending the life of a planning permission have been relaxed under the Planning and Development (Amend) Act, 2010. A permission can be extended, without any works having been carried out, if there are commercial, technical or economic reasons for not having implemented the permission within five years.

@ gadge,

There is something else, for you to consider – and ather than burden this thread with another long block of text – I decided to carry forth my explanation in an investigative blog entry linked below. Enjoy. BOH.

http://designcomment.blogspot.com/2010/08/beer-game.html

jocelyn braddell says:

This Act has surely been pushed through so that NAMA can hang on to its property portfolio for as long as it likes.

I have realised in thinking about it, there are two edges to the sword. On the one hand, if planning permission periods are extended beyond five years, it encourages people to hoard land with planning permission attached, and use that as collateral against which to support loans. On the other hand, if you understand Ms. Harney’s comment in 2004 referred on in Michael Hennigan’s post above – the hoarding of development land, was part of the inflation spiral that occured in Irish property. So it is quite complex. Given that NAMA is the only game in town nowadays, the hoarding of development land doesn’t seem to be a problem for anyone. At least, not in the way it created such political fears in Ms. Harney in 2004. The attitude nowadays seems to be, go ahead NAMA and hoard as much as you want to. As long it keeps land values from falling further down the cliff face. A planning inquiry should really investigate what position many of the borrowers were in prior to the act of half building a ghost estate in county Leitrim. To understand, to what extent the same builders understood there was no market for the same houses. But they were merely trying to prevent their LTV’s becoming un-manageable. To what extent can we ascertain, that lending institutions demanded of the same builders that they half build ghost estates, in an attempt to preserve some of the value of their assets. By the end of the Celtic Tiger, that many of the loan portfolios would have to undergo stress testing. And land where the planning permission had expired, might be re-valued to agricultural values. There is a very interesting movie from 1984, I recorded yesterday evening and am looking forward to watching called Country. It starred Jessica Lange and Sam Shepard as Jewell and Gil Ivy, who worked a small family farm. They were offered loans of $100k in 1980, based on a net worth of $450k. Out of which they made a living of $9k per annum. But when the land values fell, the grain cooperative fore-closed on many of the same families. I am sure the movie will share a lot of parallels with the ghost estate saga. BOH.