A collection of researchers at the National Institute of Regional and Spatial Analysis (NIRSA), R. Kitchen, J. Gleeson, K. Keaveney, and C. O’ Callaghan, have written a powerful new report on Irish property market policy and land development planning policy, critically examining both policy errors during the 1993-2007 period, during the post-crash period post 2007 (including a critique of NAMA) and making suggestions for the future. The link is here.
The report has a modern geographers’ perspective and is strongest when discussing zoning policy, development policy, and property-related tax policies, but there is still plenty of things for mainstream economics comments/discussion in the report.
The report makes clear to what a large extent post-1993 property-related government policy, right up until today, is driven by the interests of the property development industry. Coincidentally (or not) this industry is one of the biggest funders of the dominant party in government during this long period.
I am not sure if I am the correct person to paste up this link, but perhaps others can provide useful comments and replies to comments. (I do not claim to be a property researcher but to the extent that property is a risky portfolio asset it touches a little bit on my own research area.)
71 replies on “NIRSA Report on Irish Property Market Planning”
The report is to be discussed on Prime Time this evening from 9.30pm.
One thing it does is provide county level estimates of years overhang of fully completed vacant properties. I think when put into map form, as I’ve done here – http://manyeyes.alphaworks.ibm.com/manyeyes/visualizations/years-oversupply-of-property-by-co – it’s quite striking. The north-west quarter of the Republic, especially the Upper Shannon Rural Renewal Area – has been easily worst hit.
The chain of reasoning is also important. Why were county councils building so much? Because the Government policy was we need more houses. Why did we need more houses? Because house prices were going up? Why were house prices going up? Because mortgage lending criteria were being changed and people could borrow 100%, and vastly greater multiples of none-too-certain income.
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?
“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.
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.
Delegation of appropriate levels of financial responsibility, both revenues and expenditures, to local government might have staved off some of the excesses. But then again, for that to work, not only would you need a sea-change in how national and local government works, you’d need property taxes and Ireland doesn’t do property taxes!
“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.
At what point are academics including those at NIRSA going to catch up with what is happening to population in the State. The latest Eurostat estimate for FY2009 was an increase of 6,000 people in the State(link to report at bottom) – that’s the smallest increase since 1991. I know the recent ESRI scenarios are projections and not predictions but they imply continuing high levels of emigration.
And yet NIRSA’s report is yet again projecting demand for housing based on the assumption that “households grow at 96-06 rate” (page 24 for example).
When is someone going to authoritatively say that for the next few years our population may not grow because of emigration and that a significant proportion of the 1994 – 2008 net inward migration of 450k may reverse which may offset the net natural growth of c50,000 per year? No-one knows what will happen to population but why is no-one at least considering our population may stagnate?
Everything from Regional Planning Guidelines to projecting housing demand to the LEV on NAMA assets is predicated on having lots more people in the State. And it may not happen.
Those of us that, even belatedly, done so get the lash of jto!
Ronan L says:
Have you read anything about the post war period in the United Kingdom, when they like many countries in Europe at that time faced huge problems with housing shortages. That was the period in Europe where a lot of things happened simultaneously. We had the advent of the cold war, and the technological race between east and west. We had what author John Lanchester (Whoops! Why everyone owes everyone and no one can pay), describes as the beauty contest between socialism and capitalism in European countries. We had the expansion of new systems of money and wealth. In the eastern block, all citizens became entitled to a home from the state. Countries like France and the UK became largely urban societies after WWII. But in the United Kingdom they attempted time, after time, after time to introduce land taxation and involve the local authorities in the same. Time after time, since the 1940s, attempts were met with failure. In many instances, where the local authorities were granted powers of compulsory purchase and so on, they were reluctant to use those legal rights. What it boiled down to was the fact the local authorities in the UK were tasked with enormous responsibilities, and they simple did not have the resources, or skills to fully implement the grand post-war scheme. The grand scheme in the UK under several labour governments, would require local authorities to intervene directly in the land and development markets. Time after time, the local authorities in the UK chickened out, and allowed the market to do it’s own thing, for better or for worse. But what we do know, is that post-war Britain and other European countries faced enormous challenges and embarked on major infrastructural and housing programs. We never had that in Ireland to the same extent. To a large degree, the process of urbanisation of Ireland was never taken seriously. Unfortunately though, we were given no choice but to confront the issue finally in the late 1990s and early 2000s. But I would honestly say, that without the same bubble period in the Irish economy, the Irish themselves (local authorities included), would quite happily ignore the thorny issue of Ireland’s increasingly urban-ised society. I would argue, that more than anything else, the national spatial strategy of the boom era, with road networks criss-crossing everywhere – and where every cross roads with a parish pump competed to become a hub, or a gateway, or a centre for excellence – it all amounts to a failure on Ireland’s part to confront the reality of 21st century diverse, multi-cultural, dynamic, urban society. An entire new textbook is required for all Oireachtas members to refer to and reflect on. This publication from NUIM today goes some distance towards that end. BOH.
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.
No problem with optomists (JTO or others) predicting population growth over the next decade and who knows – they might be right. Maybe there’ll be a stronger recovery in our economy, maybe competing countries don’t perform so well and their folk decide to come over here.
On the other hand, maybe our recovery isn’t so strong and the burden of bailing out the banks makes this a pretty ugly place for people to live compared to our competitors and folk vote with their feet and relocate to foreign parts. Who knows?
But shouldn’t those people whose job it is to project services, infrastruture, housing demand at least *consider* negative or static population for a time to come? Because based on the 12 month period ending Dec 2009, Eurostat effectively say our population was static (plus 6,000 growth is tiny).
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.
If we are good little boys and privatise our remaining state utilities we may be rewarded with a little extra money in our money supply which will over the course of time affect population movements.
I suggest that if we put up any resistance then they will try to crush us.
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.”
“Instead, permissions and zoning have been facilitated by the abandonment
of basic planning principles by elected representatives on the local and national stage and driven by the demands of local people, developers and speculators”
The various rural development tax schemes were played well by local schemers e.g. who’d sell properties years before they were supposed to, or get tax relief for properties they weren’t living in as their primary residence even when they claimed they were.
I got an anonymous phone call from a planner in the run-up to the 2004 elections, about last-minute government ploys to retain the rural tax incentives instead of letting them expire. I think they hoped I could pass it on to national journalists. There was nothing that could be done with an anonymous tip, and in 2004 there was not the general concern about the potential downside to extending these schemes.
County councils would overrule planners’ often wiser recommendations.
In personal experience, one county manager was talked about “off the record” by their planning staff as being so pro-development they’d put pressure on staff to ok anything that might bring development to their area–the clear implication being this was regardless of the project’s suitability.
At least one county council held their council meetings dealing with the county development plan *in secret*. (I know this because I was kicked out of one such meeting, on the grounds that all the previous county development plan-related council meetings had been held in secret, so that final one was immediately also instantly declared to be non-public once they saw a member of the public interesting in attendance.)
At local election time–speaking from personal experience–voters want to know “what can you do for us”–pull strings, do favours–for them, their family or their friends. IOW corruption is fine and to be encouraged if it is corruption on behalf of a specific voter. Whoever is willing to do them the most favours is most likely to win. It has nothing to do with what is in the best interest of the public at large, or exercising good judgment.
So people vote in corrupt local politicians.
These politicians in turn form the pool from which most national-level politicians are chosen.
And we wonder why we have problems with planning and corruption.
There are no checks and balances. There is no accountability. Everyone was doing it so no one can be held responsible, it would seem. Until there is transparency, oversight, enforcement, and accountability with real consequences we haven’t got a hope of changing things.
Do the politicians (of all parties) who got where they are within this corrupt system really plan to create substantive change?
I doubt it.
It would be great to be proven wrong. Much will depend on the re-engagement by the general public in getting involved and speaking up.
That is sobering. Has Colm McCarthy changed since 2003? Or were these views mostly reflective of DKM?
I agree. It is not to say that this *will* happen, but at the moment it is a possible scenario that should be considered as a downside risk. What we are seeing now is the opposite to the pessimism about population growth in the 1990s (leading to vast undercapacity). Following a recent trend and extrapolating it is a tried and tested method. Unfortunately, it is pants. Blue skies from the current position is surely a better one?
One thing you might like to consider in your portfolio risk analysis is what role a blue-chip anchor tenant has on local spatial strategy. Consider, for example, the decentralisation program. It baked in increases in the prices of office and residential prices in areas where offices were due to be moved to. The local movers and shakers looked at the numbers to be moved, bought the land, got it rezoned and started building. The local newspapers were full of stories of revitalisation based on projected effects. All the upside was recognised at once, with none of the downside considered – what if people don’t move; what if whole offices don’t move.
You might say the same thing about commercial and retail space. “Google are going to expand”, “Chinese shipbuilders are coming to Athlone”, “the IDA are building a factory for so-and-so”, “a knowledge campus for Limerick will create 5,000 jobs”. Government pronouncements of support for at least some of these ideas, or rather government ministers in whose back yard they will be built, lends more credence to fanciful ideas even as it fails to fully support those that might happen. The result is again a skewing of the perception of risk. The risk is never that the government will not support new jobs, the risk is that they will not materialise and not only will the lands that have been speculatively bought in anticipation of a windfall be worthless, but the monies advanced to the ‘developers’ who are driving the project and awntrupinnering for Ireland will be flushed away on images of success.
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…
Report on page 10:
That paragraph should give us a big hint. We talk about the prices of homes increasing. But that is not increasing at all. It would seem fairly logical to contend in economic or valuation terms, a new house is worth a good deal more than an older one. Usually, if you buy a second hand home, you factor in, in your brain – well, I may have to do a certain amount of maintenance on this property – and perhaps even replace or upgrade components or systems. What the above paragraph demonstrates, is that second hand homes on average did better than new homes in average prices. This points to the insignificance of the value of construction elements in valuation of property. Obviously, much of the older building stock was sited on older plots in more central parts of towns and cities. In other words, it really is the land part of the equation, which is the driver in Ireland. I will bet you, if you could drill further down into the analysis, there will always be a D4 or a D6, where the that swath of land captured most of the wealth contained in land. It reminds me of something Mike Davis once wrote about cities in the old colonies in Africa. In order to distinguish between upper and lower classes, the thin strips of land where the wealthy lived were provided with basic utilities and services. The other parts of the urban land were left un-serviced, in order to distinguish between the classes. So looking at things in a macro-scale, in terms of infrastructure such as broadband and electricity, Mike Davis’s observation can give us a clue as to how to add real value to land on the island. BOH.
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).
Lets not forget social infrastructure also – as it adds considerable value to land. Elizabeth Warren, the Harvard Law professor involved in TARP, once said of the American middle class – People buy schools. She was referring to the fact that home prices were higher in the areas, where the schools deemed to be most desireable were (for ‘launching’ your children into the middle class). But Ms. Warren also contended, it is costing parents a much larger, and larger portion of the middle class income to launch their kids into the same social bracket, as they enjoyed themselves. Income is tied up in mortgage repayments on homes convenient to the best schools. I don’t know if the studies by the ERSI have looked at this. BOH.
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.
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.
@ Ronan L,
“…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.”
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.
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:
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.”
I think this very interesting report would have been more interesting if it had examined critically its assertion that: “In a housing boom planning should act as a counter-balance to the pressures of development in order to maintain a stable housing market and try to prevent boom and bust cycles.”
Do other countries consciously use their planning systems for this purpose?
Was a coherent case made during the housing boom years that the planning system should seek to prevent boom-bust cycles, as opposed to constraining development for other reasons?
Given that migration frequently causes Irish demographic projections to be wrong by a large margin, and that planning policy inevitably has other competing objectives, is planning policy fit-for-purpose as a means of preventing boom-bust cycles in Ireland?
What costs are associated with preventing boom-bust cycles? How much boom and bust are we prepared to tolerate to limit these costs?
What other policy levers are available to constrain housing booms? How big a role should planning policy play in the optimum strategy for constraining housing booms? If other policy levers are functioning correctly, does it have a role?
In general, what sort of boom-bust cycles in housing concern us most – boom-busts in prices or in new construction? Presumably less construction would have meant a bigger housing price boom in the years up to 2006/7.
@ James Conran, Brian Lucey,
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.
Minor Addition: The point about planning levies, is the same point with regard to stamp duty. If central government had lifted stamp duty in 2006, would the prices have simply gone higher again, once that restriction was lifted from the market? On the other hand, the longer the central government relied on transactional property taxes, the more precariously and un-sustainable its fiscal position became. BOH.
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.
Where are you getting the estimates from?
In particular, this bit…
“2nd estimate of number needed: 944,820
number of ’slum’ houses in 1971: 300,000 approx
3rd estimate of number needed: 1,244,820”
Would it not be the case that the 300,000 is included of the existing housing stock? So adding them to the total needed is double counting – maybe I’m missing something.
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.
@ Keith Cuneen and others
Since I am nominally the “editor” of this strand (I control the delete button if anyone uses bad language etc) please note it is John the Optimist, or JtO, not The Optimist. I am an optimist too, and there are some others as well.
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.
“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. ”
What is the significance of 1971? Why not 1921 or even 2001.
How many surplus homes have developers built since 2001.
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.
It is ironic that deputy Ciaran Cuffe’s offical title on the RTE Prime Time panel discussion last evening was ‘minister of state for planning’. There were requests throughout the building boom for just such a ministry to be created, and it never was. Although, a ministry for planning seems to be equally as important, now that the boom is over and we are left with the after effects. Not so long ago, the same episode of RTE Prime Time or the Frontline, would have featured a minister for ‘Housing’. Or some similar member of cabinet, who was gradually trying to read themselves into their brief.
I guess this points us back in the direction of listed political elections. Or the use of powers by the Taoiseach’s office, to appoint expertise to the Seanad upper house of the Oireachtas. From there, move them into a cabinet position. But too late now I guess. BOH.
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.
Another point worth bearing in mind, if you read my long-ish post above addressed to James Conran and Brian Lucey – is whatever department of government was responsible for the introduction of new planning legislation, enabling local authorities to gain revenues through planning permission levies – the department of government introducing the said levies, should have understood the sticky interlocking relationship of levies, with development plans and re-zoning powers granted to local governments. In other words, the introduction of planning levies was a measure designed to cool off the land price bubble. But in practice, if the planning levy measure was combined with a re-zoning bonanza, and a tsnunami of lending from [ un-regulated ] private financial institutions, a very dangerous condition was created. Load on top of that, the de-centralisation plans and the national spatial strategy’s demands on an over-heated construction industry. It really makes one wonder. The department of the environment to my knowledge is tasked with oversight of the local governments, and with planning laws. It is easy to point fingers at local authorities, but it didn’t happen in a vacuum. It would be interesting today to call former environment ministers Dick Roche, etc, to account fully for their policy approach. This is the point at which my territory stops, and that of renowned professional journalists (with investigative time and resources), such as Frank McDonald should begin. BOH.
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.
The grand plan is to sustain a artificially strong currency for a little while or possibly some years yet.
This will keep the older domestic ruling middle class in check as they have skin in the game with regard to their deposits.
Therefore they will accept austerity to protect the currency and will also sell off the remaining state utilities at the very bottom.
Then when the time is right the ECB will inflate the currency possibly against gold and they will sell this as the most resonsible option given the mistakes of the past.
With no wealth left amongest the middleclass they will have complete control over all they survey as the new working class formely middleclass will no longer be unemployed and will not have the time to educate themselves regarding the strange customs of their overlords.
Just remember for anybody willing to suck off the teat of this monstrosity – these people cannot create wealth they can only extract it and therefore they will come for you eventually as they need to sustain their lifestyle at all costs.
Have a nice life lads – it may be best that it is a short one as the horrors coming down the tracks will make the weakest of men wish for freedom.
@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 !!!!
What we see in Ireland is a classic example of where the sub-goals become the goals. The goal is to provide a livelihood for communities to grow around. The sub-goal being, they need shelter over their heads. I don’t think the issue is, where are the people of Ireland going to get houses from, but where are they going to get jobs. Perhaps the Fianna Fail parlimentary party has been successful at adverting the problem that JTO has described above so well. But what the Fianna Fail parlimentary party has failed to do, for all of its political dominance in my life time, is to provide solutions for people who are installed in their fine new home, and need to pay their mortgages. The story appeared in the media this week about Arnotts shop in Dublin being taken over by Anglo Irish bank. We should remind ourselves that during the latest building boom, the second phase of the Celtic Tiger, that most retail businesses got more credit to buy property, than they did to invest in their retail business. That was the same right across the board, for a whole range of struggling small and medium entreprises. The advice from lending institutions was, don’t bother with that business plan you have. We will lend you money to buy a field instead and all your problems will be taken care of. Above I wrote, But in practice, if the planning levy measure was combined with a re-zoning bonanza, and a tsnunami of lending from [ un-regulated ] private financial institutions, a very dangerous condition was created. Bear in mind, in most small towns in Ireland, the local authority executive, the borrower and the lender are well known to one another. Even in the not-so-small towns such as Limerick city, the same normally applies. Sometimes to make it even more local, a local estate agent is a local authority member. Bob Shiller, a renowned economist in his Yale open university lecture series, explains how bank managers are supposed to get to know the local movers and shakers in an unofficial capacity. Most usually, on the golf course. According to Shiller, bank managers are able to act as match-makers between available financial resources, and other parties who possess good ideas or business plans. In Ireland, if one were to look at it through Shiller’s concept, central government policy reinforced and supported a certain class of business person at local level, (who was involved in sale of lands). I have no doubt, a bank manager should perform a social service at a local level in every community. But central government in Ireland, made the guy who owned the field, look like the guy who had a plan. The guy who owns the field, is still the guy with a plan, backed by a full blown asset management agency, set up for their benefit. As for the bank manager, s/he still has not acquired the skills required to diagnose a good business plan (property un-related) when they see it, and have the confidence to back it financially. I am sure they still can tolerate one another on a four-ball. But that is only anecdotal. BOH.
@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.
Very well said. One has only to examine the list of references at the end of your Haunted Landscape paper to realise the amount of work and research that went into the paper. It is trully impressive, the breath of viewpoints and data sources, you have managed to compile together. The height of congratulations on achieving that. I know it is a major challenge to take on board so many different sources of opinion and condense it all, into a neat, read-able document. The Haunted Landscape is a document, that anyone from anywhere else in the world could pick up and read. In order to gain a deep understanding of the Celtic Tiger economy and its consequences. I am positive that many researchers abroad will be greatful for the work your team has carried out. I do hope to return to your document again in future years, when the memory of current events has receeded into the background of my own memory. As I am sure, many other visitors to the Irish Economy blog will do. I don’t know, if there is anything more to add. BOH.
This “Haunted Landscapes” paper is by far the best analysis so far and it is also the best critique of NAMA to-date!
In the Irish Times yesterday, someone from NIRSA, in a lengthy article wrote: “Supply and demand will need to be harmonised.”
In conjunction with reading the full report, I take that to mean that NIRSA are saying that from now on we need far greater involvement by planners, academics and bureaucrats to predict future population growth and future demand for housing and limit house building accordingly, because the evil developers have miscalculated and built too many houses in recent years. If that is not what it means, then the rest of this post is probably a waste of time reading.
This is the nub of the matter. Maybe the evil developers did indeed build too many houses in the mid 2000s. They built too few in the mid 1990s. I merely ask what makes people think that planners, academics and bureaucrats could predict these things better than the evil developers?
We’d all like to be able to predict the future. I would. I’d love to be able to predict migration flows in Ireland over the next decade. I’d even settle for being able to predict the result of Tyrone v Dublin and Down v Kerry this afternoon, as I’d then be a lot less tense than I am now. But, I can’t. I’m afraid that the future is inherently unpredictable, and we have to live with that.
Population growth, and therefore demand for new housing is more dfficult to predict in Ireland than in any other country. This is for a variety of reasons. First, the birth rate and the excess of births over deaths is far higher in Ireland. In most European countries, the number of births and the number of deaths are about the same. In Ireland, the number of births is 3 times the number of deaths. Second, Ireland has a large populaton of its own nationals living abroad AND a large population of foreign nationals living in Ireland. I don’t think any other European country has both those. As most people who have emigrated aspire to return permanently to their homeland at some stage in their life, although only a minority manage to, that makes migration flows almost impossible to predict in Ireland. And, over the years, they have fluctuated violently and unpredictably, far more than in any other European country.
There is no doubt that the evil developers have twice in the past few decades miscalculated future population growth and miscalculated future housing demand. In the early 90s, they failed to predict the imminent population boom and ran new house bulding down to too low a level. The result was a shortage of houses in the late 90s, when the population rocketed. Difficult though it is to believe now, if you read ESRI and other reports on housing published in the late 90s, they are all about how Ireland was building too few houses for its soaring population, and how that was contributing to soaring prices. 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.
But, while acknowleding the failure of the evil developers to match supply and demand exactly, in the way that NIRSA would like, what makes them think that they (NIRSA), or increased control of new house building policy decisions by various planners, academics and bureaucrats, could do better? The record is not encouraging. I’d merely give these as small examples, the tip of the iceberg:
(a) in 1990, DKM Consultants (Davy, Kelleher McCarthy) published a report predicting that the population would fall to 3.3 million by 2010. Its actually 4.5 million almost.
(b) In December 2008, ESRI predicted that NET emigration would amount to 50k in the year to April 2009. It turned out to be 7.8k. So, their forecast was massively out, even though the year in question was two-thirds over when they made the forecast.
(c) In August 2009, Joan Burton forecast that the population would fall by 500k in 2010. It now looks as though the population will be about flat in 2010, with currently equal possibilities of there being a small increase or a small decrease.
So, why would anyone imagine that these people could predict future population growth and future housing demand any better than the evil developers? In my opinion, for what its worth, while the evil developers can be legitimately criticised for producing a housing surplus, if the planners, academics and bureaucrats had been in charge in the past few decades, they’d have failed to predict the population boom and Ireland would have ended up with a massive housing shortage which, whatever about the financially ramifications, would from a social point of view have been far worse.
Rather than giving unfettered control of new house building policy to an army of planners, academics and bureaucrats, who I venture to suggest would have a distinct left-wing bias and would be more interested in seeing that the construction industry makes no profit than in seeing the people housed properly, I’d suggest the following:
(a) Accept that it is virtually impossible to predict future population growth and future demand for new housing in Ireland.
(b) Accept that future migration flows will probably fluctuate violently but that, averaged out over lengthy periods, they will probably follow a pattern of there being a net inflow during periods when the Irish economy grows faster than other European economies and a net outflow during periods when the Irish economy grows slower than other European economies. In recent decades, the former periods have far outnumbered the latter, and I hope that continues, although no one can be certain.
(c) Aspire to have a construction industry that is not immobilised by red tape and restrictive planning (as is now the case in the UK where supply has been simply failing to cope with demand for several decades), but which is flexible and can shift its output up or down quickly in response to violently fluctuating migration flows.
This is not the prettiest solution, of course. It would be much prettier if the population grew at the same amount every year, and migration flows were the same every year. That is the case in many countries. But, in Ireland it is simply not the case for the reasons I gave above. So, we have to live with volatility in regard to migration flows and population growth. That being the case, flexibility in response to violently fluctuating demograohics, rather than pretending that the future can be predicted, should be the goal. Anyway, enough of this for now, Ryanair and Croke Park await.
@ 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.
“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.”
In my innocence, I thought that developers had both political agendas (“get the political process to enrich us”) and the political strategy (“elect auctioneers and other Friends of Developers”) to implement them.
Or does it qualify as “political” only if an agenda might restrict the enrichment of developers?
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.
Similarly Ray, if you are to look at it through the lense of Peter M. Senge’s model, you will know that delays in the information pipeline lead to huge bubbles of supply, which clog up the system and leave everything in a mess. This happens even with the right information, even in ideal conditions, despite the best of attempts. The trouble is the planning permission lasts five years. There is normally someone, who serves like an intermediary, and sells on the land with planning permission attached. Frank McDonald has written about this pretty extensively in his novels (co-authored with others). But what Frank McDonald has failed to do is look at it through the same lense as Peter M. Senge. Think of the party who acquires the land initially, without the planning permission, as like the distribution warehouse for the crates of beer in Senge’s beer game. The re-zoning of land by the local authority, is like the factory which produces the brand of beer in the first place. Think of the politicians as being like the one-hit-wonder boy band, that does the TV commercial in which they drink the brand of beer. That has the effect, of making all the teenagers want to run down to the corner liquor store to buy a crate of beer. The problem is, the corner store runs out of that brand, because they only ordered a small quantity, and the delivery guy from the distribution warehouse only calls ever fortnight. The warehouse eventually runs out of stock, because the corner shop over-orders its supplies, in case they run out. So eventually, the information feeds back up to the top of the chain, and the beer factory builds on a new production line to ramp up its supply capabilities to its warehouse distribution network. By the time the summer is over, the teenagers are back in school and the boy-band commercial is no longer cool – all members of the supply chain have fortunes invested in the whole endeavours. And then require an asset management agreement to enable them to dispose of the excess stock onto the market in the most organised fashion possible. 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!
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.
To trigger housing bubbles there must be scarcity. Finance – whether it be equity, bubble equity or debt is simply the fuel to the bubble fire. I explained this within a recent article “Americans slow learners about housing bubbles”, where i incorporate the recent remarks from Mike Inselmann of Metrostudy in the United States, who explained this extremely well within a speech he gave recently to the Real Estate Editors Conference in the United States.
The New Zealand Government is well advanced on the path of getting the legislative changes coupled with the appropriate institutional arrangements in place to deal with these structural issues. Refer the writers website for further information.
On the Welcome Page of my website I provide a definition of an affordable housing market.
Co author – Annual Demographia International Housing Affordability Survey
Performance Urban Planning
Hugh Pavletich says:
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.
‘What the planning system still is waiting for is its Black-Scholes model’
What happended to LTCM, whose management included Merton and Scholes ? As Taleb and others have shown, the Black Scholes model can’t cope with ‘fat tail’ unusual events. Assset pricing is a quasi-science, which serves to obscure some old truths about power and society. We have to think our own way through this stuff because it is political to the core.
Your transactional description of the planning/construction nexus rings true. As you say, it is a game, and it follows that there are various kinds of participants (eg landholders, planners, politicians, auctioneers, builders), various kinds of stakes (eg money, votes, prestige) and various strategies. There are insiders and outsiders, and, as in all games, there is the gaming of the rules of the game. Pierre Bourdieu’s work is a useful adjunct to Senge in this area.
You have described the ‘local trading and arbitraging of permissions’ very nicely. Experiantia docet. Doubtless there were many other quids pro quo, even in rural Ireland. As @ Michael H suggests, many things are done in a fairly crude fashion. Populist, clientilist politics lets the small man in for a slice of the action, while the insider (or would-be insider) rides the wave.
The Dublin game is played for higher stakes, with a larger set of propertied, statutory and professional vested interests to be serviced. ‘Good’ addresses, lifestyles and private schools don’t come cheap.
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.
Breaches of professional standards were sanctioned, tacitly or explicitly, by reputable individuals and firms. Like so many other events in history, many people knew it was wrong but they kept mum for all the usual human reasons. The big boys were doing it.
We may not be the world’s most advanced country, but where boostering is concerned, we are up there with the best. As Karl Polanyi showed many years ago in the The Great Transformation, land is not an ordinary commodity. Thanks to @ Hugh Pavletich for some sane and sensible ideas and to the NIRSA researchers for their hard work.
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.
The reality is that Germany and Switzerland did not experience housing bubbles. Nor did most of the major metros of mid North America (United States and Canada) as the Annual Demographia International Housing Affordability Surveys ( http://www.demographia.com ) clearly illustrate.
I would suggest the central question needs to be – what can Ireland learn from these normal affordable housing markets, so that it does not repeat the mistakes of history, by neglecting to deal with the real political / regulatory issues, so that artificial scarcity induced housing bubbles occur again?
Further unnecessary housing bubbles will occur again, if the problems are misdiagnosed, leading to inappropriate policy solutions.
Readers may wish to read a recent article “How Texas avoided the Great Recession” by my colleague and co author of the Annual Demographia Surveys Wendell Cox on the New Geography website ( http://www.newgeography.com ), where he compares Texas and California. There are two very interesting comments by firstly, Rick Harrison, a well known US development consultant and secondly tx1234, a fellow from the tech sector, who is relocating from California to Austin Texas for half the salary, because of the lower housing and living costs in Texas.
The wideranging and long term costs of these unnecessary housing bubbles are not acceptable. Does Ireland need to constantly repeat the Californian mistakes of history, or are the Irish smarter than that?
As most of my forebears came from Ireland, I sincerely hope the latter!
Performance Urban Planning
Paul Quigley says:
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.
It seems to me that zoning more land during a boom should not make as big a housing bubble as you are increasing supply, however during a bust the more land you have zoned the bigger the housing bust as potential supply is greatly increased while demand is limp.
So if all this land wasn’t rezoned wouldn’t propery prices have actually climbed higher?? Or did the fact that land was being rezoned drive prices higher in a bit of a buying frenzy?? Seems to be a bit of a chicken and egg situation.
@ 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.
The farmers had a treble dip; public welfare via the Common Agricultural Policy; beneficiaries of a massive tax on house purchasers via the corrupt rezoning system and agricultural land prices rising to the highest in Europe as their incomes resulted in a tiny portion of non-development land voluntarily coming on the market.
The latter had implications for productivity and food production as young prospective farmers could not afford to buy.
@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.
@ Gregory Connor
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.
It was only in the US and a small number of European countries e.g Ireland, Iceland, Spain and Greece where factors such as misgovernance and specific problems in these economies, which resulted in the impact of the Great Recession having a huge economic and human toll compared with other countries.
The property bubble and bust isn’t the whole story but it’s the main one.
Michael Hennigan says:
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.
@Rob – looking thorugh NIRSAs (your?) funded projects information on the NIRSA website I see quite a few projects for the Department of the Environment (along with other consultancy work for local authorities). Were NIRSA members not involved in a number of the research reports that were commissioned for the NSS??
You state that “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.” yet the the haunted landscapes paper states “To date, the role of the planning system in creating the property bubble has been little considered.” – you can’t have it both ways. I stick to my comment.
@ Brian O’Hanlon “One has only to examine the list of references at the end of your Haunted Landscape paper to realise the amount of work and research that went into the paper. It is trully impressive” – as far as I can see there are just 4 references written by NIRSA members. Just as interesting as the references that are in are the ones that are not.
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.
@Brian O’ Hanlon – thanks for your clarification. However, I am still not impressed – that is what researchers do and they were not comprehensive. There were some studies on vacant housing in the mid naughties that are not referred to. There was also a lot of ongoing debate about the planning system and issues such as urban sprawl, long distance commuting and the rapid development of small villages in the commuter belt into towns throughout the 90s and naughties – again not mentioned. Indeed the Planning and Development Act 2000 does not get a mention. I could go on.
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.
You mention the relationship between transport and development. That is, commuting long distance and that pattern of behaviour increasing alarmingly as the 1990s and 2000s wore on. I don’t know if the Haunted Landscape document has touched up this or not. Jeff Colley of Construct Ireland magazine, was one of the contributors to the recent RTE Prime Time piece on ghost estates in Ireland. But when I look at Jeff’s magazine, I can read about a physicist who built a home which is a net energy producer, and used minimum energy in its construction materials. What I cannot read about in Jeff’ magazine, is the ghost estate a few miles down the road, due for demolition. Which makes the single house with the low embodied energy seem almost insignificant. Much of the construction industry is organised around an odd kind of supply chain mechanism. Any viable Green Building industry will have to integrate into the supply chain structure of the industry. A book I would like to have time to read currently, is Ray Anderson’s, Adventures of a Radical Industrialist. Anderson’s ambition was to reduce waste in his volume carpet making business. Because cheap fossil fuels are so easily accessible to Irish society during the 1990s and 2000s, it led to a situation, where no one did the energy consumption calculations of what it would cost to leave a housing estate half-built and un-occupied. That is in addition to the energy consumption to drive from an estate that is occupied to where the employment is located. As I said earlier, the land value would reduce radically, if the builder did not half build the houses, as the planning permission would have lapsed. That was the rule – half build the houses and the planning permission is locked in. If the planning permission expired, and the value of the land plummeted as a result, suddenly the loan-to-value ratio, would shoot through the roof. That would put increased pressure on the borrower. It is that sort of crazy accounting practice, which is so environmentally un-friendly. It is better financially for the borrower to half build the development and leave it sitting there, than not build at all! Does it mention that in the NIRSA document? It is the same with NAMA. Nama will be under extraordinary pressure to build a lot of projects, to stop more loans going bad, unless the accounting rules (and planning rules) are changed to be more environmentally friendly. Maybe that needs to be addressed in future planning acts? 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.
Thanks for the input. Also, thanks for taking the time to wade through the large block of text I left above. I know I stretched some points above, for the sake of making an argument. I am glad to hear about the 2010 ammendment to the act. I tried to express my fears by means of the beer bottle example I explained earlier in the thread. Ms. Harney was talking about landowners who hoarded land. But there were also landowners who obtained planning permission, who hoarded the same until the permission had expired and the land values had risen. Which left the builder in the unenviable position, of having to execute construction before the expiry date came. I also explained how expiry dates on planning permissions may have incentivised the construction of houses. Because, the housing estate is a relatively standardised construction solution, and finance for it can be arranged in the shortest amount of time. Because the lenders and builders are familiar with it. What I mean is, the wholesaler could release the beer bottles to the corner store on Friday, and the corner store could have cleared its stock over a summer’s weekend. As compared to a bottle of expensive brandy for instance, where the corner store might only sell two at Christmas time. Paddy Kelly maintains that hotels were unlikely to be built, because they often competed with things like office buildings for the same land. Therefore, in order to adjust the market to make hotels competitive, a tax incentive was added. We all know how badly that ended. Both for new hotels and existing ones, which had operated for decades. Anyhow, my point is, that wholesalers could hold onto land with permission for housing for as long as possible, and still obtain a good price. As I said, the fact the housing planning permission was four years old, meant it was desireable also, if the older building codes applied. BOH.
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.
“gadge Says: August 2nd, 2010 at 5:16 pm
@ 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.”
This Act has surely been pushed through so that NAMA can hang on to its property portfolio for as long as it likes.
jocelyn braddell says:
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.