Page: 16 Circulation: 34322 Area of Clip: 99500mm Page 1 of 2 WHY IS CONSTRUCTION DEAD IN THE WATER? Houses, hotel rooms, offices: you name it, and its in short supply in Dublin. So why we are no longer building? Naomi Powell irst, there were the queues at property showings twisting lines of potential buyers anxious to find homes before soaring prices pushed them out of reach. Then there were families uprooted by skyrocketing rents, many forced into hostels and other temporary digs as a last resort. And now, the news is that Dublin City7 Council is looking at pre fabricated houses on derelict sites to shelter the growing numbers of homeless people in the capital. It can seem impossible that it has come to this: the same country that churned out more than 93,000 homes in 2006 - four times what economists say was necessary - now finds itself unable to address even the most modest demands of the market. Anditsnotjusthousingthatsin short supply. Although the dynamics differ across each sector, worrying shortages of hotel rooms, suitable office space and industrial property - particularly in Dublin - are also taking shape, analysts say. Although the solution is more complicated than simply getting the cranes up again, most agree that a failure to kick-start construction will bring with it significant consequences - ranging from an alarming rate of homelessness to a drag on the countrys efforts to attract foreign direct investment Ultimately, housing is a competitiveness issue, Ronan Lyons, an economist at Trinity College Dublin said in a speech lastweek Inthepostdouble-Irish world itll be about attracting skilled labour. Already, he said, tech firms were straggling to convince employees to move to Dublin. They look at what theyll get for their euro and they say... I dont want to five in that kind of market. I dont think were past the tipping point there, but Id say were approaching it. Housing Agency figures suggest the country needs an average of nearly 16,000 new dwellings annually, up to 9,000 of them in Dublin. Builders are expected to choke out just 10,000 homes in 2014, less than 2,000 in the capital, where a severe shortage has forced property prices up 25 per cent compared to last year. So why arent builders springing back to action? According to the Construction Industry Federation (CIF), the overwhelming problem is the lack of development loans. Without the money to fund projects, builders cant get back to business, and while several banks have said they will resume development lending, it will be on a significantly more conservative basis than in the past, said Jimmy Healy, a spokesperson for the CIF. The sting in the tail is thattheyre only providing up to 60 per cent equity of the project, he said. So the construction company has to raise the other 40 per cent themselves. Unfortunately not many construction companies who survived the downturn and the lack of activity have access to those kinds of funds. The CIF has also called for lower levies and taxes for builders and easier routes to converting planning permissions for apartments into single family homes. The organisation also wants the current Part V social housing requirement - in which developers must set aside 20 per cent of new developments for social or affordable housing - to be replaced with a one per cent levy across all house purchases. The biggest concern, Healy insists, is funding. Although the government has pledged to explore the issue in its Construction 2020 strategy to stimulate the building industry, the devil will be in the details, Healy said. If we get finance working, I think youll see a steady and strong increase in the level of building. But not everyone believes money is the problem Indeed, the level of international interest in the Irish property market suggests the challenge rests elsewhere, said Lyons. If you cant get international investors to build now, capitals not the problem, its something else, he said. The true deterrent, he said, can be found in the added cost of construction imposed by an overly top-down planning approach. Specifications involving the number of required parking spaces and lifts and the orientation and size of units add up to 35,000 to the cost of constructing a single home in Dublin, he said. This is value-destroying because what you are doing is making viable sites unviable just through regulation. US based investment funds were among the first to enter the Irish market after the crash and remain among the most active buyers of residential and commercial property. There are those who believe that once the best deals on existing property have been snapped up, those investors will become developers in their own right Although Lyons agrees that the government needs to review planning standards to ensure they can be met at affordable levels, John OConnor, chief executive of the Housing Agency, said there are currently a number of international players who would be willing to invest in construction as part of a longer term play in Ireland. As for funding, increased access to finance from banks and investors is necessary to return the market to health. There has to be a mindset change among developers, he said. The day of getting 100 per cent development finance from banks is gone. The development industry has to accept that they might get 50 per cent finance from the banks and the balance has to be got from investors or other equity providers. They have to share the profits with the investment sector. Sunday Business Post* Sunday, 5 October 2014 Page: 16 Circulation: 34322 Area of Clip: 99500mm Page 2 of 2 For the moment, one of the key questions facing the market is just how many developers are still around. At the peak of the bubble, about ten major building firms provided 90 per cent of the housing supply In Dublin. Of those, roughly half have disappeared from the market and those that remain are operating at a dramatically reduced capacity, some with a heavy debt load to manage. Weve gone through a very significant downturn and a lot of the major developers have either gone out of business or their capacity at this stage is very minimal compared to what it was, said OConnor. Thats a big issue. When the sector does get back on its feet, it will need to address the changing profile of Irish households. Housing Agency research indicates that in the next five years roughly half of all households will be comprised of just one to two people, suggestingmuch smaller units will be required. That means more apartments and more units for older people looking to downsize, said OConnor. There is a huge opportunity now to ensure we build the right type of housing in the right places, he said. 44 A failure to kickstart construction will bring with it significant consequences See cover story, Property Plus