Only top income earners can afford to buy homes in Ireland, the head of international property group Hines has admitted.
Brian Moran, senior managing director at Hines Ireland, told the Dublin Economics Workshop’s annual conference in Wexford that, based on the median (or middle value) price of a house or an apartment, it was only the top three income deciles, those earning above €70,000 a year, who could currently afford to buy.
“Given the production costs, particularly for high-density development, it’s only the top three income groups, possibly the fourth with Help to Buy [the Government’s subsidy scheme for first-time buyers], who can afford to buy,” he said.
“It’s the middle cohort [of earners] right now, many of whom are young people in their 20s living at home with their parents, who are basically priced of the market,” Mr Moran said.
However, he denied this was a case of “market failure”.
“It’s not the market driving the price, it’s because the cost of production of modern houses is at a level that doesn’t work for their salaries,” he said.
Northern Ireland, for instance, has decided to have lower space standards, lower build quality and no VAT “so they end up with something that costs €496,000 in Dublin costing €300,000 in Belfast”, he said.
“Other countries have similarly prioritised affordability over space and quality; we’ve decided on a particular standard and I’m not suggesting we cut our standards but I think we’ve slept-walked into a situation without thinking of the cost implication of having great space standards and high-quality building,” he said.
Mr Moran, whose company is behind the large Cherrywood housing development in South Dublin, said there should be an exemption from the Government’s planned Residential Zoned Land Tax (RZLT) for companies working on developing sites. The 3 per cent tax on the value of the land is designed to discourage land hoarding. But Mr Moran said it took the company four years and millions of euro to get the Cherrywood site ready for development in terms of planning, road and sewage infrastructure.
“You are going to buy the land, you are doing to do all the work to enable it and you are going to be taxed as you are doing it,” he said. “I think there is a genuine case for a tax exemption for what I call a working developer.”
Senior Department of Finance official Aileen Gleeson said the biggest constraint on increasing housing output was the uncertainty around planning. Citing recent research by her department, she said a six-month planning delay can reduce a projected 10 per cent return on a development project to 8 per cent, while a 12-month delay can reduce the return to 6 per cent.
Ms Gleeson said she was hopeful that the incoming Planning Bill would provide faster timelines for developers, which would de-risk the process, encouraging more investment in the process.
She told the conference that building 50,000 homes a year will require €20 billion in development finance annually with over 80 per cent of that coming from the private sector.
Goodbody economist Dermot O’Leary said the Republic currently has a housing deficit of between 206,000 and 256,000 homes.
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