In my last post in this series I argued that we need to increase the supply of land for housing by a substantial amount. I recall a Conservative MP (I’m afraid I can’t remember who and haven’t been able to find a link) recently suggesting that the land available for housing should be tripled. His idea – and to be fair mine – was that this would bring down house prices. If this happened, it would not of course be entirely free of adverse consequences. As the recent history of property developments in Ireland and Spain demonstrate, even a radical increase in supply is not guaranteed to secure a fall in prices. In this post therefore I will look at what happened in Ireland during its ‘Celtic Tiger’ period, to see what lessons can be drawn for the UK, if any.
In Ireland between 1991 and 2011, 933,000 housing units were built, while the number of households went up by 625,000. In other words 1.5 housing units were built for every new household.
For the decade and a half between 1993 and 2007 the Irish economic model, the so-called ‘Celtic Tiger’, roared. GDP growth rates soared year on year, with double digit growth for a number of years. The unemployment rate fell to the lowest in Europe, with the number of people at work almost doubling between 1992 and 2007, increasing from 1.165m to 2.139m (CSO 2010). Between 1991 and 2011 the population grew by 1.055m to just over 4.5m (29.9% increase). And as the economy and population grew, the country embarked on a building frenzy of private housing units, commercial property and public infrastructure such as roads and light rail. For example, between 1991 and 2011 housing stock increased by at least 869,949 (76.7%, not including replacement stock; CSO 2011).
Unfinished estates in post Celtic Tiger Ireland Working Paper 67 Feb 2012 National Institute for Regional and Spatial Analysis (NIRSA)
During this period Ireland experienced a huge growth in property construction and in house prices. Construction became a major component and driver of the Irish economy reaching at one point 16% of GDP. Both development and its underlying finances became massively over-extended, creating an enormous property bubble. In 2008, with the banking crisis, the bubble ‘popped’ in a spectacular fashion leading a huge fall in house prices, widespread negative equity, and a collapse in construction activity. (NIRSA – WP59)
The average new house price rose from €78,715 in Dublin, and €66,914 for the country as a whole in 1991, to €416,225 in Dublin (a 429% increase) and €322,634 for the country as a whole (382% increase) in 2007. Not unsurprisingly, second-hand homes follow the same trend, costing on average €76,075 in Dublin in 1991, and €64,122 for the country as a whole, rising to €495,576 in Dublin (551% increase) and €377,850 (489% increase) across the country in 2007. … In the same period, house building costs and wages only doubled (Brawn 2009). In Q3 1995 the average secondhand house price was 4.1 times the average industrial wage of €18,152, by Q2 2007 secondhand house prices had risen to 11.9 times the average industrial wage of €32,616 (datasheet 5). (NIRSA – WP59)
Land values also reached incredible levels.
…in 2005 the 7 acre site of Jury’s Hotel and the former Berkeley Court Hotel in central Dublin sold for €379m (€54.1m per acre). A nearby 2.05 acre site, the former UCD Veterinary College, sold for €171.5m (€83.7m per acre) and a 0.3 acre site for almost €40m (€95m per acre). None of the three sites had planning permission for re-development. Derek Brawn (2009) details that between 2004 and 2007 there were 55 sites in Dublin 2 and 4, totalling 62 acres, which sold for a collective value of €2.01bn.(NIRSA – WP59)
Irish land became the most expensive in Europe nearly twice the cost per hectare of any other European country and three times greater for all but four countries (Spain, N. Ireland, Luxembourg and the Netherlands).
The outcome however is that at October 2011 there were over 2800 ‘ghost estates’ – developments where at least 50% of the units are unoccupied. In the haste to cash on on the seemingly never ending increase in property prices, many of these were built in areas without adequate access to services – even mains drainage. Septic tanks and soakaways were common not just for single houses, but for estates.
These numbers also hide a great deal of variation. In many cases construction has simply been abandoned part way while in others, completed developments simply remain unsold because of the crash in property prices.
The incomplete status of these estates have given rise to a number of health and safety issues, including the lack of pavements, poor road surfaces, sewage contamination, poor water quality, unsecured construction materials, open excavation pits, uncovered manholes, partially completed buildings that could be unstable, no street lighting, no open or play areas, and isolation from neighbours. Children are using the building sites as playgrounds and some estates have been plagued by vandalism, theft and anti-social behaviour. Given the location of some estates, especially in rural areas, there are issues over access to services such as schools, crèches, medical centres and public transport. In those cases where an estate management company is meant to be in place to manage the services, low levels of occupancy make such companies unviable, meaning that service provision is patchy or nonexistent (see Mahon and O’Cinneide 2010). For residents in these estates, they are living with the stress of an uncertain future with regards to works being completed, massive negative equity (in excess of 60% from peak), and a lack of a sense of place and community. Whilst occupancy levels in some estates is high, and there has been a rise in occupancy in some estates, the remaining units on the vast majority estates are filling up very slowly.(NIRSA – WP67)
Standards of construction were often defective. In March 2012 there was an explosion at an (occupied) semi-detached house on the Gleann Riada estate in Longford, seventy miles north-west of Dublin. The blast – which blew out the sitting-room window and left a hole in a ground floor wall – was caused by methane that had accumulated underneath the property. In October, Ireland’s Health Service Executive said that Gleann Riada was ‘unsafe’ and called for ‘necessary and immediate remedial work’. Residents were told not to light fires and to keep their windows open.
A few weeks ago I spent an afternoon in Gleann Riada. One of the residents told me she was worried ‘there could be an explosion at any time.’ All her windows were open. A bank of plug-in air fresheners barely masked the smell of sewage inside the door. The ceiling was so low my head almost touched it (I’m under six foot). ‘If these things are visible to the eye, what short cuts were taken in places people can’t see,’ said John McNamara, an engineer and residents’ spokesman. Nearby, an occupied three-storey block of flats had no proper fire door.
According to Geoghegan, thousands of buildings have pyrite in their foundations, a naturally occurring mineral that becomes unstable when exposed to air, causing walls and floors to crack. In Dublin in 2011, hundreds of people had to move out of the Priory Hall apartment complex after it was judged unsafe.
As well as a catastrophic failure in Ireland’s banking and financial regulatory system, there has been a catastrophic failure of the planning system. 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. Planning should provide checks and balances to the excesses of development and act for the common good, even if that means taking unpopular decisions. However, during the Celtic Tiger period a laissez-faire approach to planning predominated at all levels of governance that was insufficiently evidence-informed with respect to long-term demographic demand, market conditions and issues of sustainability, and which marginalised and ignored more cautious voices.
Both the fiscal and planning levers of development were overly pro-growth. As a result, not only was there an unsustainable growth in property prices, but this was accompanied by a property building frenzy that led to a significant oversupply of housing (as well as offices, retail units and hotels) in almost all parts of the country.
They go on to describe the Irish political culture as “short-termist …shadowed by low-level clientelism and cronyism.”
My own experience (as a planning consultant) in Ireland did not bring me into direct contact with political culture, but the level of planning expertise in Irish local government appeared in general to be low, with some clear exceptions. Even there, political decisions often appeared to outweigh those based on firm evidence. There also appears, if Geoghegan and others are to be believed, to have been a wide spread failure to meet constructional standards.
The outcome though is that Ireland now has a huge oversupply of housing, concentrated to a large degree in areas in the West of Ireland where demand in any case is lowest.
It is very difficult to piece together the reasons for all of this. However key issues appear to include:
an over-reliance on construction as a driver for the economy
a willingness by banks to provide mortgages at hugely inflated income ratios
an obsession with the investment value of domestic property rather than on its basic role of providing shelter and security
a lax approach to the provision of basic services like potable water, mains drainage and safe construction
a gold rush mentality applied to construction of all kinds
corruption and cronyism on a large scale
It will take another post I think to consider how much of this is applicable to the UK.