Date 18 May 2014

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BUILD IT AND THEYWILL BUYIt is not rising sale prices that are holdingback the housingmarket but obstacles putin the way of developers —whichmustnow be removed, writes Brian Carey

I t was probably the luckiestescape of his business career. In 2006,Mervyn Chamney, a Kildare entrepre-neur, bid €8m for the playing fields of aGAA club at Blessington, CoWicklow.Chamney lost out to Willowbridge

Developments, a local building com-pany, which bid €9.2m for 4.5 acres —more than €2m an acre. Willowbridgesubsequently got planning permissionfor Milltown Gate, a development of54 houses.When Milltown Gate launched in

2007, prices for four-bed homes startedat €410,000. As the houses were beingfinished, however, the market tanked.When the receivers went into Willow-bridge in June 2012, just nine houseswere built and occupied. A further sixwere 80% finished, and there were 39further serviced plots.InDecember 2012, Chamney returned

to buy the ghost estate for a knock-down €550,000. He tapped a friend for€250,000 and pooling that with his owncash of €380,000 set about completingthe six almost-finished houses on thesite and building a further 36.By the start of this year, Chamney had

sold 21 units atMilltown, and had agreedsales on a further 17 units, with just fourleft to sell. Having invested considerablepersonal equity in the development, hesought bank finance to build out thefinal stages. He approached AIB, whichhad beenhis bank for over 20 years.

In February, to some fanfare, AIB hadlaunched a €350m residential develop-ment fund to help kick-start the con-struction industry. In the fund’s lendingcriteria, Blessington, a growing com-muter town close to Dublin,was consid-ered a “hot spot”.To Chamney’s great surprise, how-

ever, his application was refused. Thebank said that the fund was being“selective” about who it supported, andit was backing only “experiencedbuilders”.“Most experienced builders in this

country are experienced at losing a lot ofmoney,” said Chamney.AIB said Milltown Gate “ticked many

of the boxes”, including the number ofunits sold, but even though Chamneywas offering the entire site, unencum-bered, as security, it would not supporthis application.“It was just an excuse,” Chamney

said. “The bank just did not want tolend. Their attitude was, ‘Well, whydon’t you just use your ownmoney?’”The knock-back illustrates just how

hard it is to build houses close to thecapital, even when presented with abargain— and evenwhenMilltownGateis just the type of development that poli-cymakers had in mind when EndaKenny, the taoiseach, and Eamon Gil-more, the tanaiste, last week launchedConstruction 2020, the latest initiativeto boost the building sector.Consisting of quality starter homes

in the commuter belt, selling for€280,000, Milltown Gate serves afirst-time buyers’ market starved of

housing stock. Yet, as Chamney’sexperience with AIB shows, access to

Date 18 May 2014

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finance remains an obstacle. A lack ofinfrastructure, planning issues, risingland prices, building costs and hightaxes are also weighing heavily on thesector.Construction 2020 would, according

to Damien English, a Fine Gael TD andchair of the joint Oireachtas committeeon jobs, enterprise and innovation,address both demand and supply issuesin the housingmarket.However, in a dysfunctional market

where prices are rising, this could be adelicate balancing trick.

THE Construction 2020 report notes just“how wildly the pendulum has swung”in house building. From the 2006 peakof 93,419 houses, the total national buildlast year was just 8,310, with a mere1,360houses built in Dublin.Des Donnelly, a director with estate

agency Hooke & MacDonald, reckonsabout 2,000 “units” will be built for theDublin market this year. The require-ment is closer to 9,000. “Demand isacross the board from apartments tostarter homes to the higher end — thereis a huge pent-up demand,” he said.The Economic and Social Research

Institute estimates there is a naturaldemand for 25,000 new homesnationally each year, based on newhousehold formations. Even allowingfor some oversupply at the tail of theboom, there is a massive shortage ofhousing, particularly in Dublin andother large cities.Closing the gap will be difficult. The

new homes section of property websitemyhome.ie includes a number of newdevelopments such as a Cosgravebrothers project in Castleknock. Veryfew of the developments feature morethan 20 to 30 houses.Donnelly agrees that it will take a long

time to get to 25,000 new homes, if only20 or 40 houses are built at each step.Themarketwill need to see the return ofthe large-scale scheme.The single biggest player in any

housing revival would be Nama. Itcontrols vast swathes of the land bankaround Dublin and has finance ready todeploy to build out housing.Yet even the agency’s role in contrib-

uting to recovery, hailed the loudestby Michael Noonan, the finance min-ister, has been somewhat overplayed.Nama has “shovel-ready projects”

that could deliver 4,500 new houses andapartments in Dublin over the nextthree years. Noonan estimates that theagency has the potential to deliver afurther 22,000 units nationally. It isthought that many of these sites haveno planning, or inappropriate planning,however, and little basic infrastructuresuch as sewage.In many cases, Nama is pump-

priming development. It lent theCosgrave brothers €43m to fund thefirst phase of Honeypark, a develop-ment at the former Dun Laoghaire golfcourse in Dublin. Last year, 65 houseswere sold at the site. The entire schemehas planning for 1,800 units but it isunlikely that Namawill fund the schemein its entirety.In Carrigaline, Co Cork, Nama has

invested€11m in the first phase of Forest

Hill, a series of three- and four-bedsemi-detachedhomes.The other issue surrounding Nama’s

role in the housing revival is its ownlong-term future. Construction 2020 is asix-year plan and it has been speculatedthat Nama could be wound up within24months.Should the government accelerate the

wind-up of Nama, international inves-tors wouldmost likely stand in its place.The backers behind the money that hasbeen buying commercial property arenow turning their attention to theresidentialmarket.Ulster Bank is currentlymarketing up

to 1,000 acres of land earmarked forhouse-building,with the capacity for upto 10,000houses.Meanwhile a syndicate of lenders

including Nama has put a site, formerlyowned by the developer Liam Carroll, atCherrywood up for sale. That site couldtake up to 4,000 houses and apartments.Strongdemand is expected from interna-tional buyers including Goldman Sachs,Lone Star and British property companyDevelopment Securities.It is expected that the international

funds would link up with builders,many of whom are still in Nama oremerging from its control. DevelopmentSecurities, for example, has been linkedwith a Gerry Gannon development innorthDublin.It is not just large funds that are

scoping the market. The Sunday Timesreported last week that Nicole Junker-

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mann, a wealthy Monegasque investor,is backing the family of the developerSean Reilly. Junkermann lent HansfieldInvestments, a Reilly family company,€6.1m to purchase development landspreviously owned by Manor ParkHomes in west Dublin from the com-pany’s receiver. Hansfield has applied tobuild 146 houses, believed to be phaseone of amulti-phase project.“If you are buying land at, say,

€10,000 a plot then there is money to bemade,” said one house builder. “Say youbuild a three-bedroom house for€150,000, and financing costs another€40,000, and you sell that house for€250,000, there is a profit of €50,000 ahouse. In a 600 house scheme, that’s alot of profit froma€6m investment.”Hubert Fitzpatrick, director of the

Irish Home Builders Association, saidthat the influx of foreign capital into themarket was welcome, but only part ofthepicture. There is still a need fordevel-opment finance to build out schemes,and that is traditionallywhere the banksneed to come in, he suggests.Construction 2020’s action plan

includes the establishment of “a high-level working group” chaired by theDepartment of Finance that will bringtogether the banks, Nama and “otherkey stakeholders” to “establish thecurrent level of development finance”.This is one of a number of “high-level

working groups” that are proposed inConstruction 2020. A key criticism inthe industry is that there are no immedi-ately implementable measurements totackle the shortage of supply in Dublin.“Many of our [developer] clients can’t

make development stack up todaybecause of the plethora of different costsinvolved,” said one property consultant.There was some hope of clarity on

social and affordable housing require-ments and development contributions,he added. According to Fitzpatrick,social and affordable housing immedi-ately takes 10%off the value of land.Chamney reckons that new building

regulations introduced following thePriory Hall scandal add about €5,000to the cost of a house. The need to puta solar cell on each unit costs €3,500per house.Unlike in Britain, new houses attract

13.5% VAT. “On a €300,000 house, thatis an additional cost of more than

€40,000,” said Fitzpatrick.“There is reassurance that all of the

impediments to development will belooked at, which is good, but weneed clarity. Then developers canascertain the viability of schemes andget on site.”There is a two-year build-out

programme for the larger-scaledevelopments. Any further delay willonly postpone a closing of the gapbetween supply and demand, accordingto experts. That could lead to a

continuation of the trend for higherhouse prices in Dublin.

ANNETTE HUGHES, of DKM EconomicConsultants, said rising prices have onlyhad a “slight impact on affordability”.The average couple need just over 24%of their net income to fund their mort-gage— at the peak of the boom the samefigure was 32%. “Affordability is not anissue; the big issue is supply,” she said.Yet people in the building business say

official statistics grossly underestimatethe real rise in house prices, particularlyaround Dublin. And all the while, land

values are increasing. Chamney says thatland plots, onwhich a single housemightbe built, have tripled in value in the pastyear from€10,000 to€30,000.Meanwhile he has referred his loan

application to the Credit Review Office.By the time he sizes up his next project, hewill at least be an experienced developer.The biggest threat to supply, he

believes, is poor infrastructure. “Thelocal authorities have been in lock-down for five years,” he said. “It doesn’tmatter what incentives you have, ifthere is nowhere for the sewage to go,you cannot build a house.”

Date 18 May 2014

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Demand for homes is now so high,especially in the cities, that ratherlike in the film Field of Dreams, ifdevelopers build, people will come