Housing issues - Budget 2024

[Purple]

The guy I spoke to the other day is a carpenter. That work isn't especially dangerous.

Most of the guys who built our house in the late 90s were either in America, unemployed or in dead end jobs throughout the 80s.

A very large part of the increase in employment in the construction sector after 2004 came from the Eastern European countries which joined the EU then but were only allowed to enter Sweden, the UK and Ireland. From 1 May 2004 and 30 April 2005 some 85,114 workers arrived here from the 10 States that joined. Their tradesmen were, for the most part, better trained and had a better work ethic than Irish tradesmen. I say that as an Irish Tradesman. We'll never see anything like that again.

In the late 90's we were completing around 40,000 housing units a year. By the peak of the boom we were completing well over 80,000 units. There was no labour supply constraint then. We are now at full employment within the economy. We have a far higher proportion of school leavers going to third level each year now than we did in the mid 90's. That further reduces the potential number of entrants into the construction trades.

In short we have a dysfunctional and grossly inefficient Construction Sector, though it is making great strides at improving itself.
We also have a dysfunctional and grossly inefficient State sector which won't really do anything to improve itself because why would it bother?

Those are the bottlenecks and until those are fixed more money or less tax won't do much good. It's like trying to increase the flow through the bottleneck instead of making the opening wider.

 

[T McGibney]

The ridiculous tax wedge on housing development and construction is one of those bottlenecks. The risks of easing that as an experiment for a year or two are low to non-existent. What are we afraid of?

 

[Purple]

The ridiculous tax wedge on housing development and construction is one of those bottlenecks. The risks of easing that as an experiment for a year or two are low to non-existent. What are we afraid of?

Fair point but if there are other bottlenecks are the same size then there is a significant risk of inflation in those sectors. In other words developers have more money to chase labour, materials etc so prices go up without a significant increase in supply.

 

[T McGibney]

Fair point but if there are other bottlenecks are the same size then there is a significant risk of inflation in those sectors. In other words developers have more money to chase labour, materials etc so prices go up without a significant increase in supply.

That seems to be an argument that we should never ever build more housing.

 

[Purple]

That seems to be an argument that we should never ever build more housing.

I don't see it that way.
I think we should be putting most emphasis fixing the supply side constraints. That means reforming and massively simplifying the planning system and doing all we can to speed up the move towards factor built houses and efficiencies within the construction sector. The latter will involve an overhaul of the Department of the Environment and the Dickensian regulations around housing standards.

 

[T McGibney]

I don't see it that way.
I think we should be putting most emphasis fixing the supply side constraints. That means reforming and massively simplifying the planning system and doing all we can to speed up the move towards factor built houses and efficiencies within the construction sector. The latter will involve an overhaul of the Department of the Environment and the Dickensian regulations around housing standards.

No reason why a number of initiatives can't be undertaken in parallel. Invariably some will work, others won't.

 

[Purple]

No reason why a number of initiatives can't be undertaken in parallel. Invariably some will work, others won't.

True, but the Permanent Government who are a big part of the problem are masters at spending other people's money rather than fixing their own affairs. They will hide their waste, inefficiency, incompetence and ineptitude behind any other initiatives.

 

[peemac]

The simple solution is prefabricated modular homes.
Government has been talking about them for years, yet a council/ planning level it's like they are vermin.

Councils have small infill sites available at hundreds of their own developments that can take 6-12 homes.


It is financially not feasible to build standard homes on these sites in villages and small towns, but you'd install decent quality modular homes in weeks.

These homes don't even need to be made here - you could easily import several thousand in a very short time.

But it would require someone to take charge.

 

[letitroll]

Labour; we don't have the people to build the houses.

We operate in single market for labor of 500m people and where we are quite a wealthy country inside that block.

Developers, armed with opportunities to make money, would globally source talent......ya know....kind of like the way Canada / Australia didnt have the people to build their stuff?! But did in the end with OUR plumbers/sparkies and at our expense........money talks and you can fill in the rest......super normal profits in development would expand labor....where there's margin, there's a way.......you just have to pay up.....this is simple.....ever meet a construction guy heading to a muslim country in Middle East to work in 40 degree heat or heading to the mining town wat North of Perth....he isn't going there for fun.....you pay up, the labor SHOWS up...thats the evidence...you expand the profit pool for building homes by removing VAT.....'greedy' developers will kill themselves to hire labor from overseas at higher rates such that they can capture some of those profits

 

[Purple]

We operate in single market for labor of 500m people and where we are quite a wealthy country inside that block.

Developers, armed with opportunities to make money, would globally source talent......ya know....kind of like the way Canada / Australia didnt have the people to build their stuff?! But did in the end with OUR plumbers/sparkies and at our expense........money talks and you can fill in the rest......super normal profits in development would expand labor....where there's margin, there's a way.......you just have to pay up.....this is simple.....ever meet a construction guy heading to a muslim country in Middle East to work in 40 degree heat or heading to the mining town wat North of Perth....he isn't going there for fun.....you pay up, the labor SHOWS up...thats the evidence...you expand the profit pool for building homes by removing VAT.....'greedy' developers will kill themselves to hire labor from overseas at higher rates such that they can capture some of those profits

Have you ever tried to get a work visa for a non EU citizen? I have. It can take months.
I work in a sector where we don't train any tradespeople any more so all of our talent has to come from abroad or be trained in house. It's another example of how the State (not the elected government, but the permanent one) is failing its citizens through incompetence. I'd fix that first rather than giving tax breaks to compensate for it.

 

[letitroll]

Have you ever tried to get a work visa for a non EU citizen? I have. It can take months.

Well as I said in my post - Europe has 500m people, no work visas required....I'd question the need to step outside of the EU for talent if the profit margins became such that attractive European ex-pat packages could be put together for the incremental construction labor we need.....thats the low hanging fruit for developers with the opportunity to make exceptional profits......enhanced resources means they can staff up and get creative on sourcing that talent.

In response to your question for non-EU citizens.........yes I have actually soruced visas, many times......inter-company transfer visas (ICT) and critical skills visas...loads of them...yep it takes month, you pay fragoman a fortune, its bureaucratic with DETE.....but they come through in the end......lucky the companies I've worked for had the resources, patience, timelines and profit pool to engage in such exercises.....which kind of proves my point.

Building homes as evidenced by Cairn/Glenveagh......in Ireland.......is at best a 15% gross margin business....for non-Cairn/Glenvagh scale operators......in reality then after financing costs, opportunity costs of capital, mezzanine finance, WIP, unanticipated planning delays.......I suspect at the best meduim scale home building represents a high single digit operating margin business on an absolute basis with very high risks.......the IRR on capital engaged in such activities given the lead times, risks is much worse.

We have a lack of homes.......not because its wildly profitable to build them.......we have a lack of homes because its wildy risky and marginally profitable to build them.......we've a lack of talent in the industry because on a relative basis that talent is choosing to work in other industries....while the country melts down over housing.......its for sure a missallocation of resources and human capital on this little island.

My central thesis is simple - I want to see developers flying around in helicopters again........but I also want plumbers driving around in BMW's and Audis.....see we dont need more Irish kids joining Google sellings ads online.......or Boston Scientific making stents.....we need em building houses ironically for themselves, their peers and their future kids.....FDI & the fetishization of 3rd level education has lead to a complete misallocation of human capital in Ireland......making Cairn or Glenveagh's margins look a little closer to Google's would tip the scale.......you pay peanuts you get monkeys.....or in the case of Ireland you pay non-FDI peanuts, you get no monkeys and eventually no houses.

 

[Purple]

@letitroll, I don’t think there’s enough available labour in the EU as there’s a huge shortage of that skilled labour all across the mainland.
I broadly agree with the rest of your post but I’d look after the dysfunctionality within the State sector and the gross inefficiency and waste within the build sector at the same time rather than just throwing so much money at the problem that is washes over those problems.

 

[letitroll]

I don’t think there’s enough available labour in the EU as there’s a huge shortage of that skilled labour all across the mainland.

If you pay enough, there will be enough labor. The incremental labor we require is actually quite modest relative to the European labor pool....and of course presenting deeply attractive job opportunities & promises of riches to those that are in a lot lower GDP per capita countries works very well as recruitment tool....luckily Europe still has lots and lots of countries where Irish wages look Dubai like to their residents............then scale....we are at the end of the day a small country........more akin to a medium metro area......there are 167,000 people employed in Irish construction.......they produced something like 30,000 houses last year..........given commercial office is pretty much dead from a commencement point of view what labor is consumed there will move to housing.....that will be an interesting uplift to watch as that occurs.......so maybe we get to 35,000 homes with that tailwind with our existing employment base.........we need as best I can tell 45,000 homes p/a to address current needs and probably more as emergent demand will likely appear if/when prices moderate.......10,000 homes incremental over a base 35,000....ok its a 30% uplift on a unit bases.......but taking 30% of 167,000 and calling that our incremental labor over estimates the need with economies of scale etc......I'm going to guess 20% of 167k would do it........so ~33,000 construction workers......not a big ask in a sea of 500m people if you PAY enough.

Now where to you put them without causing an incremental housing crisis......well this goes back to the Darwin Australia mines proposition.....they'd need to be housed in temp bunk bed type setups in pre-fab solutions.....not ideal for them....and thats why you have to pay a kings ransom

 

[Purple]

If you pay enough, there will be enough labour.

That applies to any sector. I'd rather see the State reduce it's take from the wages of those skilled employees we need rather than the consumer paying more.

 

[Purple]

Now where to you put them without causing an incremental housing crisis......well this goes back to the Darwin Australia mines proposition.....they'd need to be housed in temp bunk bed type setups in pre-fab solutions.....not ideal for them....and thats why you have to pay a kings ransom

Yes, but the Darwin miners are in Darwin, in the middle of nowhere. They work in the mines which are in Darwin, which is in the middle of nowhere. We need people working all over the country, in dispersed sites mainly in highly populated areas. Getting them to and from their temp bunk bed pre-fabs would, to say the least, be a challenge.

 

[letitroll]

Yes, but the Darwin miners are in Darwin, in the middle of nowhere. They work in the mines which are in Darwin, which is in the middle of nowhere. We need people working all over the country, in dispersed sites mainly in highly populated areas. Getting them to and from their temp bunk bed pre-fabs would, to say the least, be a challenge.

Where there’s super normal profits there’s a way…..you can’t believe how inventive and determined and creative humans can get when there’s an opportunity to make themselves and their family fabulously wealthy…..just look at all the creativity & inventivness that appeared with the Ukrainian refuge crisis and the money that could be made there…every little nook and cranny that could fit a bed in this country all of sudden got activated when folks realized how much money could be made providing emergency accommodation.

We’ve gone down a rabbit hole here of implementation- the principle still stands….building homes in Ireland in 2023 is not a particularly attractive activity for capital or labor…I think that is self-evident or else we wouldn’t have a housing crisis…...we need the attractiveness to both labor and capital to increase to solve our housing problem…….changing the underlying margin dynamics in the industry would change that….another way is as you say….on the income tax side…..incremental trades people who haven’t been in the Irish tax system for the last 24 months…should be given a two year income tax break….this would catch the eye of Irish immigrants tempted abroad to come back home and new European labor looking for the highest after tax return to their skillsets.

 

[Purple]

I think that is self-evident or else we wouldn’t have a housing crisis…...we need the attractiveness to both labor and capital to increase to solve our housing problem…….changing the underlying margin dynamics in the industry would change that….another way is as you say….on the income tax side…..incremental trades people who haven’t been in the Irish tax system for the last 24 months…should be given a two year income tax break….this would catch the eye of Irish immigrants tempted abroad to come back home and new European labor looking for the highest after tax return to their skillsets.

Firstly it's not a crisis, that's what they have in war dozen and when there's famines etc. We have a problem, a big one, but not a crisis. That sort of hyperbole plays well with the hand wringers in RTE, the Housing Charity Industry and the sheep who think that the Shinners will solve everything but it takes a special kind of myopathy to look at what's going on around the world and think we have any crisis' to deal with in this country.

It's really important to remember that the housing price issues across most of the developed world is driven by a massive increase in money supply (QE) over the last 15 years, not an increase in demand. Populations are not growing in many of the countries that have seen very large Real Estate price inflation. That same capital fuelled inflation is the main driver here but we also have an increase in population and, more significantly, a reduction in the average household size stimulating demand. Add to that the fact that we are an island and so lack the mobility of labour and the expense of importing most of the materials and we end up with higher prices. The inefficiency and ineptitude of the State sector is the last multiplier to be factored into the price equation.

 

[T McGibney]

It's really important to remember that the housing price issues (there's no crisis) across most of the developed world is driven by a massive increase in money supply (QE), not an increase in demand.

There are 2 separate and distinct problems:

1. a chronic shortage of housing
2. a housing price spiral.

In the 2000s we had a house price spiral without ever suffering chronic shortages. The house price spiral made building and renovation profitable.
In the 2010s and 2020s building and renovation became much more difficult than previously, with baneful consequences.

 

[Purple]

There are 2 separate and distinct problems:

1. a chronic shortage of housing
2. a housing price spiral.

In the 2000s we had a house price spiral without ever suffering chronic shortages. The house price spiral made building and renovation profitable.
In the 2010s and 2020s building and renovation became much more difficult than previously, with baneful consequences.

Yes, we had that influx of cheap skilled labour from the 10 new EU member States and a very different economy. We had has low levels of house price inflation for decades due to the high interest rates of the 70's and 80's so there was a lot of slack in the market.
We also, and this is crucial, did not have an internationalised housing market. What worked 20 years ago won't work as well now.

But you and I have been around this topic many times and I think we agree on the issues but differ on their relative importance.

 

[T McGibney]

Yes, we had that influx of cheap skilled labour from the 10 new EU member States

Immigration has actually accelerated since then. It woudn't matter if we now had a million available builders. Housing provision is now a deeply unattractive prospect for anyone tempted to examine it as a serious possibility. Policy-wise, we have lost the plot.