Houses prices to fall 20%

[Delboy]

10,000 houses for FTB's

What effect will the announcement by the Gov. today of 10,000 houses on state land being built over the next few years, have on the property market in and around the capital?
I can definitely see it hurting the rental market but maybe more so around West Dublin ,where the majority of these houses will be built.
I think it's a good idea although I'm sure the criteria will be much in line with what is in place for the shared ownership schemes etc, i.e. max income €30,000. So a lot of FTB's over the age of 25 or so will still find it tough to buy as they won't be eligible. But then again this many houses aimed at FTB's will help to dampen house prices on new developments.

I know the devil is in the detail (and the timescale) for all of those, but is this the 1st move aimed at bringing sanity back into the Irish proprty market.
(also noticed today, the constitutional body set up by the Oireachtais to investigate land ownership rights in the constitution, had it's 1st sitting today)

 

[GeoffreyOD]

This is a stroke.

I'll be interested to see who gets the contract to build these affordable houses.

I'll be interested to see how much these affordable houses cost to buy.

Now the property developers don't even have to stump up money to buy a land bank.

I foresee very modest 3 bed semi-Ds costing 50,000-60000 to build and being sold for in excess of 130,000

10,000 houses with 70,000 profit each to the developer is 700 Million profit over 5 years and no negative press for transferring the nation's wealth to the private sector.

This land should have been sold on the open market.
The nation needs the money . The smaller developers would have developed the land and the larger developers couldn't have justified increasing their land bank.
The developers will benefit out of this more than anyone else.

 

[rainyday]

Re: This is a stroke.

the larger developers couldn't have justified increasing their land bank.

Why not? I can't see any reasons why the larger developers wouldn't be able to outbid the smaller developers as usual?

modest 3 bed semi-Ds costing 50,000-60000 to build

Where do you get your figures from, Geoffrey? They are quite different to the costs quoted by a leading academic on the radio yesterday who quoted figures in the region of 150k-200k as the cost price. This is supported by the Society Chartered Surveyors Table of Rebuilding costs which gives a cost of €157 per sq foot and a typical size of 1023 sq foot for a 3-bed semi (total of €161k) - Admittedly this would include site clearance costs but it's still a long way from €50k-€60k - Where did you get these figures from?

 

[mairead44]

EU

When the 10 new countries join the EU next year will it have an adverse affect on the economy?

Will Ireland get less funding from the EU because of the high inflation.

 

[Eddie]

building costs

"Where do you get your figures from, Geoffrey? They are quite different to the costs quoted by a leading academic on the radio yesterday who quoted figures in the region of 150k-200k as the cost price. "

If thats the case the theres a lot of builders around the country who are building houses at a loss.Just look at the new house prices in areas outside Dublin and you'll see new houses a lot cheaper than that and they had to pay for the site.Even in places like Balbriggan you can buy houses for less than 200k.

 

[K19]

UBoat

Keep renting chappies - cheap houses to be had soon ! With all this unemployment this will get really soggy soon !

 

[darag]

Re: UBoat

For once I agree with GeofreyOD. This scheme is
nuts. Looking at this from a financial point of
view, effectively the government is giving a grant
of perhaps 100,000 euro (roughly the cost of a
site) per head to a small segment of the population.
Just because the government owns the land doesn't
mean giving it away costs doesn't cost them
anything. They could sell the land and just hand
out the 100 grand directly to the first time buyers
or use the money for something else.

Also the claim that the builders will not be allowed
to make a profit is either touchingly childlike in
its communistic naivety or a cynical ploy to divert
public funds to the building lobby. I can see the
advertisement now - "invitation to tender to build
houses but you're not allowed to make a profit".

Also handing out such huge grants to certain
individuals is completely unfair. What if you're on
35k a year? Why should someone on slightly less
salary than you receive a bounty of a 100 grand from
the government?. It would be worth your while to
ask for a pay cut in work. In any case, no matter
what happens the scheme will be oversubscribed and
so effectively some sort of lottery will have to
take place. How is it going to feel to lose in this
lottery while seeing friends or acquaintances win?
This is terrible government policy.

Finally, the 10000 houses will not increase the
overall supply but instead will just divert
resources from existing building so it will probably
have no effect on improving affordability for the
unlucky who do not "win" one of these houses.

 

[rainyday]

Re: UBoat

Hi Darag - I have to disagree.

effectively the government is giving a grant
of perhaps 100,000 euro (roughly the cost of a
site) per head to a small segment of the population.

No, it's not - It's about getting a roof over the heads of people who wouldn't otherwise be able to afford to buy a house in this inflated market. There will be restrictions built-in to ensure that if they sell the house within a certain time-limit, they have to repay the benefit.

They could sell the land and just hand
out the 100 grand directly to the first time buyers

Why not just hand it straight over to the builders? Any cash in the hands of first-time-buyers is snapped up by the builders. They are able to do this because of the excess of demand over supply in this market.

I can see the
advertisement now - "invitation to tender to build
houses but you're not allowed to make a profit".

There is no proposal to restrict/eliminate the profit made by builders when building. The proposal is designed to eliminate the windfall, non-value-add profit made by developers/landowners. This is the major contributing factor in our house price problem.

There need not be any such restriction on the tender. Simple market economics will apply, i.e. the guy who gives the lowest quote (subject to meeting quality/legal/tax criteria) will get the tender. Given that the monopoly of Irish commercial builders has been broken by foreign entrants over the past few years, I have no reason to expect that this won't be a real competition, getting value for the buyers.

What if you're on 35k a year? Why should someone on slightly less salary than you receive a bounty of a 100 grand from the government?. It would be worth your while to
ask for a pay cut in work.

This applies to any Govt benefit which is based on income, such as 3rd level maintenance grants, medical card. It isn't really a good reason for not proceeding with such a scheme.

In any case, no matter
what happens the scheme will be oversubscribed and
so effectively some sort of lottery will have to
take place. How is it going to feel to lose in this
lottery while seeing friends or acquaintances win?

Again, this is not a good reason for not proceeding with the scheme, just because it might hurt the feelings of those who don't get a house. They will be no worse off than they are today. Indeed, they will probably be better off as there will 10,000 less buyers competing for the normal FTB houses, so this will inevitably result in price drops or levelling out.

the 10000 houses will not increase the
overall supply but instead will just divert
resources from existing building

Not necessarily - Our builders (as has been seen on other posts on AAM) are more than capable of importing additional manpower from outside the country when their is profitable work to be done.

 

[Tommy]

Re: UBoat

There is something smelly about a scheme where a select number of lucky people are awarded a massive financial benefit based on what are ultimately abritrary criteria while people who don't satisfy the criteria get absolutely nothing.

The comparison with 3rd level maintenance grants & medical cards means testing is appropriate only to a point. Your child would be a long time in college or your granny a long time getting free prescriptions before their maintenance grant or medical card would yield them €100K in benefits.

The recent govt restrictions on new work permits will ensure that it is no longer possible in most cases to import foreign labour into the country to combat excessive domestic labour charges in certain industries.

The problems that have bedevilled urban first-time buyers in the past decade, (our terrible planning system, the lack of a proper spatial strategy (gateways & hubs? - don't get me started... ) and the lack of any practical committment to decentralisation) still remain unresolved. Therefore, excessive house prices look like a reality for many years to come.

Regardless of restrictions on selling the houses within 5 years, this scheme will make some people rich in the long-term, while no effort is made to sort out the issues that caused the problem in the first place.

 

[rainyday]

Re: UBoat

Regardless of restrictions on selling the houses within 5 years,

I understood (though I didn't see anything definitive on this) that a longer term of restriction (e.g. 15-20 years) was planned - Anyone got any hard info on this?

 

[Elcato]

Re: UBoat

According to [broken link removed] the deal is %20.63 of sale price to be repaid for the first ten years and then %10.32 till twenty years. I presume these would be fairly close to the mark.

 

[Tommy]

Re: UBoat

I understood (though I didn't see anything definitive on this) that a longer term of restriction (e.g. 15-20 years) was planned

If this is indeed the case, I stand corrected. If there is to be such a long restriction term, I don't know if purchasing would be in any way attractive to buyers. After all not many FTB's have much certainty as to where they will be working in 5 years time, let alone 20, and I personally couldn't see much point in an FTB piling equity into owning a property if they were only going to achieve full and unhindered freehold title after 15-20 years.

The figures quoted by Elcato sound, on the face of it, to be reasonable enough. Basically, a c€100K subsisdy would mean the Corpo owns 20% of your house until year 10 and 10% until year 20. After that its yours.

Unless we are talking here about houses valued at €500K+, there is still a major subsidy to the buyer.

 

[darag]

Re: UBoat

Hi rainyday. Tommy actually expressed it better than I
did by pointing out that a scheme which offers massive
rewards to a select number of lucky people stinks. This
is my fundamental objection to the scheme. There is no
way you can realistically compare medical card provision
and third level grants which benefit a broad and large
segment of the population to a relatively small degree
with this proposal which will benefit a tiny segment of
the population to a massive degree. The result cannot
only but be hugely unfair.

My other objection to the scheme is the economic and
financial hocus pocus used to justify the scheme.

There is no proposal to restrict/eliminate the profit
made by builders when building. The proposal is designed
to eliminate the windfall, non-value-add profit made by
developers/landowners. This is the major contributing
factor in our house price problem.

There need not be any such restriction on the tender.
Simple market economics will apply, i.e. the guy who
gives the lowest quote (subject to meeting
quality/legal/tax criteria) will get the tender. Given
that the monopoly of Irish commercial builders has been
broken by foreign entrants over the past few years, I
have no reason to expect that this won't be a real
competition, getting value for the buyers.

This is contradictory. Why would any builder bid for
the tender if there is "non-value-add profit" (a new
term for me) to be had by developing and selling houses
themselves?

Come on, this is economic bunkum - the government will
be able to eliminate "non-value-add profit"? I thought
these sort of ideas went out of fashion years ago.

You tell me what the difference is between this scheme
and an alternative where the government sells the land
at market value and hands out hundred grand grants to a
select few to buy on the open market?

Again, this is not a good reason for not proceeding with
the scheme, just because it might hurt the feelings of
those who don't get a house. They will be no worse off
than they are today.

How can you say that the people who fail to secure a
house through this scheme will be no worse off? If the
government were to give Bertie ten million quid, should
everyone shut up because they are no worse off? Do you
think government resources are infinite? The government
is proposing to dispose of some very valuable assets
which are owned by everyone but give the benefits of the
disposal to a very tiny few.

Indeed, they will probably be better off as there will
10,000 less buyers competing for the normal FTB houses,
so this will inevitably result in price drops or
levelling out.

Sure and this extra building capacity will appear out of
nowhere.

 

[rainyday]

Re: UBoat

Hi Darag

Just an aside - Did you know that you don't HAVE to hit return/enter at the end of each line when you post. That's why all your posts appear to be narrower than everyone else's. Just hit return/enter at the end of each paragraph if you want to use the full width of the screen to display your posts.

a scheme which offers massive rewards to a select number of lucky people stinks.

Now you're just spinning. Maybe they ain't so lucky
- they will be on modest salaries
- they will not have already bought a house
- they will be restricted to a fairly small number of houses in a small number of locations

You could criticise almost EVERY Government spending scheme (e.g. medical cards to the elderly, drug refund scheme to the sick, mortgage tax relief to home owners, etc etc) as as similar scheme to offer 'rewards to a select number' - That doesn't make it wrong. Do you really expect the Govt to do NOTHING about our housing problem until they can provide a discounted house for EVERY prospective FTB?

This is contradictory.

There is no contradiction. You seem to be mixing up 'building' & 'developing' (& I confess I mixed them up at one stage in my post. Building is about well, building houses. Developing is about land-grabbing (Liam Lawlor being a leading expert). Grab a piece of land from a farmer at agricultural prices, get it rezoned as residential by fair means or foul and take the profit from the huge non-value-add increase in the price of the land. Sometimes the builder & the developer are the same person, but sometimes they are not.

Why would any builder bid for
the tender if there is "non-value-add profit" (a new
term for me) to be had by developing and selling houses
themselves?

Two reasons - One, because there is a huge shortage of building land (resulting in a huge increase in house prices) & two, because they can make a simple, old-fashioned profit on their building work.

You tell me what the difference is between this scheme
and an alternative where the government sells the land
at market value and hands out hundred grand grants to a
select few to buy on the open market?

Because on the open market, most of the 100k will go straight into the hands of the developer to pay for the inflated price of land. This scheme cuts out the developer chunk of the price as the state is providing the land.

Do you
think government resources are infinite? The government
is proposing to dispose of some very valuable assets
which are owned by everyone but give the benefits of the
disposal to a very tiny few.

Ok, you got me - but just on a technicality. In theory, you are correct. But in reality, what percentage of ALL Govt assets do you reckon these sites for 10k houses make up? Maybe 0.01% or possibly even 0.001%? So everyone in the State will by 0.01% worse off as a result of this scheme and 10k buyers (mostly couples I guess) will have their own homes - that sounds like a sensible redistribution of resources to solve a particular community problem to me.

Sure and this extra building capacity will appear out of
nowhere.

Building capacity isn't generally recognised as being the bottleneck that limits the supply of housing. Availability of land is the bottleneck. This scheme removes that bottleneck. As Kevin Costner said in Field of Dreams, "If you build, they [the brickies & sparks & chippies et al] will come".

 

[GeoffreyOD]

shift focus back onto the stroke.

Affordable housing scheme gives co. co. approx 20% stake in house for 10 years and thereafter stake decreases by 10% every year for the next 10 years.
It doesn't drop to 10% stake in year 11.

The affordable housing scheme is no massive bargain for those "lucky" enough to get a house through the scheme.
You get a very poorly specified house which may not suit your needs, you don't get to choose the type of neighbour you get and you may not get to choose the locality either.

There is no doubting that a young person on 35,000 not qualifying for the scheme while someone on 32,000 can is unfair but don't blame the person on 32,000 for being unfortunate enough to be poorly paid.
The scheme is open to abuse as well - you'll find county council workers magically ending up in certain houses that you wouldn't think they'd be entitled to and you'll find self-employed people magically coming in under the 32,000 mark too.

Paying 130,000 for a house in a competitive free unconstrained market is always going to be preferable to paying 130,000 for an affordable housing scheme house.

No, the real dosh is going to be made by those who build the houses and that is where the focus should be.
The land should have been sold and part of that money used to service the thousands of acres of land around Dublin already available to build on.

This affordable housing solution is ideal for the developers, they make huge profit on the affordable houses and the insanity of the remainder of Dublin's property market is left untouched.
Thinking about basis economics, the people who get these houses weren't ever on the demand curve for the static house supply in the Dublin Area and supply in that same market is not affected by this initaitive.
The last thing Developers want is for the Government to actually fix the market and bring supply and demand into equilibrium at a lower price point.

Rainyday, I know someone who recently built a modest house, site excluded for not much more than 50,000.
Compromise on room size, fixtures and fittings, sockets, heating, sanitary ware, plasterboard everywhere and you'll be amazed what you can build for small money - you'll get something resembling an affordable housing scheme
house.

 

[rainyday]

Re: shift focus back onto the stroke.

you don't get to choose the type of neighbour you get

Just like any private housing estate then.

you may not get to choose the locality either.

Just like many FTB's today, who are unable to get a house in the locality they currently live. Or to be more specific, they are unable to get a house in the province in which they currently live.

you'll find county council workers magically ending up in certain houses that you wouldn't think they'd be entitled to

I presume that if you have any real evidence that any county council workers get special treatment under current systems that you report it to the authorities. The days when these kinds of abuses can run free are gone. I really don't believe that kind of stuff will still happen.

No, the real dosh is going to be made by those who build the houses

That really depends on how the tender competition for building the houses is managed.

The land should have been sold and part of that money used to service the thousands of acres of land around Dublin already available to build on.

Servicing of land isn't really the bottleneck. Supply of land is the problem. The building land in Dublin is in the hands of the developers, who currently eek out just enough each year to keep them in helicoptors. Servicing the land will do nothing to help house prices.

I know someone who recently built a modest house, site excluded for not much more than 50,000.

Great - tell him to put in a tender for the affordable houses and he's sure to win. That's assuming you are not referring to a 'direct labour' price (aka price for cash, aka tax evading tradesmen) which would explain 42% of the reduction from the normal price.

 

[Tommy]

Re: shift focus back onto the stroke.

Hi Rainyday

I think you are badly confused about the meaning of direct labour contracting. The term refers to an arrangement where a private housebuilder buys the raw material for their house from a merchant and engages seperately a blocklayer, carpenter, roofer, plumber etc to complete the various elements of the project. By doing so, the housebuilder bypasses the aaditional costs and logistical delays that are often experienced when projects are undertaken by building contractors.

Direct labour contracting is NOT the same as "price for cash" work where tax is evaded by the tradesman.

Whatever about Geoffrey's 50k example, it is definitely very feasible and commonplace in rural areas to build substantial 2000 sq ft houses for less than 100k euros plus site cost, by opting for direct labour, even where tradesmen are required to produce tax receipts.

 

[rainyday]

Re: shift focus back onto the stroke.

Hi Tommy - I'd confess to very limited experience in this area. In the one case with which I was directly involved, direct labour was synonomous with 'price for cash' and all that goes with that. I apologise to anyone whom I tarred inappropriately.

So Geoffrey, was the €50k price you mention a 'price for cash' scenario?

 

[GeoffreyOD]

Price for cash work - No!

Price for cash work - No!

I didn't say 50,000, I said not much more than 50,000 and that was a one-off development so there weren't the economies of scale that a large developer would enjoy.
I did say it was a modest house, not the normal 1800 to 2000 sq. ft house that most people build in the countryside.
The average 3 bed semi-d or terrace house that would be built under the affordable housing scheme would be around 1050sq. ft.

I have enough evidence to lead me to believe that the way some of the houses in the affordable housing scheme are given out is slightly iffy but I'm not saying that the housing departments are corrupt.

Anyhow, who says that big developers don't pay 'cash' to those who provide services to them and who says all the big developers pay their tax liabilities. I remember reading recently about the CRO trying to tighten up company law and in particular law with regard to directors of companies because of the same circle of property developers who kept setting up new businesses and then going out of business to set up under a new business name leaving unpaid debts, with Revenue being their largest creditor.

 

[rainyday]

Re: Price for cash work - No!

I have enough evidence to lead me to believe that the way some of the houses in the affordable housing scheme are given out is slightly iffy

Well, it's not doing much good in your possession - you have a moral duty to present this evidence to the relevant authorities and/or politicians and/or journalists - whatever it takes to get this fixed.

and who says all the big developers pay their tax liabilities.

Tax Clearance certification would be a standard requirement for anyone tendering for state contracts.