30 Jan The Housing Market and Property Development in Ireland
The Demand for Housing in Ireland
Everyone agrees that Ireland needs more homes.
Experts and analysts seem to have settled on 35,000 as the magic number of houses that need to be built in order to meet the basic demand for homes each year.
While this number would certainly allow Ireland to keep up with its growing population, it doesn’t allow for the increase in migration that is likely to occur post-Brexit.
As the uncertainty surrounding Brexit lingers, it’s impossible to calculate just how many Irish homes will be sought by those looking to emigrate. But it’s thought that there will be a significant increase in the number of workers (particularly those in the financial industry) relocating to the Emerald Isle from London.
Prices and rents in Ireland are rapidly increasing as the housing market remains severely undersupplied.
Apartments are sorely needed, and while construction activity is currently on the rise, there’s still a rather long way to go.
If the 2018 figures are anything to go by (18,855 completions out of 35,000) it’s estimated that in 2019, just over half of the basic demand will be met.
According to Goodbody chief economist Dermot O’Leary, the Irish housing market is likely to be playing catch-up until at least the end of 2020, and possibly even beyond that.
It’s no surprise, given this huge deficit, that Ireland is rolling out the welcome mat for developers.
In recent years, the Irish Government has made several changes that have been designed to increase output in the housing sector and so far the results have been positive.
In fact, more Irish homes were built in the first half of 2018 than in the entire period between 2011 and 2015. Houses in Ireland are also being completed more quickly than ever before.
The level of construction has significantly increased, particularly in Dublin (which accounted for 59% of total new builds in 2018) and the surrounding counties.
In contrast, some of the midland and border regions have seen a slight decrease (approximately 15%) in construction activity.
The Goodbody BER housebuilding tracker reports that the number of semi-detached properties that were completed in the second quarter of 2018 grew by 35.3% compared to the previous year and it’s likely that this upward trend will continue in 2019.
In line with the government’s Project Ireland 2040, the country aims to create 500,000 homes in the next two decades to keep up with population growth.
In the next few years, high demand in the private rented sector is sure to attract investors who will be looking to take advantage of the huge gap between supply and demand.
Rental growth in Ireland is strong, and competition in the residential sector is a lot less fierce than in the office sector, so the residential market could prove to be a very attractive prospect to investors.
Another factor driving the demand for housing is the number of large corporations that have a base in Ireland. Many multinational companies now operate there and this, of course, has attracted large numbers of workers who all need housing.
Ireland is home to 24 of the world’s top biotech and pharma companies and several international powerhouses like Google, Facebook, LinkedIn, JP Morgan, and Microsoft have a base in the capital.
The Housing Market and Project Ireland 2040
The government’s long-term plan to deal with the housing crisis in Ireland (over the next 21 years) is explained in Project Ireland 2040.
Project Ireland 2040 is a €116 billion government initiative which aims to make Ireland a better place by achieving the following 10 strategic outcomes:
- Compact growth
- Enhanced regional accessibility
- Strengthened rural economies and communities
- Sustainable mobility
- A strong economy supported by enterprise, innovation, and skills
- High-quality international connectivity
- Enhanced amenity and heritage
- Transition to a low-carbon and climate-resilient society
- Sustainable management of water and other environmental resources
- Access to quality childcare, education, and health services
The housing crisis is clearly a prime concern as it appears at number one on the list. Indeed, it is referred to in the official documentation as an “immediate priority”.
The “compact growth” initiative is the main section of this plan that will be of interest to developers, as this outlines the strategy that Ireland has designed in order to increase the overall housing supply in both urban and rural areas of the country.
Through this compact growth initiative, the government aims to gradually increase the annual baseline, raising the minimum number of houses supplied to 25,000 by 2020.
Between 2020 and 2027, the output is expected to grow to the point where somewhere between 30,000 and 35,000 houses are being produced each and every year.
It is hoped that by 2040, Ireland will have successfully added over half a million homes to the country.
€2 billion have been allocated to an Urban Regeneration and Development Fund in order to facilitate growth in Ireland’s five cities (Dublin, Cork, Limerick, Galway, and Waterford). It is hoped that this will act as an incentive to encourage collaborations with developers from within the private sector who are interested in those specific areas.
The project outline reveals a major focus on building in existing built-up areas within cities and towns. It is clear that there are plenty of opportunities here for developers to help Ireland by regenerating derelict and vacant sites that have already been developed but which have fallen into disuse.
To increase the efficiency of land management, the National Registration and Development Agency has been established. This agency will deal with the development of publicly owned land, particularly in urban areas.
How Easy Is It To Get Planning Permission in Ireland?
It’s now been a little over a year and a half since Minister Murphy took decisions involving planning permission out of the hands of local councils and instead encouraged developers to apply to An Bord Pleanala directly.
The change, which was designed to fast-track large-scale housing developments, has proven to be quite successful, attracting more than 11,000 applicants from developers since it was introduced on 23rd June 2017.
Of course, developers have been (and still are) more than happy to take advantage of rising property prices and are eager to welcome anything that streamlines the approval process.
The Irish government is heavily reliant on the private sector to bail them out of the current housing crisis, which makes them very accommodating to developers. This means that there are many exciting opportunities for the large-scale development of both housing and office spaces in urban areas.
Under the current fast-track system, developers can expect to attend a pre-application consultation with officials within a maximum period of 9 weeks. The purpose of this preliminary meeting is to determine whether or not a proposed development is in line with the government’s targets.
Following this initial meeting, an official application is then to be submitted. Once received, a final decision will be made within just 16 weeks.
Developers should note that in order to take full advantage of the system, it is extremely important to have all of the relevant information available to them at the time of the initial meeting.
Developers will be unable to submit any further information or rectify any points after the application has been submitted. Any incomplete or incorrect applications will be rejected and applicants will need to begin the whole process again.
The current system means that private large-scale housing development applications can now be approved within 6 months overall. This is a vast improvement on the previous system under which the timescale from application to approval was typically 18 months.
Furthermore, the Bord Pleanala is subject to a €10,000 penalty (payable to the applicant) in the event that it fails to meet these deadlines.
If you’re wondering whether it is possible to get an extension on your planning permission under the fast-track system, the answer is yes. However, extensions will only be granted in cases where a substantial amount of the work has already been completed within the original timescale.
What Types of Development Qualify for Fast-Tracking?
Officially, in order to get fast-tracked, you need to be planning a large “strategic housing development”. But what does that mean exactly? Well, it means that you’re likely to qualify if you are:
- Building 100 or more houses on residentially zoned land (or land that has been zoned for a mixture of residential and other purposes).
- Developing student accommodation (200 or more units). Again, the land must be zoned for either student accommodation solely or else for a mixture of student accommodation and other uses.
- Altering existing planning permissions relating to either of the above.
The fast-track process will continue until the end of 2019, at which point it will be reviewed. There is a clause in the contract which gives the government the option to extend the scheme for a further 2 years.
Given the success rate, it is likely that this extension will be granted, which would mean that developers could potentially take advantage of the fast-tracking system until 2021.
Residential Zoning Explained
One of the major benefits to developers of building in Ireland, as opposed to the UK for example, is the fact that the majority of the land in Ireland is already zoned.
This makes life a lot easier for those who are looking to create large-scale housing developments because it allows them to easily see all of the viable locations and therefore saves a lot of time.
There are 4 key types of residential zoning that you should be aware of before you choose your location. They are:
- New / proposed residential, strategic residential reserve (R1). This category covers previously undeveloped land which has been allocated for future residential building projects.
- Existing residential (R2). The R2 or “existing residential” label is used to distinguish between residentially zoned land that is undeveloped and that which already has existing housing on it.
- Residential, mixed residential and other uses (R3). This label is used in those instances where the residential zones do not fall neatly into either one of the previous two categories. For example, if 70% of a zone is previously undeveloped but 30% of the same zone has existing housing.
- Strategic residential reserve (R4). You may come across plans with the R4 label, which basically means that the land is intended to be used for residential use at some point in the future, but that the details of the preferred type and size of development have not yet been finalised.
Finance Options for Property Developers
So, what are some of the funding options available to property developers looking to build in Ireland? Let’s go over 3 of the main options:
1. Property development loans are a great option for those looking to take on commercial or residential projects.
You can usually obtain (on an interest-only basis) up to 90% of the estimated development costs up front and you can opt for a loan duration of anywhere between 4 and 36 months. This is not set in stone, however, and can be longer depending on the nature of the project.
Funds and interest rates for most types of development related finance are typically allocated on a case-by-case basis, so it’s best to consult a commercial finance agency that deals with property development finance for the best advice.
2. Bridging finance is a great short-term option that can be used to cover everything from development costs to the costs of painting and decorating. Depending on the circumstances, it’s possible to get bridging loans of €150,000 – €25m. Bridging loan rates in Ireland typically fall somewhere between 6% and 12%.
3. For those wanting to develop property on a smaller scale, a buy-to-let mortgage could be a viable option. Taking out a buy-to-let mortgage is an ideal strategy to secure finance for a single property, whether it’s commercial or residential. Buy-to-let mortgage rates can be quite favourable, and depending on your circumstances, you may be able to secure up to 75% of the required capital.