With the heightened media coverage of the current housing crisis, the voice of developers and builders has largely been absent from the debate. Given that they are the key stakeholders responsible for delivering the much needed new housing stock, Knight Frank have utilised its developers/builder database to bring quantifiable evidence as to the obstacles that are preventing new construction from taking place.
The results show that there is clearly a need for a sensible adjustment of the Central Bank mortgage rules as an astonishing 96% of developers said the new Central Bank regulations will have a negative impact over the next two years. Knight Frank are seeing that first-time buyers are being pushed out to the regions as they are unable to afford the deposit for a 3-bed semi-detached within the M50 due to the new Central Bank criteria. The knock-on effect of this leads to urban sprawl, putting additional strain on our public transport system. Furthermore, while the regulations have had the effect of reducing house price inflation, with the Knight Frank Prime Index showing Dublin price inflation running at 1.2% per annum, they have contributed to furthering rental inflation, with annual prime rental inflation in Dublin now at 8.8%.
Prohibitive building regulations are also a factor for the lack of new construction, with an overwhelming 95% of respondents stating that the building regulations introduced in recent years have acted as an impediment to construction. The planning system is also criticised with 67% saying the current planning system is inefficient. However, the results also show that reviews of existing policies can have a beneficial effect on construction, with over 60% of respondents stating that the reform of the Part V regulations have had a significant impact on activity.
Regarding land bank purchases, 78% of respondents plan to increase their land bank over the next year with 48% of respondents targeting acquisitions with planning compared to 30% without planning. This shows a clear bias towards sites with planning in place which reflects the preference of capital funders for schemes with planning as the cost of funding for schemes without planning can be prohibitively high in the current finance constrained environment. Notwithstanding, Knight Frank have seen encouraging signs of recovery in the provision of financing for developers, with the availability of finance now greater than any period seen in the past five years. Senior debt providers are now starting to compete against those offering mezzanine and equity finance, while the two pillar banks have re-emerged as lenders for projects which have planning permission in place.
Finally, the survey found that the consensus sustainable level of residential building in Dublin according to developers/builders is approximately 9,000 units per annum. Despite this, the expected delivery of new units in 2015 is expected to be in the region of 3,000 units, which will mean that the level of new construction in Dublin in each year since 2010 has been lower than any level seen since the beginning of the 1970’s.