Last week (9 August) saw Limerick City and County Council grant conditional approval for a new development of 201 homes at Baunacloka, Mungret. This could be the most significant new property development in Limerick city and its environs since the Celtic Tiger era.
Despite the big dent it would make in the Limerick housing market shortfall, the units are not going to appear overnight. It could take three or four years before they become available to buy.
In the interim, the housing shortage increases. Over the past five years, Limerick City and County Council has only received 19 applications for developments in excess of 20 units. There are just a handful of developments currently in development, dotted around the city and its suburbs.
Furthermore, industry sources have indicated to Limerick Life that there is a lack of preparatory work taking place in the region on new sites, indicating that construction will not start on any more housing developments before the end of 2017. This will not be welcome news to the many families who are desperate to get out of the hectic – and expensive – rental market.
In this edition of Limerick Life, we explore the reasons behind this serious shortage of new homes.
It is estimated that we need 1800 new houses per year in Limerick. However, the reality is that less than 100 are being built. Lisa Kearney of Rooney Auctioneers is currently fielding significant interest in a new phase of units at Rós Mor on the Ballyneety Road. Phase 3 of the development sold out last month, while first time buyers eagerly await the launch of phase 4 in September.
“There has been excellent demand. It’s all singles and young couples,” said Ms Kearney. “We’ll be releasing six houses in September but I imagine they will be gone if not on the day, within a week or two weeks again. New developments are very scarce on the ground and nobody is servicing the first time buyers market.”
She added that there is a massive demand for second-hand homes, and while investors are “very slowly” dipping back in, it is primarily the same first time buyers competing in this market.
The shortage of houses is driving up the prices, according to Ms. Kearney. “Any second-hand house that comes to the market, you put the value on it. That sales price is driven up by competitive bidding. There isn’t one house in the last twelve months I’d say that hasn’t attracted competitive bidding, which pushed it way up.”
OBSTACLE 1 – COSTS
It would seem that with such a demand for new housing, developers should be clamouring to start constructing new homes, but that is easier said than done. The major obstacles are unsurprisingly financial, and these issues with costs are two-fold, as they are affecting both the buyer and the developer.
Last year, the Society of Chartered Surveyors Ireland (SCSI) published a report entitled ‘The Real Cost of New House Delivery’. Their analysis was based on Dublin housing projects of thirty units or more. What they found was that the construction cost for a 3-bed semi-detached house averaged just over €150,000. However, this only accounted for 45% of the overall costs of providing the house. Non-construction factors, such as land and finance acquisition, sales and marketing, design, and development levies all contributed to an overall figure of €330,000.
The affordability of such a home brings up questions around market viability. The report found that a couple earning a combined salary of €74,000 (according to the CSO, the average national salary in 2016 was €36,919) with €35,000 in savings would receive a maximum loan amount of €259,000, leaving them over €36,000 short of the total figure.
While house prices and construction costs are lower in Limerick, so too are wages. The most recent CSO figures available put the average joint household income in the city and county at approximately €53,000. Eoin McMahon of Cuddy QS estimates that a similar home in Limerick would cost approximately €253,000 to build, although this figure is conservative, given that current land values are difficult to ascertain. The average first time buyer in Limerick, limited by the Central Bank rules, can only borrow 3.5 times their income, or €185,934. This means that they would need a deposit of €67,066 just to get the house built, before fixtures, fittings and profit are factored in.
For the buyer, there are several restrictions affecting how much they can borrow from lenders. As can be seen from the above, the amounts on offer are frequently less than the average cost of building a new home.
The Help to Buy (HTB) incentive for first time buyers has been criticised by many within the industry, who feel that the system of a tax rebate is somewhat convoluted.
“There is no quick fix,” according to Rooney’s Lisa Kearney. “The government has to incentivise first time buyers. Either keep the HTB scheme or go back to when they gave them the grant. That helped them tremendously – give them a cheque and they were able to go off and furnish their house with it. It was simply, easy and clean.”
It is widely rumoured that Housing Minister Eoghan Murphy may scrap the HTB scheme, which was due to run until the end of 2019.
Muriel O’Sullivan is the Managing Director of ATG Properties. The Ballybrown-based company has been responsible for Cois Carraig development in Clarina village, a complex of almost 50 new 2-bedroom dormer bungalows. She told Limerick Life that there is “no doubt in my mind that finance remains the biggest stumbling block.
“No bank will touch any type of residential development in Limerick. The standard answer most people are getting is ‘not outside Dublin’. One of the things that needs to be addressed is making finance available,” she added.
Lisa Kearney echoed these sentiments: “It’s not cost-effective for the builders to get in there. The cost to build – and the building regulations, (as these houses) have to be in the high A3 ratings – make it very hard for builders to get in.”
She added that there is no land available for building around Limerick city, and that developers will be going further and further out.
A spokesperson for Limerick City and Council said that there are adequate lands zoned in Limerick for housing, and that planning permissions are being granted. They added that “as with all parts of the country the primary obstacle is development risk versus profitability. There are issues surrounding financing and resultant challenges developers have with financial institutions.”
OBSTACLE 2 – PLANNING AND REGULATIONS
The development at Baunacloka, Mungret has come through an arduous planning process. Their first planning documents were sent to Limerick City and County Council in December 2016.
The development can still be appealed to An Bord Pleanála, which in 2015 overturned 28% of local authority planning decisions that were appealed to them. Most recently, they overturned the decision by Limerick City and County Council from January of this year, which granted permission to M.A. Ryan & Sons Ltd to build 26 new homes at Greenpark, on a land bank on the site of the old racecourse.
This was the second time that the company of well-known Limerick developer Michael Ryan were refused permission by An Bord Pleanála, despite going through the local authority’s planning process successfully on both occasions.
On the flipside, An Bord Pleanála may be about to give developers fewer headaches. Developers who are planning large-scale housing schemes of more than 100 homes will be eligible to bypass their local authority under a new fast-track scheme where they apply directly to An Bord Pleanála. Under this system, developers would have a maximum planning process of 25 weeks. It is hoped that such a scheme will help alleviate the national housing crisis.
However, there are numerous other regulatory hoops that developers have to jump through. Stricter regulations have led to significant increases in the cost of building a house, with estimates that the average 3-bedroom house now costs €15,000-€20,000 more to build than at the height of the boom.
There has not, however, been a corresponding increase in the sale price. There is now a situation where experienced Limerick developers are waiting until house prices rise to a level which would justify the large-scale construction projects that many experts believe are needed to end the housing crisis.
This has also led to an increased demand for good quality second-hand homes, which often represent better value for both the builder and the buyer. This has not gone unnoticed by Limerick City and County Council, who are thought to have purchased between 50 and 100 second-hand units in the city in the past year.
SOLUTION 1 – INCENTIVISE DEVELOPERS & BUYERS
This is not a particularly popular option, giving that the public are still wary of boom-style developers. If there are incentives for developers, there will in turn be new houses, but politicians are aware that any attempts to appease developers may cost them dearly at the ballot box. The establishment of a state scheme whereby finance is available to developers at 8-9% – as opposed to the 14-15% they are currently dealing with – would certainly help boost the industry, but it remains an unlikely option.
There are alternatives, according to our industry sources. “They have to give the developers some incentive; maybe look at the tax that developers are paying,” suggested Lisa Kearney.
The reduction of the cost of VAT on new homes could be something that would appeal to both developers and buyers, according to Muriel O’Sullivan of ATG Properties. “It is within the Government’s means to cut VAT. There is an option of selling to First Time Buyers at 5%, which would make developers more inclined to sell to them as opposed to investors. A 9% rate across the board might kickstart the market,” she said.
SOLUTION 2 – DOWNSIZE
Ms. O’Sullivan’s Cois Carraig project primarily consists of two-bedroom dormers that are specifically aimed at those living in homes that are currently too large for them.
“Ours is a unique development. A portion of it is for people over 50 and that addresses the downsizing development. There is a lot of talk nationwide about empty nesters taking up 3/4/5 bedroom houses, but not a lot is being done about it,” she said.
Ms. O’Sullivan added that approximately 90% of the homes that their new residents once lived in have since been sold, which is helping to reinvigorate the market with family homes.
However, there is a limited number of such development schemes around the country, with a lack of suitable accommodation alternatives on the market for many people who no longer want to manage a large family home or apartment.
“If there is a dearth of houses, then one of the solutions is to facilitate downsizing. The problem is that people with these homes often have nowhere to downsize to other than an apartment, and they often don’t want to go there,” she added.
Lisa Kearney agreed that downsizing can help with this crisis, but admitted there was a huge shortage of developments like Cois Carraig. “Over 55s want to stay in the area that they’re living in already but there’s no land and nobody producing it. If you had, there’d be queues out the door because people want to stay where their bridge club and church is and their friends are but they don’t want the big house.”
SOLUTION 3 – THE GALWAY MODEL
Perhaps the most radical solution is to replicate what is on the agenda in Galway. Limerick is not alone in facing such a conundrum around the availability of new housing. All of Ireland’s other major cities and towns are dealing with similar challenges.
It has been a controversial move, but Galway City Council appears to be pushing ahead with plans for a new suburb, Ardaun, which they believe will be the solution to the city’s housing crisis. They are currently working through a Draft Local Area Plan for a 405-acre site that could facilitate up to 2,700 houses. It is believed that if it gets the green light, construction on the first 500 houses could get underway in 2019.
Limerick City and County Council “currently have no plans to develop a new suburb”, according to their spokesperson. “Limerick City and County Council is committed to growth in a measured, sustainable manner. We are looking to consolidate and develop the urban areas of the city. The local authority is promoting sustainable urban grown as set out in our submission to Ireland 2040, The National Planning Framework.”
Unlike Galway, Limerick has a wealth of large-scale formerly industrial sites within its city boundaries, which are ostensibly ripe for development into apartments. However, the usual challenges apply to this solution as well, including planning permission, stringent building regulations and high repurposing costs.
REASONS TO BE CHEERFUL
The decision to grant planning to the development in Mungret could be the incentive for other developers to enter the Limerick market again.
Should it come to fruition, the development will primarily consist of semi-detached dwellings (150) along with a combination of terraced houses and apartments, as well as amenities such as a neighbourhood crèche.
Furthermore, developments such as Evanwood on the Golf Links Road and Cois Carraig in Clarina are reviving estates that had been left unfinished after the crash, and were becoming eyesores to those who had to live around them.
Muriel O’Sullivan explains that there has been a positive impact to the completion of their Cois Carraig project:
“Ours was an unfinished estate and there were 650 unfinished estates in Ireland at the time. When I came to Clarina, there were trees growing out of houses – I have the pictures. There were people living in an unfinished estate for the previous eight to ten years. It’s not all doom and gloom; developments like this are breathing life back in to what was the graveyard of the Celtic Tiger.”