Let’s talk about urban dereliction. Walk around Dublin, Cork or Limerick and dereliction is everywhere. Close to The Irish Times offices large swathes of Dublin’s south inner city are run down, in need of repair, unoccupied and derelict. And while many buildings may look occupied on the ground floor, once you lift your gaze more often than not the third and fourth floors are falling down.
The same is the case for Cork from where I’m writing today. Walking the length of this lovely city west to east you see something similar all the way from the Mardyke to Custom House Quay, upper floors appear grossly under-utilised and, in the main, vacant. They are certainly not homes or apartments.
In our cities that are crying out for accommodation how come so many buildings – potential homes for thousands – are derelict?
How come there are only 100,000 people living between the canals in Dublin when at the same time in Copenhagen there are close to 600,000 living in more or less the same footprint?
Copenhagen a not high-rise city, rather it is an intensively-used six-storey city. The main difference is usage. In Copenhagen buildings are used in their entirety; in Dublin and other Irish cities they have been allowed to go to ruin, and there is no penalty associated with dereliction.
In terms of our urban landscape, dereliction is legalised vandalism for the property-owning classes. It is as deleterious to the streetscape as vandalism.
Deploying the American “broken window” theory of urban development, once the city authorities tolerate dereliction and vacancy, dereliction and vacancy will spread. People see vacant properties, boarded up windows, idle sites and derelict buildings and they tolerate them. Thus we descend into a downward urban cycle, where people move away from the area.
In terms of the housing crisis, this dereliction and urban vacancy is quite inexcusable. So what to do about it?
First, we must define reality. Reality is that land is an economic resource that can either be used or hoarded. If you want land to be used intensively in urban areas you have to change the incentive structure away from tolerating dereliction and towards encouraging renovation. It is clear that the free market is not working. If it was we would not have dereliction in our city centres.
When property prices are rising there is always the incentive to hoard rather than develop. The reason is obvious. Why develop or renovate today when you can do it tomorrow, or, even more enticing, why not do nothing and sell on next year or the year after at higher prices?
So when prices are rising, supply of existing buildings doesn’t expand as economic theory suggests. In contrast, supply stalls as owners who might develop wait for prices to go up a bit more.
As a result the market can’t solve this on its own, and, indeed, leaving it to the market simply leads to more foot-dragging.
The way to solve this is to penalise dereliction and vacancy but at the same time to encourage renovation. So we must split the value of any urban building in two. The first value is the site value and the second is the bricks and mortar value or cost.
Take, for example, a building in Dublin’s north inner city worth €1,000,000. The site value of this building is, let’s say, €500,000, and the brick and mortar value is €500,000. It would not be difficult to estimate for the whole city a site value equating to the square metre site value or location value for certain parts of the city. This would vary according to the location.
The site value per square metre in Dublin 4 would be more than the site value per square metre in Dublin 7. Dublin 4 is made more expensive by the amenities provided in Dublin 4, good rail links, good schools, good public hospitals, clean open spaces as well as shops, restaurants and footfall.
The value of sites in Dublin 4 is not generated by the individual owners of the sites in Dublin 4, but by other people, other enterprises and by generations of public investment in this area. A site value will go up enormously if a Luas stop is built there, yet the Luas stop is provided by the taxpayer – not by the site owner who will benefit from this windfall.
Therefore taxing the sites rather than taxing the individual owners who renovate their property captures some of that public site value back for the public because it is generated by the public not the individual owner.
The decision to renovate is a separate matter; it is a cost incurred by the owner to increase the value of the property at his expense. Such initiative should not be taxed.
By the way, a site-value tax should extend to public land owned by the State in strategic residential parts of the city but left lying fallow. State inertia as well as developer/owner greed is a massive contributor to land hoarding.
A site-value tax or a location fee would go a long way to stopping land hoarding in urban areas. In fact a site-value rather than property tax is the way forward because property tax actually penalises the people who renovate their home, adding value through their own efforts. A site-value tax only taxes the site, and in so doing reduces the incentive to hang on waiting for prices to rise further before selling for development.
Keeping this idea in mind, consider going one step further with dereliction. There should be a very draconian dereliction tax that makes it prohibitively expensive to sit on a derelict or vacant building.
The owner could avoid this tax by selling on to a developer who wants to build or develop the building. Or the owner can avoid the tax if he starts developing or renovating himself. This tax would have to be high enough to make dereliction prohibitive. So it should be at least 50 per cent of the site value per annum. This would make the market move.
However, just in case you think this is a “penalise owners” idea, it is not. We could also introduce a tax incentive for renovations. So the owner who complains, with justification, that renovation of old buildings is extremely expensive can offset those expenses against tax. This would encourage development immediately, and give the developer an incentive to arrest dereliction and vacancy.
By penalising bad behaviour and rewarding good behaviour we breathe new life into cities and begin to chip away at the housing crisis – by using rather than hoarding existing buildings and land.
[ In our cities that are crying out for accommodation how come so many buildings – potential homes for thousands – are derelict? How come there are only 100,000 people living between the canals in Dublin when at the same time in Copenhagen there are close to 600,000 living in more or less the same footprint? ] The hardest questions of all…. Answer – Ireland’s real estate market is actually deeply dysfunctional. The incentives are there in the market, and the market is not producing any action to follow the incientives. Something is screwing with the incentive mechanism. Planning processes… Read more »
Well…here is the fascinating aspect…those derelict buildings are not generating any income. In fact they are not even being redeveloped for the sake of producing an income. Nothing is happening. The market demand exists….and nothing is happening. It is frozen due to all sorts of reasons. Perhaps we have made the entire planning processing completely dysfunctional to the point that nothing is happening. Also low interest rates, make sure that there is no opportunity cost to holding assets with no income, that are speculative. In other words, a lot of this also leads back to the ECB. Current ECB policy… Read more »
Great idea. I think you need to start a political party David!
Should anyone be interested in reading my latest article, here it is:
Good ideas David, but cutting to the chase – is any of this going to happen?
Probably not, so what’s the point?
I suppose it is to the side of this conversation. We have been trying to do a renovation on our house going on 18 months now. Try and get a contractor in to do a renovation at the moment is almost impossible. They are all tied up in the more lucrative house building now. I suppose that is progress in some way. However the path to renovation isn’t a case of you wake up one morning and decide to do it. It in of itself can be a full time job that can consume a year or more tax breaks… Read more »
I’m not convinced that it’s a failure of the market. It seems to me that the market is not being allowed to work. If I had a suitable building located in central Dublin I should be able to fill it with profitable tenants very easily in the current market. The rental income should more than pay the loan for any reasonable renovation. If I own the building already, I would likely get a 100% loan to cover renovation costs. Hence my economic incentive is to renovate it and earn this rent. That doesn’t prevent me from benefiting should property values… Read more »
Want to know why alot,if not all of these buildings are not being developed? PRESERVATION ORDERS of Historic buildings for one. Most of Georgian Dublin and Limerick are under preservation orders that make it almost impossible and cost prohibitive to renovate these buildings to bring them up to the 21st century fit for use, and even disabled friendly. Always said it was a great pity that the Luftwaffe urban renewal project of Europe 39/45 never visited Ireland.As it would have demolished numerous slums in our cities as well as these classified as historically valuable buildings. Who wants to lug their… Read more »
I think answers here by David are simplistic. (1) The elephant in the room is immigration which no PC contenders can mention. (2) Numpty poliitcians on social housing. (3) NAMA. A rudderless public servant employer. (4) Building deficiency a credit to Angela and her Reich Eurocrats. (5) Suddenness of recovery. The sad thing here is a lack of belief in the Market Economy. Supply / High rent yields Results. You believe this or you don’t. 500k houses were produced 95 -06. The only way to do this again is to allow the Market Economy to thrive. A witch hunt for… Read more »
“” It is clear that the free market is not working. If it was we would not have dereliction in our city centres.”” Rubbish!! The market place always works. If there is dereliction it is telling you that under current conditions it is more economic to do nothing with the property rather than something. Conversely it says it is uneconomic to redevelop the property. Something has to change to make it worthwhile to develop business spaces or houses for people. What that something is has to be investigated but my guess is that the first things to look at are… Read more »
“” dereliction is legalised vandalism for the property-owning classes. “”
Using class warfare always provides the solution just as Marx and Lennin found out.
Hi David, It was a mistake to compare Dublin to Copenhagen. Ireland has the Euro and Denmark has it’s own currency the Krone. Here in Ireland between the Euro must be saved at all cost’s imperative and the 20% second home purchase rule plus the open doors immigration policy allowing the Michael O’Leary’s of this world to drive the zero hour contract min wage agenda, young Irish people haven’t a hope of buying a pad in any of those buildings even if renovated; https://www.irishtimes.com/business/personal-finance/have-the-irish-given-up-on-owning-their-own-homes-1.3005440 The Danish know better maybe it’s the protestant in them but they held their own currency… Read more »
The real changes in the world economy. Debt suffocation and default. The developing nations borrowing in US treasury notes but repaying the debt in Renminbi. The transition to a gold backed monetary system as the influence of the US dollar declines The Russia German trade arrangements. Plus much more…..
Isn’t there a distinction between empty buildings and derelict ones? To borrow the phrase, is anyone putting a gun to people’s heads to vandalize other people’s property? Couldn’t the tools be given to the homeless (whether in inverted commas or not*) to do up the ghost estates? That is a joke – see my comment to Grzegorz below. Failing that, couldn’t they be asked to PFO to where they were living before they found themselves ‘living on the streets’ through no fault of their own? Make it up with the husband/ wife/ partner or mother/father/ step-mother/ guardian/ grandmother, give up… Read more »
@ David McWilliams;
If you ever want to write an article eulogising a real life still living Irish Patriot eulogise this one telling the truth about RTE Pravda;
Let me remind you you write for a living and could take a leaf from her book literally and metaphorically.
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