When I was a kid, the coolest thing you could do when you grew up was to go on the Magic Bus from Dublin to Greece. All the hip older brothers of my mates did this. They worked in London for the summer on the sites and then spent the lolly on PLO scarves, massive spliffs, a copy of the Little Red Book and a one-way ticket to Mykonos to lose their virginity to a German hippy with hairy armpits.
The Magic Bus shuttled all around Europe and took thousands of Irish teenagers on the initial Dublin to London part of the odyssey.
Nobody got the plane from Dublin to London because, before Ryanair, it was too expensive. Before the Ryanair Generation, there was the Magic Bus Generation. The cost of the flight to London was £280. Are Lingus said it couldn’t be done for less, until it was by Ryanair, who came along and started slashing costs.
Today, no one thinks air travel is out of his or her league, as evidenced by Ryanair flying 100 million people last year.
Ryanair changed the model and came at the business via a different angle and also did what many thought impossible – it cut prices and made more revenue and profits. Normally, businesses think that if you cut prices, revenues will fall and so will profits, but Ryanair did the opposite.
Now consider accommodation in Ireland, where it was revealed yesterday that average rent is now €1,000 per month.
At the moment, we are told that it is far too expensive to build houses. Does this not sound a bit like Aer Lingus management of old?
Let’s examine how the State could involve itself in financing a housing trust using the international financial markets to massively reduce housing costs in Ireland.
Currently, the markets will finance any good opportunity. When interest rates are zero, the obvious thing to do is borrow for infrastructural projects and housing is the most significant infrastructural development that one can think of right now.
Let’s look at the numbers.
Builders will tell you that building costs are around €120/130 a square foot. For a large scheme, this could be lower and could move towards €100.
Now let’s say that the average unit in Dublin or any urban centre in Ireland is 1,400 square feet. This means that the average building cost of a house/apartment of this size is €140,000. Add to this VAT of 13.5pc and we get €158,200.
Now on top of this there are professional fees for architects and surveyors and the like. These could be 12pc of the contract price plus 23pc VAT. So this is close to €19,000 on top of this price, bringing the €140,000 initial cost, up with all the fees and taxes to around €166,000.
Then on top of this are development levies which are the costs per unit that are added by the council to pay for new roads, water pipes and sewage. These are typically €9,000 per unit. So we are now up to €175,000 per unit.
Now we have the cost of the build with all the charges and taxes before we talk about site cost.
In 2011, Dublin probably had enough houses to deal with the population. However, there should have been 60,000 built since to keep up with population growth but only 8,000 have been built, so we have a shortfall of around 50,000 for the sake of argument.
Imagine the State was to build or fund the build of 50,000 houses. At €175,000 each, this would cost €8.7bn. This is a big number but the Irish State can borrow for 10 years at 1pc, according to Bloomberg yesterday. Therefore, the State could issue a Housing Executive Bond, which it could sell to Irish residents who are sitting on €94bn of deposits in the Irish banking system. Servicing this debt would cost €87m per year.
Traditionally, countries don’t pay back the principal of their national debts, they simply roll it over.
So it would be prudent to suggest that we would do the same for this Housing Executive Bond.
Now we have a situation where the total annual cost of 50,000 units is €87m. This means that the annual cost per unit is €1,740. The implication is the rent that would be needed to be charged per unit per year to pay the cost of this build, funded by a Housing Executive Bond, is €1,740 per year. Let’s round this up to €2,000 per unit per year, to include maintenance.
So total rental cost of a new house or apartment is not €12,000 per annum, as is the case right now, but €2,000 per annum or €38 a week.
This is feasible. You have seen the numbers. The major cost omitted is the site cost and this is where we come into the land issue.
At a density of 60 units per hectare, this would mean about 833 hectares of development land, or about 2,000 acres, is needed. There are 28,000 acres in Dublin in total but just one bank, Ulster Bank, put a portfolio of 1,850 acres of development land up for sale this year. So the development land portfolio of just one bank could almost cover this total city requirement! Now we are talking.
The State could simply CPO this land at cost and be done with it. You could add the repayment cost of this land to the annual rent. This would bring up the annual cost of the rent needed to cover everything to €3,000 per year or a quarter of present average rent paid.
Thus, the great Irish housing crisis is solved for less than €60 per week for a family of four in return for a new house, fixity of tenure and peace of mind!
That’s how it’s done in proper countries. The choice is ours.
Let’s join the 21st century and stop gouging each other for the basic right of a roof over our heads.
Unlike the lads on the Magic Bus, these are the numbers, no one is smoking funny stuff, just seeing things clearly through the haze of vested interests and inertia.