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.
Problem solved.
25000 pay 500 mth in a mix of social/affordable development.
150000m yr. Cover site costs etc.
The simple maths work.
Sonetimes the line down the middle of a blank sheet of paper supersedes all political economics.
Your last line there about “Vested (perhaps ‘suited’ would be more accurate!)interests” pretty much explains exactly why we have a housing crisis.
A giant council house ghetto. Lovely!
This problem is very tractable if you only need to pay out 1% of the true cost. Adding the principal to our national debt and rolling it over further down the line is surely the type of thinking that got us into trouble a decade ago? What happens if the bond markets start to view us less favourably or if we can’t re-finance at those low rates indefinitely? It’s a great idea but why not issue a 30-year bond at 2% and pay down the principal as well so we’re not solving one problem whilst creating another.
Dublin – how not to plan a city. Dublin – a vertically challenged city. And Dublin, the centre of paralysis ( a quote attributed to James Joyce). By paralysis he was referring to the endless inability to get anything done. David has hit the nail on the head. Stop trying to plan Dublin like as if it was Roscommon town. If you want a city, then build one. Even six stories high in Suburban Dublin is not a massive ask. Adamstown is three and four stories – and it is seen as a massive improvement. There is a corridor alongside… Read more »
There are several elements to the housing list. Welfare is not a good incentive to stay out of the labour market. And the minimum wage, plus tax allowances encourage people to get working. But lack of market affordable housing, and the potential for a place on the queue for social housing is an incentive to stay out of the labour market. And that is a big problem with Dublin’s current housing shortage – it is encouraging people to not progress in the labour market. The market has been bottlenecked to bail out the banks. People cannot afford to buy, on… Read more »
We need to build upwards. Problem solved.
I’m surprised at this article , are you advocating a government interference in the housing market ?? Great for all those people who dont want the inconvenience of a 400k mortgage around their neck , just sit tight and let the govt. provide.! Will this fanciful idea cause a drop in house price for owners and rental income for landlords ? Of course but dont let that get in the way of our social responsibility for the minority ! , but then again , with the drop in both values maybe the minority will become the majority . Rather than… Read more »
Mr McWilliams! Big improvement on the last installment on this topic! I think your cost numbers are a bit off still, and there are macro economic consequences to initiating an increase in activity which would definitely kill off the cost forecasting presented here, but that aside the article in on the right track in my opinion. Key to this is your linkage of density issues at an urban level and the need for a mass program with government backing regarding financing you suggest the REIT as a way forward. This is great we need to think about this in a… Read more »
Sorry – I’m writing off a small tablet and punctuation is hard to do!
As long as housing policy is left in the hands of landlords and developers nothing will change. There needs to be a new approach based on the needs of the population
we actually have and the rents they can actually afford in the post recession economy.
Pat Flannery – are you out there? Looks like our conversations on this are bearing a little fruit here! It is a nice feeling!
Subscribe.
Actually, the more I hear from the media in this country, the more I realise the true predicament of this entity of profiteering and lying that we pretend to still call a “society” (at enormous expense to those that actually do the productive work in the same entity). I listened to Pravda radio 1, this morning talking about Frances Fitzgerald representing the institutional state at a “corruption conference”. A TD in a political party that is crooked. Part part of a government that contains a former minister who was fingered by a corruption tribunal. And getting assistance from the Bertie… Read more »
Let’s reintroduce another elephant. It’s called the “Never Never”. When I was a kid growing up people acquired their TVs on the never never ie they rented their TVs. It was eextremely expensive. It was mad economics. People did it because they couldn’t afford to buy a TV outright. I totally 100% disagree with the figures for servicing the debt trotted out because they are based on the false premise of not paying off the principle. Do us all a favour David and redo the numbers with principle being paid off. You are advocating more debt when the opposite is… Read more »
In ten years time you still have the debt of 50000 houses @ todays build costs. You also have 50000 houses at the market value of 2026. Strict rules are needed to keep these developments from becoming gettos. A mix of social and affordable. The median household wage in Ireland is 45000 with a net of 3000 mth according to the daft trinity guy that writes in the Sunday papers. House insurance, house tax plus mortgage repayments can only max @ about 900 mth. The median households cant afford 250000 mortgages @ 4%. The private market should also get 25yr… Read more »
Sorry
The DEBT on land .
Grossly overvalued FALSE VALUE debt.
http://www.bregsforum.com/2015/01/27/developer-led-sales-price-for-a-typical-apartment/ Developer-Led projected Sales Price for a Typical Apartment (multi-unit) Base build cost= €1751 x 85 sq.m. = €149,000 plus 8% for professional fees (+€12k)= €161,000 plus SI.9 Professional + specification Costs (+€15k)*= €176,000 plus legal, marketing, sales and other costs of 5% (+€9k)= €185,000 plus developer’s net sales profit of 20% (+€37k)= €222,000 plus vat @ 13.5% on sales (+€30k)= €252,000 plus carparking cost (+€20k)= €272,000 plus planning levies (+€6k)= €278,000 Projected sales price (The above cost calculation excludes site purchase costs.) This is the real cost of producing 1 1000 sq ft 2 bedroom apartment. 100,000 higher than… Read more »
The private development sector, the banks and the public sector have failed to provide a sustainable housing market. A new way must be created. High housing prices are bad news for any economy.
Those who control the land control the house building sector and Industry estimates suggest that New Generation has over 100 sites around Dublin with capacity for more than 10 years of construction,
http://www.independent.ie/business/the-man-behind-the-biggest-irish-land-gamble-31118323.html
Perhaps there should be regulations to prevent any single company / vested interests controlling more than 10% of the available development around Dublin.
Will it work in theory?
But the canny land owner gets the PP before selling the site and then we’re back at 50k per unit site cost
As I keep saying.
Let’s join the 21st century and get real.
http://lofi.phys.org/news/2016-05-hybrid-hydrostatic-transmission-enables-robots.html
Wow, sounds like Ireland needs a proper socialist/communist government to take over and sort out the housing problem..
To hell with Private Property rights, CPO the land. Let them eat cake and live in Tiny flats compliant with Agenda 21
Meanwhile the central banker owners and minions control the world and Kissinger knows it as do anybody else taking the trouble to investigate.
If you want to solve your problems you have to start with the money system and close down the central bankers. Case solved.
“Who controls the food supply controls the people; who controls the energy can control whole continents; who controls money can control the world.” … Henry Kissinger
A real 21st century solution to the housing problem.
http://www.gizmag.com/hadrian-brick-laying-robot-fastbrick/38239/
When I listened to this video by Mr Schiff on buying v renting: https://www.youtube.com/watch?v=iMw0PCte4dA it dawned on me that the only variables that are different in the Irish buy v rent equation are, by and large, limited supply + NAMA Remember those alarming articles that it will take us 43 years to fill the empty houses? http://www.independent.ie/business/irish/itll-take-us-43-years-to-fill-all-empty-houses-26863864.html and https://namawinelake.wordpress.com/2011/09/30/ireland-%E2%80%93-a-country-with-over-300000-vacant-homes-but-100000-households-on-state-housing-lists-a-joke-or-an-opportunity/ But then the Minister of State for Housing and Planning, Mr O’Sullivan, solved the problem by bulldozing those houses (would it not have been cheaper to employ healthy, bored and unqualified 20 year olds in tracksuit bottoms roaming the streets and… Read more »
BREXIT THE MOVIE
https://www.youtube.com/watch?v=eYqzcqDtL3k
Fair affordable debt costs for housing needs. In a zero % interest rate zone it is only right and fair that Irish citizens avail of market interest rates for their housing needs. McCawber May 12, 2016 at 6:08 pm “Another elephant for you. You can get a 20 year mortgage fixed at less than 2.0%.” Historically variable mortgage interest rates went up and down in line with market interest rates. There was no tsunami of reposessions, mortgage arrears, firesales, mental health anxiety( normal value debt causes anxiety but FALSE VALUE DEBT causes CARNAGE). Today Philip Lane tells us that if… Read more »
Mike & McCawber, The mistake the Irish people are currently making is in thinking that the State can fund all public services out of general taxation. That notion is widespread in Ireland but it is wrong because the financial markets set limits to how much a State can borrow and if it joins a larger grouping like the EU that larger group sets disciplinary limits. Ireland must embrace the idea of ”fees for service”. The abolition of property rates in 1997 crippled public finances/services in Ireland by creating a false reliance on general taxation for everything. Reinstating an ‘ad valorem’… Read more »
I’ve touched on this before but how can any of our banks be allowed to pay dividends when they are charging interest rates that are out of step with their peers in the EU.
Regulation is there to stop excessive behaviour.
Once again we are seeing the lack of prudent regulation.
Go on RTE web site.
Select one of the sports threads.
Scroll to the bottom of the thread.
You will note that it is possible to post comments.
Now go to one of the news or business items.
Scroll to the bottom of the thread. NADA.
Why is this one would wonder?
REAL VALUE Pat As John Moran(cherry picker) has stated on rural Ireland, We need a ” Mature Debate ” BUT ON FALSE FINANCIAL REPORTING by Irish Banks. REAL VALUE DEBT for mortgages, rent and generally all housing needs. I have asked the simple junior cert question as to what is a FAIR rent for a single worker, a couple and a family with two kids. To me a fair rent or mortgage would be based on a ratio of your income. No free market BOLLIX. Time to call a spade a spade. Tony Brogan has supplied a red line 30%… Read more »
Hi Pat, First of a few… On Local Authorities and Borrowing: Local authorities (councils) have the obvious power to control their banking affairs but any borrowing would have to be sanctioned by the Minister. The Local Government Act 2001, PART 12, controls Financial Procedures for local authorities and it says the following: (2) Subject to subsections (3) and (8) and any regulations made under subsection (5), a local authority may borrow money in any manner which it considers suitable for the effective performance of its functions. (3)(a) Borrowing by a local authority under this section shall only be with the… Read more »
Local Authorities and Social Housing Coming back to Social Housing provision, this is obviously dispersed across the councils and a total lack of provision has occurred in every single one of them. On an economic level part v followed the doctrine of economic liberalization of letting the market provide. Socially Part V was meant to react to “residualisation´´ ( non-intentional creation of social housing “ghettos´´ which was created unexpectedly from right to buy provisions and inadequate maintenance levels by councils by spreading social housing in small amounts to all developments and creating new mixed income housing nationally. So a part… Read more »
Hi Pat you asked about borrowing by municipalities in European countries so I wanted to reply by talking about the case of Spain. In terms of municipalities or similar borrowing in Europe the only other country I am aware of in detail is Spain where regional governments have mounting debt problems. Spain and Ireland have both many parallels for me and points of contrast in their attitude to property and in the nature of the related boom and busts in both countries since the advent of the Euro. Regional governments vary in size are in charge of populations between 8… Read more »
In my opinion everyone in this country should be pointing the finger at our Unscrupulous and Vile Estate agents which are operating in this country. There is zero transparency and practically no regulation on these Gangsters! These are the scumbags who are causing a so called “Housing crisis” and talking up a false housing market so that they can squeeze any potential hard pressed working families off. Wake up!… The market is rigged!… It is as simple as that….
https://cs.stanford.edu/people/eroberts/cs201/projects/2010-11/ComputersMakingDecisions/robotic-nurses/index.html
As I keep saying.!
Yes Minister Ross.
That wasn’t too hard now was it.
http://m.rte.ie/news/2016/0514/788408-luas-dispute/
[…] electorate tend to find the arguments of fiscal conservatives more intuitively appealing. David McWilliams provides a simple yet powerful example of the case for borrowing to solve the housing problem. It […]
[…] Some economists and homeless charities have urged the state to do more to address the primary problem of supply. Ideas include a rapid increase in the provision of social housing, streamlining planning procedures, and measures to encourage the use of Ireland’s 200,000 vacant homes and potential 4,000 units that could be made from unused space above shops in Dublin. […]