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Dancing to the developers tune.

Builders delight at the climb-down over social and affordable housing

Up to 14,000 social and affordable houses may have been 'lost' by capitulation to the developers lobby. By Emma Browne

The phalanxes of builders and developers that crowd the Fianna Fáil tent at Galway races have reason to be especially generous to their hosts. Two years ago a Fianna Fáil minister, Martin Cullen, sanitised a radical initiative of another Fianna Fáil minister, Noel Dempsey, that required builders to provide social and affordable housing. As a result of that Martin Cullen concession, 14,000 families that might have obtained social and affordable housing have been disappointed. The builders have been overjoyed at the relaxation of building requirements.

In 2000 Noel Dempsey, then Minister for Environment and Local Government, introduced the Planning and Development Bill 2000, Part V of which stipulated that all residential housing developments in zoned land (with some exemptions) would have to provide 20 per cent social and affordable housing.

The builders objected. The Irish Construction Industry Federation said the requirement was "inappropriate and unworkable". Noel Dempsey was not for turning, apparently, but then something curious happened. Although in its 2002 election manifesto Fianna Fáil boasted about its initiatives on social and affordable housing, a few weeks after publishing the manifesto the party agreed in the Programme for Government to "review" Part V of the 2000 act. A climb-down at the behest of the builders was about to transpire, just a year after Part V had come into effect. And in double-quick time, the new Minister for the Environment and Local Government, Martin Cullen, introduced amendments to the legislation.

One of the amendments had to do with what is known in the jargon as "the withering rule". The 2000 act had exempted from the social- and affordable-housing provision all planning permissions for development that had been granted before local authority housing strategies were completed, but such planning permissions would "wither" after two years. This "withering" clause gave the 2000 act real teeth, for it meant that all planning permissions that didn't go ahead within two years of the housing strategies being completed would have to go through the planning permission process again, this time subject to the social- and affordable-housing provision. But two years later Martin Cullen extended the "withering" provision from two years to five years.

The argument was that if the two-year "withering rule" remained in place there would be a slump in housing output for 2003 because there were 2,124 current planning permissions with 79,690 units that would expire during the end of 2002 and 2003.

Builders had known the withering rule was being introduced from 1999 when the bill was first published so they submitted a raft of planning applications during 2000 and 2001. These planning applications were not subject to the social- and affordable-housing requirement. This meant that there was a glut of planning permissions that were due to wither during 2002 and 2003. Developers could have resubmitted the planning applications but they didn't want to do this as it meant the developments would have to include 20 per cent social and affordable housing. Instead they pressured the government into a back-down.

Noel Ahern, the current Junior Minster for the Environment and Local Government, says they had to give in to the construction industry. "We could have dug in and had a big row but construction output would have died, there would have been a shortage of supply and increased prices. We have to work with the sector rather than have an argument with them. We did change the law and then they did cooperate".

As a result of the 2002 amendment 70,000 units became exempt from Part V resulting in a potential loss of 14,000 social and affordable homes.

Another amendment made by Martin Cullen in 2002 has also decreased the provision of social and affordable housing. He relaxed the 20 per cent social- and affordable-housing requirement to providing for a payment-in-lieu option which the local authorities could exercise. In other words, a local authority could agree to exempt a developer from the social and affordable housing requirement in return for a payment.

A recent report by Focus Ireland, 'Building for Inclusion?' states that only one-third of Part V social and affordable homes planned by local authorities have been delivered in the last two years. In 2004 local authorities had hoped to acquire 1,945 units but just 591 units were built, less than a third. In 2005 local authorities estimated that 3,865 units would be built, but only 1,371 units were constructed (again a third). Local authorities estimate that 3,170 units will be built by the end of the year but this seems unlikely as only 351 had been built by March this year.

In the next few of years output is due to increase as planning permissions granted in 2001/2002 will "wither" and schemes from 2003 and 2004 will come on board. These should all include the 20 per cent social and affordable housing, except where payments in lieu come into play.

Until now payments in lieu have not been used extensively. However the Focus Ireland report states: "A number of local authorities are known to be keen on the financial option."

Since 2003 the total of payments in lieu paid is ?31.8m. John O'Connor from the Affordable Home Partnership says that payments in lieu "are being used too much".

Minister Noel Ahern says he would be "worried" if it was being used when flexibility wasn't warranted: "We [the Department of Environment and Local Government] have made it clear to local authorities that units is what we want."

The ?31.8m is to be used by local authorities for social and affordable housing and Noel Ahern suggests they may use it for some super-affordable housing for those on lower incomes.

There are further problems with the scheme because of suspected foot-dragging, both by the Department of the Environment and Local Government and by local authorities.

Noel Ahern says the "changes [amendments] did delay the real dividend from Part V but they have helped the overall supply of housing". He is confident that an average 5,000 units a year will be delivered within a couple of years. However Focus Ireland says that if the government does not change the administration of the scheme they will not be able to meet projected targets of 5,000 units a year

Fast forward to 2007-still lots of unaffordable houses-but nobody is buying.

By JOHN DILLON
Sunday Independent November 25 2007

In a comment in this paper just before the election last summer, I ventured to say , paraphrasing The Life of Brian, something to the effect that 'Bertie is not the Messiah. He is a very naughty boy.' I think that I was right in that view, though the majority of voters, in their great wisdom, still preferred to take him as the Messiah after all.

More light has been cast since then on some of his personal financial peccadillos, but I think that it would be misleading to focus of those when estimating the full extent of his naughtiness -- and that of his close associates, such as Finance Ministers Charlie McCreevy and Brian Cowen.

What I would regard as their chief sin, in fact, and the one that impacts on the lives of virtually the whole of the younger generation of this country, is their conniving at the ripping-off of the home-buying public (and in particular the first-time buyers, who will be mainly the young) by the builders and the banks -- while also indulging in their own share of rip off by means of a creative manipulation of the originally rather marginal charge of stamp duty.

If I look back to the purchase of our first home in 1973 -- this, admittedly, in California rather in Ireland, but the rules than obtaining were pretty similar here -- our bank, the Bank of America, had a set of clear guidelines covering the granting of a mortgage, which were fair and rational, and worked perfectly well. First of all, they would not grant a mortgage for more that 80 per cent of the purchase price; and secondly, the mortgage could not be for more than two-and-a-half times your gross annual income.

So there you were. I don't know who had originally made these rules, whether the banks themselves or a federal regulatory body, but they had the admirable effect both of protecting the banks' investment, and of imposing some cap on the recklessness of purchasers, and the greed of builders and speculators.

One simply cannot raise the price of housing beyond what the buying public can pay, at least if one wants to sell houses in any great numbers. If one can't actually produce a house for what the buyer can afford, then of course the whole process grinds to a halt, to no one's advantage.

That has not, however, been a problem in recent years. Rather, in Celtic Tiger Land, on Planet Bertie, the opposite has been the case.

There came to be, over the last 10 years or so, no price so fantastic and outrageous that one could ask for one's Luxury Home (always luxury, we may note, never just ordinary) that there would not be a stampede of frantic punters beating down your door, waving their cheque-books and begging to allowed to buy 'off the plans.'

Now, these people did not, in general, have the money to make these purchases.

They only thought they did. They were cruelly deceived both by the seductions of a banking system exempted from all governmental control -- handing out 100 per cent mortgages for as much as 10 times one's annual income -- and a building industry, aided and abetted by the government, which was fostering a spirit of recklessness in the acquisition of property on the insane premise that it could only continue indefinitely to appreciate at an ever-increasing rate.

The warnings of responsible economists, from such sources as the ESRI and the Central Bank, and, ultimately, even from the OECD, were brushed aside, not least by Bertie himself, as the moanings of nay-sayers and prophets of doom, who would be much better employed going out and hanging themselves -- and for a few glorious years they were indeed proved wrong, and the boosters and promoters apparently vindicated.

But now the chickens have come home to roost, and it becomes, I fear, all too sadly clear what a scam it all was.

But what should a responsible government have done, you may ask? Well, firstly, they should have imposed strict limits on mortgage lending. that would have controlled the supply of funny money.

Secondly, they should, from the outset of this housing boom (as was done in such responsible societies as Sweden, for example, in the case of the post-war expansion of Stockholm), have imposed firm regulations on the profits to be made from building land on the periphery of Dublin, in particular.

The city fathers of Stockholm simply took an option on all land on the periphery of Stockholm, compulsorily purchasing it as required, paying the owners a reasonable premium over its previous value as farming land, and prescribing to builders what services they should provide along with the houses or apartments that they erected.

But that is socialism, you protest. We can't have that here! And yet Bertie has declared himself to be the only true socialist in Irish public life.

If that were so, this would have been an ideal area in which to practice his principles. But then the receipts in the tent at the Galway races, and at so many other venues, would have fallen away very drastically. And where would that leave the Cause?