Bringing down the cost of building houses through compulsory purchase of land

[Brendan Burgess]

A few people have mentioned this to me over the years but I don't see it in the national debate.

The problem
A builder told me that he wants to be like any other business. He buys the inputs. He assembles a work force. He builds the houses. He sells them on. He makes a profit. He moves onto the next project.

But he needs a steady supply of ready to go sites. It can take 10 years from buying a site to getting zoning to getting planning permission. He is forced to be a land speculator. He is forced to finance this for years. He doesn't want to be in this business but is forced to be in it. If it does not go according to plan, he ends up with a team of staff and no work for them to do. Or if it's ahead of schedule, he ends up with lots of sites and not ready to develop them.

Or he can end up buying a site which never gets rezoned.

Rezoning dramatically increases the value of the land. It is very expensive for the state to then buy the land for public services such as schools and healthcare facilities.

And building a school and infrastructure paradoxically increases the value of the land for the seller.

The solution

The local authority designates an area for housing development of starter homes and social housing.
It acquires the land at current use value - normally agricultural use.
It rezones the land.
It builds the infrastructure such as roads, water, and schools.
It grants the planning permission for houses.
It then sells off the "ready to go" sites to builders at market value and subject to building starter homes.
It builds social housing itself on part of the land.

From the builder's point of view
He is not involved in land speculation.
He does not have to have a 10 year horizon.
He needs finance for only two years - to acquire the site and build the house.
It's a lot less risky.

From the state's point of view
The state gets the benefit of any uplift in the value of land due to rezoning and development.
It ring fences this "development gain" for building social housing.
The state does not have to pay development land prices for building housing.


From the first time buyer's point of view
The site value element of their home will be lower so the cost of buying a house should fall.

 

[Brendan Burgess]

They do variations of this in Germany and the Netherlands.

https://www.landcommission.gov.scot/downloads/5dd7d93e9a393_LANDLINES-Land-Value-Capture-Tony-Crook-Nov-2018.pdf

This is a long report on the topic which I am wading my way through.

Brendan

 

[Mocame]

Thanks for highlighting this Brendan. This approach seems to work very well in the Netherlands from the perspective of supporting housing supply and also dampening house prices.

As far as I can see the main barrier to implementing it here is a practical one - local authorities have no method of funding long term land banking. They can borrow to buy land for social housing from the Housing Finance Agency but this is traditionally short term borrowing and the interest is rolled up until the houses are built and then a grant from the Dept of Housing funds the house building and enables them to repay the loan. If they are to assemble land banks for development over the long term and also to service this land some sort of mechanism will have to be put in place to enable them service the debt. But this is not a complex issue and could be easily sorted out if the political will was there.

It is also envisaged that the Land Development Agency will have a land banking function so the responsibility could sit with them and not with local authorities.

 

[NoRegretsCoyote]

The solution

The local authority designates an area for housing development of starter homes and social housing.
It acquires the land at current use value - normally agricultural use.
It rezones the land.
It builds the infrastructure such as roads, water, and schools.
It grants the planning permission for houses.
It then sells off the "ready to go" sites to builders at market value and subject to building starter homes.
It builds social housing itself on part of the land.

The problem here is the word "local authority". The issue is that local authorities are not much good for fixing much more than holes in the road and their powers have been progressively centralised over the years. There are "chicken and egg" questions here about whether local authorities are useless because government gives them few powers, or whether government gives them few powers because they are useless. Anyway it is what it is and there is zero hope that a small rural council could conceivably carry out a complex, multi-annual programme of land acquisition and site preparation.

If you want to do this it will have to be a state agency.

 

[Brendan Burgess]

I suppose that I am setting out the principle. If that is agreed, then the very important details can be worked out.

Agree fully with the comments on local authorities not being fit for purpose. So do you set up regional bodies e.g. The Dublin Regional Housebuilding Organisation. Would it be any more competent than the local authorities?

 

[Brendan Burgess]

As far as I can see the main barrier to implementing it here is a practical one - local authorities have no method of funding long term land banking.

But this is not a complex issue and could be easily sorted out if the political will was there.

This is linked to the other problem - are the local authorities fit for purpose.

If the political will were there, then the funding could be found. Not sure how long-term it would need to be?
Designate the land to be rezoned and acquired.
Leave the owner on the land until it is ready to be developed.
If it's developed in stages, buy it in stages.

 

[kinnjohn]

what about setting it up along the lines of the old Irish Land Commission, It was used to redistribute farmland and was abolished in 1999

 

[NoRegretsCoyote]

The public (or maybe just the media) is very sensitive to the state seeming to make people rich by either buying their land or rezoning their land.

Think of the planning tribunals, Nama, etc.

 

[Brendan Burgess]

So this was, more or less, proposed by the Kenny Report in 1973 but no government has properly tacked the issue.

Could the Kenny Report solve the Irish housing crisis?

The 1973 report contained measures for controlling the price of building land in the interests of the common good

www.rte.ie

And the NESC in 2018

Urban Development Land, Housing and Infrastructure: Fixing Ireland's Broken System - National Economic & Social Council

Press Release To view the Press Release click here Social Media Report Tweets #NescLandUse Follow us @nescireland

www.nesc.ie

 

[RetirementPlan]

I'd wonder if there are enough sections of land available in serviceable locations for this kind of approach. Will they all end up being 'out of town' developments with no public transport links, leaving people car-bound for every movement?

Some builders just build. Builders like Walls and SISK build under contract to developers, so they don't get involved in the risk/reward of development land. Should builders not be sticking to the knitting and taking on building contracts at best price?

 

[NoRegretsCoyote]

I'd wonder if there are enough sections of land available in serviceable locations for this kind of approach. Will they all end up being 'out of town' developments with no public transport links, leaving people car-bound for every movement?

With Ireland's planned population growth you'll need new towns anyway.

 

[RetirementPlan]

With Ireland's planned population growth you'll need new towns anyway.

I wouldn't disagree, though I haven't seen many moves in that direction - maybe Cherrywood, which is reasonably well connected for public transport.
We really can't be building more out-of-town estates, connected by roads with no footpaths, no cycle lanes and no buses.

 

[Peanuts20]

Interesting how you omit one person in your original statement. the landowner. don't they count in all of this.? How do you decide the true market value of the land?

Secondly, I'm not convinced any or Ireland's builders would pass the saving's back to the house buyers. After all, if new houses are being snapped up at current prices, why would they need to cut those prices?. They don't care who buys them so some mechanism would need to be put in place to force builders to reduce their prices and not simply pad their margin.

In the 1991 census we had 329 dwellings per 1000 people in Ireland, in the 2016 census, we had 421 dwellings per 1000 people in Ireland. More importantly, in 2016, we had nearly 200000 vacant dwellings (that excludes holiday homes, another 60k). Surely the focus should instead be on bringing this vacant stock back to the market? I know some if it will be ghost estates and may only be fit for demolition but it would free up sites and in a lot of cases, the core infrastructure is already in place.

Imagine what bringing even half the vacant stock back to the market would do for housing demand in Ireland?. we also need to be encouraging more in-town living, more over the shop appartements. Instead of buying sites out of town, buy up the derelict sites in town and build on them?

 

[dereko1969]

With Ireland's planned population growth you'll need new towns anyway.

You won't. The National Planning Framework ensures that population growth is focussed on our cities and large towns, not one-off housing or "new" towns.

 

[Purple]

You won't. The National Planning Framework ensures that population growth is focussed on our cities and large towns, not one-off housing or "new" towns.

The English just don't allow the same amount of ribbon development. If you live in a rural area and want to build a house you should have to build it in a village. That ensures the village survives and the provision of services is much cheaper.

 

[NoRegretsCoyote]

Agree fully with the comments on local authorities not being fit for purpose. So do you set up regional bodies e.g. The Dublin Regional Housebuilding Organisation.

The Land Development Agency (in a very slow set up) should be able to do this.

 

[Peanuts20]

The English just don't allow the same amount of ribbon development. If you live in a rural area and want to build a house you should have to build it in a village. That ensures the village survives and the provision of services is much cheaper.

No, they don't. And yet, their village communities are dying as services are closed down because the surrounding area is denuded of people.

 

[joe sod]

With Ireland's planned population growth you'll need new towns anyway.

Surely with lack of housing, the lack of building, the lack of builders maybe the "planned population growth" needs to be slowed down. There are already 5 million people now , during the eighties it was around 3 million thats quite a hectic population growth. Looks like we can only handle 50,000 a year growth

 

[Purple]

No, they don't. And yet, their village communities are dying as services are closed down because the surrounding area is denuded of people.

Have you been in the South of England recently? It’s thriving.
If you want a village to survive people have to live in it, not in some vulgar McMansion a mile away.

 

[Baby boomer]

Not all one-off housing is McMansion stuff. You can have a tastefully designed dwelling that blends in well to its setting. I live almost a mile away from a village and spend a fair bit of money on local services. Sure, I'll go the ten miles to the big supermarket for the weekly shop, but so does everyone else in the village!