New housing plan fails to address the elephant in room

This article originally appeared in the Sunday Independent.

The Government's new housing plan has received a cautious welcome at best. There are good reasons for caution. 

Master plan: Minister Simon Coveney’s blueprint to solve the housing crisis has received a cautious welcome, but he has a mammoth task on his hands to make it actually work. Photo: Colin O'Riordan

Policies and zoning are behind high cost of homes in the capital but fixing the issue is a political quagmire, writes Colm McCarthy

The dysfunctional housing market was at the heart of the 2008 banking crash which brought down the broader economy and destroyed the solvency of the Government. It took several decades of policy mistakes to create the disaster and there will be no quick transit back to a rational and well-functioning system.

The key problem with Irish housing, whether owned or rented, is affordability, as the Housing Agency has pointed out time and again. If prices were affordable there would be no sense of crisis.
In most parts of Ireland this is happily the case - there is no housing crisis.

In Dublin and a few other urban areas housing is becoming unaffordable even for people with decent jobs. Lending more money than banks can prudently lend, or than purchasers can prudently borrow, is an evasion, a choice to finance the problem rather than solve it. It has been tried in the years up to 2007 and the Central Bank has wisely flagged that there will be no repetition.

Policy mistakes in many areas can simply be acknowledged and the failed policies reversed without great cost.

Things are not so easy when it comes to housing. An enormous edifice of long-term debt for some and an illusion of household wealth for others has been built on the foundations of house prices divorced from economic common sense.

A house in the outer suburbs of Dublin is currently priced at double, or more than double, the price of an identical dwelling in most provincial areas. There is no economic rationale for this disparity and it is entirely a creature of policy.

It is moreover a creature of two damaging popular myths. The first is that Dublin is a very large city, the second that there is an absolute shortage of land around Dublin suitable for residential use.

Dublin is not a large city. The population is a little over one million and there are numerous larger cities around the world where housing is affordable for most people.

There are some with equally dysfunctional housing policies and identical problems. Dublin city is surrounded by rolling prairies of empty land zoned for low-value agriculture, interspersed with small pockets zoned for housing.

These pockets have become vehicles for a destructive speculation industry which corrupted local government, has infected national politics and produced a banking system dangerously focused on long-term housing finance.

When it released the results from the April 2016 census last week, the Central Statistics Office prepared a map which shows the geographical distribution of vacant homes.

Excluding holiday homes, just under 10pc of the national stock was vacant on census night. But the vacancy rate varied hugely across the country, with vacancies over 25pc in many parts of the West and the North Midlands.

In Leinster and most of Munster vacancy rates are much lower, testament to the failure, during the housing bubble, to build in the areas of strongest demand. Not merely did Ireland build too many houses, they were built in the wrong places. An inevitable result is that houses are for sale in many areas at less than the cost of construction.

The Central Bank rules permit 90pc mortgages up to a house price of €220,000. There are parts of Ireland where it would be difficult to find a house that costs that much. In the Dublin area it is difficult to find very many that cost any less.

Salary levels do not vary greatly across the country, so the problem of affordability, whether for rent or purchase, is largely a Dublin problem.

An annual income of around €50,000 puts an individual into the upper reaches of the Irish income distribution. But this will not be enough to command a mortgage adequate to buy a starter home in the outer suburbs.

The housing plan fails to address this central issue of affordability in the Dublin area. Sky-high prices for properties in the fashionable inner suburbs are not the crux of the issue.

The excess price of modest homes in the outer suburbs and the surge in rental costs across the city are what matters. Reducing those prices back towards construction costs requires a steady increase in the availability of residential zoning on the city's outskirts and the allocation of all available land in the central areas to apartment construction.

Achieving this outcome will depress prices, inflame homeowners and damage the collateral value of mortgage loans, the principal component of Irish bank assets.

Indeed the long-term profitability of the banking system benefits from the survival of a dysfunctional housing policy in the Dublin region.

If prices bore a more realistic relationship to construction costs, negative equity for mortgage holders would be even more prevalent and the collateral value of bank lending undermined. It is not hard to see why the politics of fixing affordability is so difficult.

The plan contains some measures which will make matters worse. The planned reintroduction of the first-time buyer grant in October's budget, even if confined to purchases of new homes, will tend to stimulate demand and circumvent the Central Bank's lending restraints.

Despite the reservations of many housing experts, the local authority tenant purchase option has been reintroduced with even bigger discounts than were available in the suspended scheme.

This has the potential to deplete the available stock of social housing even as local authorities scramble to get construction under way again.

It provides a further incentive to get on the waiting list for local authority accommodation - with average rents around €50 to €55 per week the deal is already a bargain and a free option to buy out the property at up to a 50pc discount is quite a sweetener.

This scheme is likely to be particularly popular in the urban areas where the discount is most valuable, precisely where pressure on the social housing stock is greatest.

One method of financing social housing in Ireland is the so-called Part V requirement on builders to provide up to 20pc social units in each development, with the costs recovered through loading the price of the remaining 80pc.

In effect there is an earmarked tax on the purchasers of these homes, the proceeds going to pay for social housing provision off the Government's books. It would be fairer, and would help affordability, if this cost was levied on the generality of taxpayers.

There is also a host of charges and compliance costs dating from the days when local authorities could not levy any local tax on residential property. With property taxes reintroduced all homeowners, not just the purchasers of new ones, could reasonably be expected to share these burdens.

The largest elephant in the room remains the exorbitant, and policy-induced, price of building land in Dublin and a few of the other urban centres.

This problem will not be resolved until the planning and zoning restrictions which have contributed so much to the current crisis are addressed.

Sunday Independent:  New housing plan fails to address the elephant in room

Wilson Moore Estate & Letting Agents

When is the time to buy and how much do you want to spend ?

When is the time to buy and how much do you want to spend ?  

You’re currently renting and paying a high rent.  You would like to own your own home and an investment for the future.  It’s a big step and you’re keen to get the timing right.  The truth is everyone’s situation is different and no one can predict the future.  Sometimes people think it’s best to enter the market and buy a home when consumer sentiment is low as there can be good value available.  Once the economy improves and confidence returns this usually means that prices will start to increase. 

The next thing is to decide how much you want to spend on your home.  Setting a budget for your property purchase is always a difficult and very important decision.  You need to know how much you can afford each month and translate that into the amount you can afford to take out on your new mortgage.  When you start house hunting with that budget in mind, you may find to your dismay that you are not seeing many homes in the price range you have set that match your needs.

There are three choices you have to make in this situation.  The first is to wait , keep looking, and hope the house you want comes up on the market in your price range.  The second is to compromise and buy a house that is affordable but not really what you want.  The final choice is to look at raising your budget. The best advice is not to rush into making a hasty decision.  Figure out what your current financial situation is and put a cushion in place when calculating your figures in case your circumstances change in the future.  If you are considering raising your maximum purchase price then calculate what difference it will make in your actual monthly payment.  In some cases the difference may not be as difficult to handle as you might think.  Using a mortgage calculator you can easily figure out what it would cost you per month to increase your budget figure by say €20,0000.  Sometimes even a small raise in your maximum price can put you into a whole new class of available homes.

Therefore the decision you have to make is if you are you willing to consider making some personal budget cutbacks such as on entertainment to enable you to have the house of your dreams ?  How important is it to you to get everything on your wish list or are you willing to compromise on something ?  If having the right house is the most  important thing to you then you may be prepared to stretch your finances to achieve your goal.  A little flexibility is always a good idea when you start searching for the right house as sometimes spending a little more will save you later in terms of property value.  It can also save you from having to move again when you decide the compromise to save money was not worth it and you need to move to a larger property or a different area.

To learn more click here

How to remodel your home to Increase Your Selling Price

How to remodel your home to Increase Your Selling Price

So you are ready to sell but you know that there are a few things in your property that require some updating in order to increase your selling price.  Your budget may be limited and you are wondering where and how to spend it.  The good news is that there are some solid answers.  It is generally accepted that there are certain things that can increase your selling price more than others.  Don’t go out spending money until you get advice from the experts on what return you may get from your investment. Whether you are getting ready to sell or simply want to remodel now for the best value when you do sell later these are some things that usually give you a better return on your investment.

The Kitchen

Remodelling the kitchen is one of the most important things you can do in your home especially if the kitchen is dated.  It is often one of the first rooms a potential buyer will see and it should make an impression.  The kitchen is often considered the soul of the home and most people spend a good deal of time there.  Upgrades to countertops, cabinets, and appliances are one of the wisest investments you can make in your home.

The Bathrooms 

Second only to the kitchen, the bathroom is the room in the house where dated fixtures or flooring can cost you a sale.  People want a bathroom that is clean, comfortable, and modern.  Neutral colours are best whether a paint finish or tiling as this is a place of privacy and peace so the less fuss the better.  Spending money on a bathroom remodel will almost always be the best way to spend your money and you will see it in your selling price.

The Front  

Getting people in to look at your house is the first step.  First impressions last so as potential purchasers approach your hall door ensure that that the entrance is appealing and welcoming.  Spending some of your money on the front exterior of the house and the landscaping can be advisable.  Improving the look of the house from the outside means you can bring more people in to look and to buy. 

The Back Garden

People love the idea of having some attractive outside space to entertain friends and family.  Also parents usually emphasise how important it is to have a garden for the little ones to play in.  Money can be well spent on a good tidy up and enhancement of any outside space regardless whether it is grass, decking or another finish.

Remodelling your property now for a better sale price later can be a smart move.  As the sooner you do it the more you will be able to enjoy it before it is time to sell and move on.  If well thought out and done correctly to a quality finish you can definitely make additional profit.

To learn more click here

Setting up a home office

When purchasing it is good idea to consider if this property will suit if you should decide to set up an office from home in the future.

More and more people are starting to work from home.  Not only the self-employed but also a lot of companies are now allowing their staff to operate from their home.  If you are looking for a property be sure to take this into account.   Should you start doing your job at home you will need to be able to set up the right space in your private dwelling.

Consider the location

Working from home can be difficult especially if other people are around during your working hours.  You will need to find a location with as few distractions as possible.  Equally that is why you need to visit the location where you are thinking of buying at different times of the day to establish if the area at certain times is overly busy and potentially noisy

Consider the current style of the property

Does the style of the property meet your demands as it currently is.  If so then this can save you a lot of time effort and money.  However it’s not always possible to achieve your dream and most people have to compromise a little when purchasing a property.  Check out properties which already have additional unused space e.g. outside shed, garage, large attic area with adequate headroom.  Many properties for sale have owners who are currently running their business from the dwelling a typical example of this are all the online companies that have been set up in recent times.  In some cases an outside  shed or garage may have already been converted with this use in mind.  Ideally if this has been done correctly then there will be adequate existing electrical power points and heating.     

Consider the potential

Equally think about the potential to extend or convert in the future to enable you to achieve the additional space that you will need should you choose to work from home.  Once again an outside shed may have offer huge possibilities.  Likewise people nowadays in general prefer to park their car in the driveway instead of going to the bother of using the garage.  There are a lot of garages that are currently only being used for storage.  Of course attics can offer the perfect solution to finding that extra space to work from.  An attic conversion can be done provided the design of the house allows for the head height necessary to make the conversion workable.

Consider how to make the best use of the available space

If you have a whole spare room to yourself and lots of space then you can purchase a full-sized desk in whatever style suits you.  However if space is restricted be sure to test out a desk to see how it fits for you before you commit to purchase.  Measure your room in advance and allocate how much can be put in the space you have.  No doubt you will need workspace for a computer, printer, telephone, filing facility ?  How many drawers do you need?  Even with a wireless internet connection in your home wires can get in the way.  Use zip ties to keep them clean and organized and label each with what it goes to so that if things ever get unplugged you can get it all hooked up again quickly. A small rolling cart is great for printers or accessories and can be rolled out of the way when not in use.

Your home office can be very comfortable and successful if you pay attention to the details.  Ideally keep the workspace away from things like the television or any place where kids might be playing, as these can obviously be a distraction when you're trying to work. Look for a place near a window for natural light and make sure you will be able to make the space comfortable for your use without a lot of expense.  The perfect work space can be created no matter how much room you have to work with. 

To learn more click here

Supply, or lack of it, is still the key issue for housing sector

This article originally appeared in the Irish Examiner.

A broad range of indicators continue to reflect an ongoing shortage of supply in the Irish residential property market. 

These include data on building activity, the mortgage market, and transaction levels, as well as continued upward pressure on prices and rents.

Recent data on building activity indicate some pick up in the construction of residential units.

The most up-to-date figures on completions, which cover to the end of April, show them up 20% compared to the same period in 2015.

On the basis of their current ‘uptrend’ in the first four months of 2016, completions are on course to rise to close on 15,000 units this year.

This would compare to the 12,600 units completed in 2015.

However, crucially, this projected number is still some way short of the estimated housing demand figure of 25,000.

In terms of forward-looking indicators, house guarantee registrations (which tend to reflect developer activity), are on an upward trajectory, increasing by over 40% in the five months to May compared to the same period a year earlier.

Commencement notices also continue to improve on a 12-month cumulative basis.

However, it must be noted that despite these improvements, both indicators remain very low in absolute terms.

Meanwhile, survey data on housing activity, such as the housing component of the construction PMI continue to suggest a solid pace of expansion.

This ongoing shortfall in supply is also very much evident in the number of houses listed for sale and rent.

The most recent data on this available, from Daft.ie, which are for June this year, show that there were around 25,260 properties listed for sale, a fall of 15% versus the same month a year earlier, which itself represented a fall of 11% from 2014 levels.

This June number equates to around 1% of the total private housing stock.

In a ‘normal’ functioning property market, the level of stock for sale should be in the region of 3%-4% as a proportion of total stock.

The quantity of rental stock also continues to fall, with the number of properties available to rent in May down 29% compared to the same period in 2015.

The mismatch between supply and demand is impacting activity levels in the mortgage market.

The Central Bank regulations on mortgage lending are also acting as a restraint on buyer activity.

In the first quarter of this year, new mortgage lending amounted to €1bn, a 2.5% year-on-year fall.

However, first quarter 2015 was a very strong quarter, skewed in part by activity being brought forward before the new lending rules came into operation.

More recent data suggest growth in mortgage activity may have risen on year earlier levels.

Not surprising, given the ‘insufficient’ supply backdrop, house prices continue to experience upward pressure, although the pace of increases has moderated.

On a national basis, house prices recorded a 6.9% pace of yearly growth in May. This compares to a near 14% rate of growth in May 2015.

Residential property prices are now up 36% from their low point. However, prices nationally are still around 33% from their previous peak.

In Dublin, where property price inflation recorded some slowdown as a result of the new mortgage lending rules, prices have started to show some signs of acceleration.

Although, the rate of annual growth in non-Dublin prices continues to outpace the capital (8.5% versus 4.8%). Meanwhile, rents continue to rise strongly and are now over 6% above their previous peak.

In recent months, the ‘cost of building’ has come more and more into focus.

A recent study by the Society of Chartered Surveyors estimated that the “cost to build a house is less than half of the overall cost to provide the house”.

Non-construction related factors — such as acquisition costs, financing and taxation elements - make up much of the remaining costs.

The Government recently announced measures to address some of these ‘non-building costs’ which, at the margin, may help to reduce housing delivery costs.

However, there is no quick fix to the lack of supply in the housing market.

In fact, it is likely to be 2018 at the earliest, before housing output rises to the required 25,000 units per annum.

Irish Examiner: Supply, or lack of it, is still the key issue for housing sector

Wilson Moore Estate & Letting Agents

Housing supply at worst level for 50 years as prices exceed boomtime levels

This article originally appeared in the Irish Independent.

Supply of Irish homes for sale has reached the worst level in 50 years, estate agents are warning.

Supply of Irish homes for sale has reached the worst level in 50 years, estate agents are warning. Stock Photo: PA

And in further signs of a dysfunctional market, prices in some parts of the country are rising at a faster pace than during the boom - while in the capital they have flatlined.

According to June's Irish Independent/Real Estate Alliance Average House Price Index, the average three-bed semi now costs €195,361. It is an increase of over €4,000 (+2.18pc) since the end of March, or 4.49pc against the same time last year.

Sale prices of average semi-Ds soared as much as 14pc in Roscommon, 8pc in Laois and 7pc in Kilkenny, while there were no price rises in Cork City or north County Dublin.

Dublin city centre prices rose by just 1.4pc, while in the south of the county they were up by 2.1pc - slightly ahead of 2pc for Galway city.

The REA network, which represents estate agencies in all counties, cites lack of supply and bank lending regulations which are now causing city buyers to skip beyond even the commuter belt.

Recent property reports have suggested supply may be starting to improve. However, the REA says shortages, which have seen supply run at 20pc of what is normal in some locations, are in fact worsening.

Some agents around the country have sold so few properties in that quarter that they questioned whether such a low base figure could provide an accurate barometer for prices.

"We are seeing firms which are in business for 50 years which have never experienced such a low level of supply, and this is responsible for causing sharp increases in prices in some areas over the past three months," said REA Chairman Michael O'Connor.

Among the steepest rises were for semis in Kilkenny city, which rose by €20,000, or 12.5pc, in the past three months, a figure that is entirely driven by record low supply, according to Michael Boyd of REA Boyds.

"We opened 170 residential files in 2000 - so far this year we have opened 16 and only half of these have actually gone on the market," said Mr Boyd.

"Our analysis of the Price Register tells us that there are 15 fewer units per month selling in the county than this time last year - and that this is the lowest level since these records began.

"We desperately need new building to start, especially as prices for quality stock are now well into viable levels for builders to commence."

Harry Southern, of REA Southern, Carlow, said while there is a steady supply of second-hand housing coming in, this is the first time since the 1980s that they have had no new homes for sale. Healy Hynes of REA Hynes, Athlone, said while supply is up on this time last year, in the context of historic norms it is still at "famine" levels.

REA Chairman Michael O'Connor said: "There is no doubt the major factors affecting the Irish property market at the moment are supply of housing, the Central Bank restrictions, the banks' mortgage lending policies and high rents."

Irish Independent: Housing supply at worst level for 50 years as prices exceed boomtime levels

Wilson Moore Estate & Letting Agents

Mortgage crisis: IMF demands mortgage cap overhaul to ease rules

This article originally appeared in The Irish Independent.

The IMF has called for an overhaul of the Central Bank's mortgage caps, raising the prospect of more lenient borrowing rules for some buyers. 

Joan Burton: wants tracker restoration for borrowers who were wronged by lenders. Photo: Frank McGrath.

The overhaul would involve a new system, which would take a fuller account of borrowers' ability to repay loans by measuring their levels of debt.

Under the current rules, there is a limit to what people can borrow, which is determined by their income.

But under the IMF system, debt would be factored in, so that those with lower levels of debt would be able to borrow more than those with higher levels.

Read more: Dublin prices in the outer suburbs further evidence of policy failure
That may provide room for the Central Bank to introduce less stringent ceilings for debt-free people than those that are currently in place.

The bank is undertaking a review of the caps and plans to do so on an annual basis in future. It has previously said the so-called debt-to-income limit "could be a more appropriate limit to put in place, given that it takes all of a borrower's debts into account".

However, introducing such a system is dependent on the introduction of the Central Credit Register (CCR) - a centralised register of people's borrowings - which is unlikely to come into place until next year at the earliest.

A Central Bank spokeswoman said that without the CCR "it would be premature to attempt to establish realistically enforceable regulations on total debt.

"In the meantime, lenders must nevertheless seek to inform themselves about total borrower indebtedness," she added.

The spokeswoman would not comment on whether the new system would make the rules more lenient for some people than they currently are.

The IMF said that once the CCR becomes operational, the new system should be introduced.

In a post-bailout report on Ireland, it said introducing the caps "appears to have mitigated pressures in the residential property market by curbing expectations of further price appreciation.

"These measures should be maintained as a permanent feature of the mortgage market to safeguard the resilience of banks and households against shocks."

Read more: 'Housing is a very emotive issue, but we have to think in the long term'
Central Bank deputy governor Sharon Donnery said last month in an interview with the 'Sunday Independent' that the bank's current expectation was that the mortgage caps would be permanent.

"The view that we are taking is that really these have to become structural, permanent and we are looking at the moment from a medium- to long-term perspective, as opposed to a very short-term one," Ms Donnery said.

"We are going to look at the impact of the measures on borrowers. We are going to look at the impact of the measures on banks and their lending behaviour.

"We are going to look at the allowances... we are going to look across the whole spectrum."

She warned that there were circumstances in which the caps could be tightened if the bank felt the market was overheating or there were unsustainable house price increases.

Meanwhile, former Tánaiste Joan Burton has called for action from the Financial Services Ombudsman (FSO) to make sure every mortgage borrower who wrongly had a tracker removed has it restored.

She was reacting to a report last week in the Irish Independent, which revealed that some borrowers who had wrongly lost a tracker were offered refunds and compensation, but were not put back on a tracker rate.

Ms Burton said this "highlights the need for the authorities to take a harder line with financial institutions.

"Banks have cheated thousands of customers out of their tracker mortgages and their refusal to restore them is simply not good enough.

"They may be paying some level of compensation to those people who were wrongly deprived of the tracker mortgage, but they need to go much further.

"There may be some instances where the wronged borrowers have moved on and where they are satisfied with their new arrangement, but any customer who has asked to be put back on a tracker mortgage, must be facilitated. I believe it is incumbent on the Financial Service Ombudsman to make sure that this happens.

"In addition, the FSO must clarify if there are outstanding cases where banks have failed to comply with his direction to restore tracker mortgages."

Read more: Agent view: Disappointing season so far and more clouds gather

Read more: Number of mortgage holders in long term arrears falls for second quarter in row

Irish Independent: Mortgage crisis: IMF demands mortgage cap overhaul to ease rules

Wilson Moore Estate & Letting Agents