Chains mean that even the luxury homes help crisis
ON the cover of your soaraway glossy Irish Independent Property last week we carried pictures of a €1.4m luxury new home. The stuff of fantasy, this house has designer everything. But short of winning the Lotto (it might take two wins) only a tiny fraction of us would be able to afford it. So why did we have it there?
This is a property lifestyle magazine. Were it a motoring magazine we’d put a Porsche on the cover rather than a Ford Mondeo, or were it a holiday mag we’d have Barbados over Benidorm. Magazines allow us to dream and to gawp at how the other half lives/drives/ holidays. And we can steal their ideas for our own homes to boot.
It’s mostly about difference. So we will also carry affordable, eye-catchingly decorated and renovated homes — our most popular cover was an estate semi in Finglas where the owner dug her own swimming pool. But because we’re a conservative lot in Ireland when it comes to home decor, the most interesting homes all too often happen to be the most expensive.
Meantime we have the worst housing crisis since the 1950s/1960s. Today government policy faces criticism because new home builders are too often constructing homes that “only the rich can afford”. This is true and certainly not satisfactory. Tens of thousands of social housing units should have been built by the state in the last 20 years, but were not. The general housing pool, itself in shortage, has instead had to soak up those thousands of people who have needed a roof. The result has been surging prices, rents and homelessness.
Those who criticise the building of big expensive new homes are right. Lots of affordable homes are best needed. But in the absence of more affordable homes and functioning developers, the top-end new home (providing it is not wasteful of land) does still have a role to play in helping the crisis, albeit not an obvious one. To illustrate what I mean, I am going to present two knock-on effects of real impact that a luxury new home built and sold has on the housing crisis, on the construction sector recovery ladder and on the property chain.
So take a builder, we’ll call him Brian. Brian had a booming middle-sized construction business in the Tiger years but at the latter end of the boom was persuaded by Anglo to bid on a much bigger site than he had hitherto been used to. The bank coughed up a huge loan and Brian also remortgaged to fund the deal which would “take him to the next level”. It did. The crash kicked in and he was bankrupted. Brian has driven a taxi for a few years since and worked for his brother at weekends. But he loves building, he’s good at it and he wants to get back into it. Now chastened and cautious he tentatively dipped his toe in the water with a few home extensions.
No bank would give Brian credit to buy a small site. His dad finally gives him a substantial loan and Brian buys one. To make the best profit with least risk he builds a pair of extra special new homes. It takes two years but they are completed and sold successfully at €1.1m each. The banks still won’t lend to Brian but the two sales and profit means a private equity firm now will fund him for a larger project, albeit at a stiff rate. Brian buys an old ruined house with a big garden, demolishes it and starts to build a small scheme of 12 apartments.
Like many small and medium builders, without the initial steps of one-off expensive new home or a pocket scheme of expensive homes, Brian would not be building bigger today. When completed, the 12 units (also quite expensive) will be bought by investors and will provide 12 rental homes. Through their supply, they will contribute in a small way towards the cooling of rental prices locally. Vitally, without the two luxury homes, the 12 apartments wouldn’t exist. Now comes the property chain impact, which really does run right down to the street.
So one of Brian’s two luxury homes is bought by John Brown. At 55 he has just sold his catering services company for €4m. He wants to thank his wife May who has been his rock, raising the kids and holding the fort at home while he built the business. Her dream was a detached house with a big garden. Now the Browns place their old four-bed semi in Blackrock for sale at €875k. This joins a similar property on the market on this street. Because there are now two of this type for sale rather than one, both vendors have to cut their price a bit. In the end the Browns sell their home for €845k to Fred and Mary Murphy. The Murphys are doing well in financial services. Their upper limit was €850k. Thanks to the Browns bringing their house to market, the house they had been looking at on the same street came down in price from €890k to €860k. The Browns then reduced theirs in turn to €845k and the Murphys switched over to buy it.
Now the Murphy’s three-bed semi in Dublin 22 is put up for sale for €300k. It goes on the market alongside two other similar properties. Again the effect of another home to market is a softening of prices on the other two, enabling Jenny Fallon to buy their house for €290k and trade up from her two-up, two-down in Old Clondalkin.
Maurice, a garda who wants a small investment buys her home for €180k, and rents it to single mother Maeve. Maeve is on HAP and happy to leave her one-bedroom flat in a dodgy part of town. The flat is rented to Fergal who has been living in hotel emergency accommodation. His freed up place in the hotel allows Brian to be taken in off the street. Proper social housing would be perfect. But in its continued absence through Government policy, we’re still better off with those big expensive new homes than without them.
Big one-off projects help credit starved builders get back on the ladder