O’Flynn blames land prices for fuelling housing crisis
DEVELOPER Michael O’Flynn has called on the Government to introduce a temporary system of fasttrack rezoning to address the unsustainable prices he believes are now being paid for development land.
“The Government should issue a directive to every local authority in the country to bring forward a contingency to zone land.
“That would give developers the ability to find land at a price where they can build and sell at a reasonable profit,” O’Flynn told the Sunday Independent.
O’Flynn argued that the increase in available land that would flow from fasttrack zoning would increase the supply of housing, and make it more affordable by containing the price paid for it.
He also believes that the Central Bank’s imposition of stricter mortgage lending limits is serving to exacerbate the problems in the housing market further.
Typical couples now pay more on rent than they would on a mortgage, he said. “Potential buyers are being pushed into renting and people who would rent are being pushed into social housing or into homelessness,” he said.
“That’s a dysfunctional market whatever way you look at it.”
WHEN Michael O’Flynn predicted the current housing crisis in an interview with this newspaper in 2012, his warning was dismissed by some, and ignored by others. More lately, and now that it’s too late, he has been widely acknowledged for calling the market and all of the dysfunction that goes with it, correctly.
O’Flynn says if it’s left unchecked this time around the prices being paid for development land will only serve to deepen what is already a severe housing crisis, and put the opportunity of home ownership even further beyond the reach of potential buyers.
Asked by the Sunday Independent to identify what is driving land prices, O’Flynn points to factors such as insufficient zoning of land and access to debt financing. O’Flynn also points to what he describes as the absence of a clear Government strategy, as well as the entrance, to the Irish market, of publicly-listed property companies such as Glenveagh Properties and Cairn Homes.
“There’s enough risk in our business without taking on extra risk, but that’s what’s happening,” says O’Flynn.
“We have two publicly-listed companies, and the strong rumour is we may have more [PLCs on the way].
“I’m very happy for anyone to come into the industry,” says O’Flynn adding the caveat that he feels the entry of PLCs is inflating the price of land.
O’Flynn finds the migration, entirely legal, of former Nama executives from the toxic loans agency to property vehicles including Reits and PLC property development companies ironic.
Is he referring in that, I ask, to Nama’s former head of asset management, and current Glenveagh Properties chairman John Mulcahy?
“He’s one of a number,” says O’Flynn, ruefully. “It’s ironic that someone who lectured me in Nama about not needing any more development land is now out there leading the charge in a new development company.”
A spokesman for Mulcahy and Glenveagh Properties declined to comment when contacted by the Sunday Independent.
Cairn Homes, meanwhile, declined to comment on O’Flynn’s claims in relation to the prices being paid by PLCs for development land.
O’Flynn says there is no logic to the price now being paid for land as it is making it unaffordable to build. Explaining this, he says: “You either need to have a planning gain, a drop in costs or inflation in house prices.
“The last thing we need is inflation in house prices because we have a situation where you would need wage inflation for that to happen, which nobody can afford.”
While the property industry has advocated a temporary reduction in the rate of Vat applied to new housing to stimulate the flow of development, O’Flynn believes the Government’s efforts to address the housing crisis would be better served by the introduction of a mechanism to bring substantial tracts of land to the market.
Asked how this might work, he says: “The Government should issue a directive to every local authority in the country to bring forward a contingency to zone land. That would give developers the ability to find land at a price where they can build and sell at a reasonable profit.
“It would also put pressure on people who already own zoned land, as they would realise that unless they deal with it, other zoned land could become available and take its place.
“We have fast-track planning already. We now need fast-track zoning until we get this crisis resolved. But you can only talk about land that’s available; that a farmer is willing to sell; that’s capable of being infrastructured, and that is in the right place. We can’t just rezone anywhere. This is land that would be zoned in time [anyway]”.
O’Flynn argues that the increase in available land that would flow from fasttrack zoning would increase the supply of housing, and make it more affordable by containing the price paid for it.
“If government tackled the land issue, then a lot of the new entrants might become more concerned about what they’re willing to pay for land. They don’t have to pay interest on their money, but they do have to make money. The only reason people are overpaying for land is that there is a perception that there’s a scarcity, and there’s a view that prices have to keep going up. I don’t buy into that.”
Asked for his take on the development land that was already available but not being built on, O’Flynn is pessimistic.
“We have lot of land that has gone into structures where it won’t be built on. We have land that has been overpaid for and won’t be built on. The vacant site levy is a mistake and counterproductive. I don’t see how it can be implemented in a way that’s rational.
“How can you make anyone who has an unviable proposition develop it? Then you’re asking them to pay a tax that makes it even more unviable. I’m not carrying any brief for anyone who is hoarding land. If there is land that is serviced and has planning, that land should be brought to the market,” he says. The Cork-based developer is deeply concerned that the ‘standard couple’ which he frequently refers to when discussing the housing crisis, that of the garda and the nurse, are now paying far more on rent than they would on a mortgage, and are effectively being shut out of the housing market.
“Potential buyers are being pushed into renting and people who would rent are being pushed into social housing or into homelessness. That’s a dysfunctional market whatever way you look at it,” he says.
O’Flynn believes the Central Bank’s imposition of stricter mortgage lending limits is serving to exacerbate the problems in the housing market further.
“If Philip Lane and his colleagues in the Central Bank think they’re doing a great job, I’m saying they don’t understand the impact they’re having on couples who are being forced to pay a lot more for rent, which means they have no chance of saving for a deposit,” he says.
With the Central Bank unlikely to relax its mortgage lending restrictions anytime soon, I ask O’Flynn if there is another way to bring house prices back within the reach of potential buyers.
On this, he says: “Going back 20 or 25 years ago, we had a government adjudication of prices with the Certificate of Reasonable Value. What it does is, it takes the mystery out of builders’ prices. What you [as a builder] have to do is put up your entire case in relation to the proposed price of a house for it to be approved by the Government.
“Another thing it does is, it draws attention to developers if they overpay for land. If you, as a builder, have to get a State certificate before you sell, well then you have to be very mindful of what you pay in input costs. That includes what you pay for land.”
While O’Flynn adds that his proposed re-introduction of the certification system won’t be popular with “a lot of developers”, he says his primary interest is in building homes at prices people can afford to pay.
“You’re driving prices to somewhere unsustainable. You will get to a place with supply where prices will have to fall back. I want to stop the land price rising before it gets any worse.
“We had too much credit in the past that drove prices. A scarcity of land will also drive it up and eventual supply will bring it back down.
“The last thing this country needs are prices to go beyond what a couple can afford. What can people afford and what is sustainable over a long period of time.”
Given the amount of time and thought he has given to the housing crisis and possible solutions to it, one might wonder what he makes of Housing Minister Eoghan Murphy’s performance so far. Asked if he believes Murphy has a handle on what is arguably the most difficult brief in government, O’Flynn says: “I don’t know because I haven’t met the new housing minister, but I’ve read his public comments.
“I think he has an enormous challenge, but I don’t know enough about what he’s doing to understand how he is going to deal with it. When I look at the lack of forward planning in terms of land and infrastructure, I think the new minister has challenges that he doesn’t even know about yet.
“The housing situation can be dealt with, but it won’t be dealt with by announcements. It will be dealt with by action,” he adds.
One major action that the Government has proposed is ‘Home Building Finance Ireland’ (HBFI). Announced in last October’s Budget, the aim of the new agency is to provide debt financing totalling €750m to developers at market terms.
While the initiative has been welcomed by O’Flynn, he is concerned at suggestions that Nama may be tasked with running the new operation.
“If Nama is just a loan servicer, that’s probably not an issue. But they mustn’t be involved in the board or the credit committees. They already have access to information [as part of their existing role] and they would be competing with other schemes of houses where clearly there would be a conflict of interest.
“I will be looking at this very carefully to see that theirs would be an administrative role rather than a decision-making role.
“Having said that, I hope that the legislation for the HBFI is enacted soon, as the property industry does have a funding issue. If you can’t access debt, you can’t build houses.”