19 Jan Interview with David Duffy, Director of Property Industry Ireland (PII)
Business Focus: Ireland performed extremely well during the COVID-19 pandemic, being the only economy in the EU to grow in 2020, while GDP growth of 10.1% was forecast for 2022. What are the key factors behind Ireland’s recent economic success and what kind of impact is it having on local industries and citizens?
David Duffy: Ireland’s economic model goes back to the late 1950s, when the industrial policy was focused on attracting foreign direct investment (FDI). We also benefited from globalization and the opening up of our economy via the European single market and membership of the EU. In a buoyant global economy, we’ve attracted a lot of significant FDI that has underpinned a lot of the growth. Our export-facing industries have benefited from globalization and world trade. Since the 1950s: there’s been a really strong demonstration effect that has increased the competitiveness of the domestic economy.
BF: New challenges are hitting the property market, such as higher prices for homes outside of major cities, a huge lack of home ownership by the younger generation and a larger need for apartments for retired citizens. What key hurdles does the property sector need to overcome and what impact are these challenges having on Irish citizens?
David Duffy: Our members say the key challenges they face are about the issues of viability of delivery. Reform is needed in the planning system as it’s a very time-consuming process with a relatively high degree of uncertainty. Given the scale of investment in a large-scale scheme that requires planning permission, it would be good to have shorter timelines for the decisions. Planning is one of the major challenges. This will be an international issue in that over the past year to 18 months, we’ve seen a significant increase in raw material costs. That’s making delivery more challenging, because you’ve got to balance both viability and affordability; meeting that is challenging.
For a number of years, since the crash back in 2007-2009, we’ve been building fewer houses than the demographic growth requires. There’s pent up demand that has built up within the property sector over the past decade, be it homeownership, the rental sector, or social housing. Demand is higher than supply across all those three segments. That’s impacting the younger age groups; people looking to move out of home to set up their first independent household by renting, or by looking to move from renting to ownership. It’s impacting on the whole market.
BF: Can you give our readers an overview of the recent milestones PII has passed, and what kind of strategy it is currently using to ease the market?
David Duffy: We represent the whole property sector’ not only the financiers and the home builders, but also the planners, the architects, the estate agents and the surveyors. When we are preparing submissions to government or for policy papers, we’re trying to draw on the full range of industry perspectives.
Two years ago, we developed a paper on an equity loan scheme which is now the government’s first home equity loan scheme. We would regularly make submissions on policy items, be it a policy paper on reforming the rental sector, proposals to have a smoother planning system, proposals to deal with the high level of judicial reviews that are ongoing in the Irish market, and the use of a debt service ratio rather than a loan-to-income ratio for determining mortgage levels. We would regularly make submissions to government on taxation items and on policy reforms. These are issues that come to us from our members or iIn discussions with our members. They tell us what the barriers or the blockages to the delivery of new homes are, or are maybe looking at something like why small scale landlords are leaving the market and what can be done to try and stop that. We then make recommendations to government. It’s covers a range of different policies.
It’s positive that we get the full range of perspectives and that’s very useful as when we go to government, we’re not going with just one perspective, we’re saying this is the entire property sector’s perspective and our recommendations will have been sense tested. By the time it gets to recommendation, it’s been bounced off all the different kinds of membership segments. It’s something that will work for the sector.
BF: Under the Housing for All initiative, the government has outlined a plan to meet market demands, with 33,000 new homes deemed necessary per year until 2030. What is the government doing to support this initiative and what key policy changes are required to solve the country’s current housing crisis?
David Duffy: The Housing for All plan has a lot of very good ideas, be it moving toward more adoption of offsite construction and modern methods of construction to reforms of the planning system and ways of delivering social housing. It covers the whole range of issues. How do you get vacant sites activated sooner? What could they do to incentivize that, or to encourage it?
You mentioned that it’s on the basis of 33,000 new homes a year, but if you look at the census, that was based on the 2016 data. The most recent census suggests that population growth has actually been much stronger than previously thought. Taking account of that stronger population growth and a recommencement of the fall in average household size, you’re probably looking at somewhere between 40,000-50,000 new homes per annum that are required.
Those numbers are not realistic anymore, basically. Things have moved on. When the detailed census results come out soon, they’re going to undertake a review. But our view is we need to be looking at how you deliver 40,000-50,000 units each year, not how you deliver 33,000 units.
BF: Ireland has set out to have net zero carbon emissions by 2050, which has sparked a huge rise in green investment across the country. What impact has the new drive for sustainability had on the housing market, and how is the sector going about cutting down Ireland’s carbon footprint?
David Duffy: Across every sector there are ambitious targets. But we’re seeing a lot of innovation by companies looking at how they can reduce carbon emissions. Part of this will be achieved by a move to offsite conditions where you’ve got less trips to a site than when you’re producing in a factory environment as there’s less waste.
A lot of companies have been quite ambitious in what they’ve set out that they need to do. They’re looking at biodiversity within housing schemes, looking at more compact design, looking at links to infrastructure, not only on the environmental aspects, but also solving the housing issues. It’s going to require cooperation between the public and the private sector; it’s not going to be the private sector on its own. It’s about linking public infrastructure with housing developments. There’s been a lot of work. People are looking at their supply chains. For example, one of the companies is looking at achieving absolute zero rather than net zero. They’re working further down their supply chain to try and achieve that.
Everybody knows it has to happen. There are very ambitious targets set in the climate action plan. There’s a significant reduction, a 50% reduction, even by 2030; that’s only seven years away. That’s a lot to achieve. Everybody is looking at the materials they use, the production methods, the circular economy elements, what happens to construction waste, how you reduce construction waste, what you can reuse. It’s really one of the issues that are at the forefront of our interaction with our members, that sustainability agenda.
BF: What impact has investment from the US and other foreign markets had on Ireland’s property sector, and what kind of new opportunities might investors from the US be interested in?
David Duffy: It’s had a huge impact on the property sector in terms of building the factories, the facilities, the offices and on on. It’s been a huge source of construction employment and a large source of employment itself. That underpins the demand for housing in local areas, be that rental or homeownership. It probably has, at least, underpinned the drive for a well-functioning and well-developed rental sector, because you do get a flow of people coming here to work for three or four years. They don’t want to own somewhere, but they want to have somewhere that they can rent and rely on. That kind of foreign sector employment has underpinned demand, but also led to the development of a rental sector for FDI workers.
In terms of the building of infrastructure, it’s been a huge source of employment. Once you move to the factory or office being occupied, it’s a huge source of demand for housing across the different tenures. The FDI segment of the economy is really important in terms of where we started and in terms of a driver of economic growth, but it’s also a source of demand for jobs and for goods; and that trickles down to restaurants and to cafes within local areas. It’s huge.
BF: You’ve been director of the association for more than six years. What are your current top three priorities as director of PII and what vision do you have for the sector over the next five to ten years?
David Duffy: One of our key priorities is to continue to grow the organization and to increase its representation within government. That will be along the lines of planning a policy area, like viability. Also, just by the nature of what is going on, it’s going to increasingly be how you deliver in a sustainable manner. Sustainability is moving rapidly up the priority list, because we have those targets we have to meet; everybody is focused on it. How do we translate the work that all the companies are doing into reducing carbon emissions?
Sustainability is going to increasingly drive the agenda over the next few years. That interaction between viability, planning sustainability, the delivery of sufficient homes, to work with the sector to increase the output up toward the targets which is more like 40,000-50,000 units per annum. This will also take account of the pent up demand for all the years where the annual demand was 33,000 units. There has been a supply gap over a number of years. It’s working with the sector, to liaise with government and policy makers, to remove the blockages to the delivery of new homes.
BF: So things become stuck in the planning process?
David Duffy: Yes, they’re taking a long time to go through planning and that makes it difficult. Planning is only a step in the process, but if that takes a lot of time, it feeds through to your viability, because you’ve bought the site, but you’re funding that purchase for the length of time it takes to go through planning. These factors all contribute to the cost of delivery. If that’s tackled, then the cost of delivery comes down, which helps affordability. It’s really about working with our members and government to look at how we can increase the delivery of new homes, identifying the barriers and coming up with solutions as to how they can be overcome.
BF: Is there anything else you’d like to add to the interview?
David Duffy: We’ve touched on viability and planning. They’re really the big issues: viability, the cost of construction, how that’s gone up in recent times and how that’s challenging, the move toward modern methods of construction and we’re seeing sustainability in the environment frame decisions now because these are the targets that have to be met.