Part V housing and planning gain

The Week in Housing 08/10/21

Last week Clúid Housing published new research by Declan Redmond, Orla Hegarty and Mel Reynolds on Part V housing in Ireland. As a form of 'planning gain', Part V housing relates to one of the many idiosyncrasies associated with the political economy of land and housing. Land, as Polanyi said, is a fictitious commodity, in that it is not produced. Its value is instead derived from locational features, which include geographical features but also public and social investment. Land owners can capture value created publicly and socially via increased property prices. This feature of land was often lamented by early economists, including Ricardo and Mills. It was Henry George, however, who in the late 19th century would be the most trenchant critic of the 'land monopolist'. As a landowner:

“You may sit down and smoke your pipe...and without doing a stroke of work, without adding one iota to the wealth of the community, in ten years you will be rich.” (from Progress and Poverty, p. 208)

By some accounts, George's Progress and Poverty was the best-selling book of the late 19th century with the exception of the holy bible. This fact is a testament to how influential critical perspectives on the economics of land were in the past. Even Churchill, not known for his progress views on housing, had a go at the 'land monopolist':

“Roads are made, streets are made, electric light turns night into day, water is brought from reservoirs… and all the while the landlord sits still… To not one of these improvements does the land monopolist…contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived” (Churchill, quoted in Rethinking the Economics of Land and Housing)

For planners, the challenges associated with this feature of land economics are all too apparent. The very act of zoning land as residential or granting planning permission adds value to land. So too does the provision of infrastructure and local amenities. This raises two problems. First, a social justice question around the fairness of landowners benefiting from public investment. Second, as land values increase, the provision of affordable housing, such as social housing, becomes more difficult and less cost effective.

The concept of planning gain developed against this backdrop. In the Irish context, it takes the form of Part V (which is part of the Planning and Development Act), and as Clúid’s report notes, it has three specific objectives:

1. To provide an additional means of supplying social housing;

2. To provide such housing at 'existing use value' rather than market prices, thus making provision more affordable and cost effective for local authorities;

3. To 'counteract undue social segregation in housing' (i.e. tenure mixing).

It is sometimes thought that under Part V, developers are required to simply hand over 10% of the units of a given development to the Local Authority., This, however, is not the case. The Local Authorities must pay the 'existing use value' of the land, as well as construction costs and 'builder's profit'. The cost of provision is thus similar for the Local Authority to simply contracting a builder to build social housing, but the land is significantly cheaper.

Some developers, the report argues, 'welcomed Part V agreements, as it guaranteed some up-front sales'. In high value areas, however, Part V is often a negative for developers as it is thought to negatively affect the sales of private units.

There is a host of useful information and insight contained in this report, including great background on how Part V works and analysis of costs. Here I want to focus on the data around Part V and the supply of social housing.

Over the life time Part V (2002-2020), 19,302 dwellings have been provided. During much of this period (until 2015), Part V represented 20% of any new developments and included both social housing and a now defunct scheme known as 'affordable purchase'. As a proportion of social housing output, Part V accounted for 13.4% of the total. Since 2015, the developer contribution has been reduced to 10% and relates solely to social housing. Interestingly, Housing for All has returned Part V to its original formulation in that the requirements is being returned to 20% and it will include social housing, cost rental and affordable purchase (the Housing Agency has an upcoming seminar on the new Part V arrangements).

Part V is a 'pro-cyclical' measure of housing provision (I've written with Michelle Norris about pro-cyclicality in the Irish social housing system here) in that output is directly linked to market output. Thus, when market output is high, Part V output is high, and vice versa. If we look at 2008, for example, 1,437 social units were provided (as well as 3,081 affordable purchase units). This is the highest ever provided. In contrast, between 2013 and 2017 less than 100 units were provided each year. In more recent years, as shown in the table below, Part V provision has recovered.

If we take 2019 as an example, the report shows that 1,326 Part V units were delivered, out of a total of 5,771 new build units (almost 23%).

The report also sets out some important recommendations, some of which are already reflected in Housing for All. These include:

1. Increasing the requirement to 20%, or as much as 30% in Strategic development Zones;

2. Standardizing costs and greater transparency in relation to costs;

3. Zoning land solely for social and affordable housing;

4. State land-banking, which would have the effect of 'providing sufficient land for social and affordable housing but, critically, of reducing the cost of land to the state'.

5. Establishment of a land price register (this one is important as very little is known in Ireland about the land market and land ownership)

In other news this week, the issue of non-compliance in the PRS (which I covered last week), was back in the headlines. No sooner had the ink dried on the RTB’s press release about getting tough on landlords than the National Oversight and Audit Committee published details of Local Authority inspections of PRS dwellings. Incredibly, despite half a decade of reform in the PRS, 27 out of 31 Local Authority areas had non-compliance rates of over 90%. Carlow, Cavan, Galway City, Kilkenny, Laois and Waterford all found that 100% of inspected dwellings were failed to meet minimum standards. Monaghan deserves an award, with the lowest level (55%) of non-compliance. In some Local Authorities, inspections take place primarily on foot of complaints made, and thus the data does not reflect PRS dwellings as a whole but only those dwellings that were inspected. Nevertheless, the extremely high rates of non-compliance and the fact that they can be found across the country is very concerning.

Finally, new data from Savills shows that the PRS continues to be the main show in town as far as residential investment is concerned, representing 54% of total real estate investment so far in 2021. Brendan Delany of Savills is quoted in the associated press release:

“The sector has accounted for a growing share of the investment market in recent years driven by strong growth in the PRS market and has been resilient to the pandemic to the point of benefitting from it, due to its growing perception as a defensive asset class” (my emphasis).

This very much chimes with my analysis of the impact of Covid-19 on the institutional PRS sector, which you can read here.

Events

TCD's Sarah Parker will give a Focus Lunchtime Seminar on experiences of homeless services. I shared recently here a new report by the Australian institute AHURI on discrimination in the PRS- the recording of the launch event is now viewable here. On the 11th of October a zoom seminar from the Housing Solutions platform will look at repurposing spaces for affordable housing and homeless accommodation. The Raise the Roof campaign group are hosting a public webinar looking at the Housing for All strategy, speakers include Orla Hegarty, Mel Reynolds and Rory Hearne. If you have any housing-related events please let me know so I can include them in this section.

What I'm reading

I have a new Geary Institute for Public Policy paper entitled Understanding Ireland’s housing challenge in the light of Housing for All. It develops some of what I have been writing about here, especially the issues in response to Housing for All. The most significant publication this week is certainly the landmark new report from UNECE, UN-Habitat and Housing Europe, entitled Housing2030: Effective policies for affordable housing in the UNECE region. Threshold have published their pre-budget submission, some interesting new ideas here on the future of Ireland’s PRS, including how we deal with the Covid-19 legacy. With the referendum in Berlin still reverberating, this is a great podcast analyzing it. There has been quite a bit of talk recently about how singles are unfairly impacted by the housing crisis but often ignored in media and political debate. This new special issue of the journal Social and Cultural Geography provides research on the issue from a variety of contexts. And finally, something of an unusual one; a new report on ‘off site construction’ as mechanism for housing delivery. If you have any new publications that readers of The Week in Housing might be interested in, please send them for inclusion in this section.