Rationale for and Impact of a

Use It or Lose It Scheme

December, 2003

Goodbody Economic Consultants

Ballsbridge Park, Ballsbridge, Dublin 4  Tel: 353-1-6410482  Fax: 353-1-6682388

 e-mail –


Table of Contents

1. / Introduction / 1
2. / Developments in the Housing Market / 3
3. / Impact of Land on Housing Supply and Prices / 11
4. / Evidence of Hoarding / 19
5. / Evaluation of Impacts / 32
6. / Conclusions / 39


List of Tables

2.1 / Annual Inflation in Dublin Land Prices / 5
2.2 / House Completions, 1996-2002 / 6
4.1 / Land Banks Held by UK and Irish Firms, 2002 / 20
4.2 / Availability of Zoned Undeveloped Land in Dun-Laoighaire Rathdown,(1999 – 2003) / 22
4.3 / Status of Undeveloped Zoned Services Land in Housing Units in Dun-Laoighaire Rathdown (June 1999 – June 2003) / 22
4.4 / Availability of Zoned Undeveloped Land in Fingal (1999 –2002) / 25
4.5 / Status of Undeveloped Zoned and Serviced land in Housing Units in Fingal (June 1999 – June 2003) / 26

List of Figures

2.1 / House Price Trends / 3

Executive Summary

The Department of Environment, Heritage and Local Government is currently examining a specific proposal aimed at accelerating the supply of land for affordable housing development: this would be based on the principle of “Use or Lose”.
The purpose of this study was to provide an economic proofing of the proposal. This was to be done by reference to the factors impeding the supply of land to the market, including the hoarding of land.
The report identifies three types of hoarding behaviour:
  • Commercial hoarding: Purchasing or optioning land in excess of immediate needs, so as to ensure a future supply of an essential material input.
  • Speculative hoarding: Purchasing or optioning land, but holding it vacant in anticipation of a more profitable development opportunity in the future.
  • Oligopolistic hoarding: Purchasing or optioning land in a particular market area, seeking to exercise some oligopolistic control over that market, and thus obtaining higher prices for housing output.

Oligopolistic hoarding is of much greater concern than the other two types. This is because the extent of commercial hoarding will be limited by the builder-developers output levels and thus the reserves of land that he must hold. Speculative hoarding will eventually be limited by a market correction, although this could take a considerable time to occur. However, oligopolistic hoarding could persist indefinitely.

The study considered previous analyses of the housing and land markets, including the three Bacon reports. These analyses noted the rapid house price inflation and inadequate supply of housing in the Dublin Metropolitan area in the 1990s. The prevailing view was that these aspects of the market reflected very strong market demand conditions coupled with an inadequate supply response. The latter was partly due to a lack of zoned and, particularly, serviced land. Hoarding of land was not considered to be a significant factor.

Government policies have emphasised a number of supply side measures, including increasing the volume of serviced land, raising housing densities, and the zoning of additional lands for housing. The housing market in the Metropolitan Area has responded with a 31 per cent increasing in housing output being recorded in 2002, and an anticipated housing output of 12,500 units in 2003.

The study then considered the direct evidence for hoarding by considering information on builders’ land banking behaviour and from three case studies, relating to Dun Laoighaire Rathdown County Council area, Fingal and Ennis and Environs.

With regard to land banking, although the data on Irish building firms are limited, there is no evidence of excessive levels of land banking compared with UK experience.

The study noted that it is very difficult to prove that speculative or oligopolistic hoarding is taking place. It is easier to identify when such practices are not impacting on the supply of development land. For example, if it is observed that a high proportion of zoned and serviced land is brought speedily to development stage, then it is clear that such practices are not seriously affecting supply. Conversely, if it is observed that a high proportion of zoned and service land is inactive and is not being brought through the planning process, then this opens up the possibility that speculative or oligopolistic hoarding is having an effect on the market.

With regard to the three case study areas, it was concluded that there was no evidence that hoarding was a widespread problem. This is particularly clear with respect to Dun Laoighaire Rathdown and Ennis and Environs. The situation in Dun-Laoighaire Rathdown is particularly instructive. This is an area in which the availability of zoned and serviced land has been limited. This could be perceived as creating a particular opportunity for hoarding of land and market manipulation. The evidence is, however, that a very high proportion of zoned and serviced land is being brought forward for development through the planning system in a speedy fashion.

The situation with regard to Fingal is less clear cut. The availability of zoned and serviced lands is such that a much higher level of housing output than was the case could have been achieved in the recent past. It is not possible to identify precisely the reasons for this. However, it is noted that housing output in Fingal more than doubled between 1996 and 2002, so that the building industry may have been experiencing capacity constraints.

While there is no evidence of hoarding of land on a large scale, examination of one area of Dun Laoighaire Rathdown revealed that one builder has control over a significant proportion of the lands, but has yet to bring a scheme through the planning process. There may be case for intervention in such instances.

The study then provides a number of indicators to which Local Authorities should have regard if they are considering a limited intervention in the market in the form of a use it or lose it scheme. These are:

The Extent of Inactivity of Zoned and Service Lands

  • A significant proportion of zoned and serviced land is not being brought through the planning and development process. A threshold of, say 25 per cent could be considered.

The Ownership Structure of Inactive Lands

  • The major portion of inactive lands are in the ownership of active market participants viz. builder-developers rather than farmers, private individuals or religious or other institutions

The Extent to which Housing Output falls short of Housing Needs

  • Current housing output is at a lower level than requirements as set out in the Housing Strategy; and those requirements are deemed to be still relevant;
  • Anticipated future housing output in the short term is similarly deficient, as indicated by the pipeline of houses under construction;

The Market Situation as indicated by House Price Inflation

The rate of house price inflation should be high and escalating, indicating a continuing tightening of supply.


  1. Introduction

1.1General

The Department of Environment and Local Government is currently examining a specific proposal aimed at accelerating the supply of land for affordable housing development: this would be based on the principle of “Use or Lose”. The following is a general outline of how this proposal might operate:

  • The local authority would identify suitable plots of land for development following an examination of housing needs;
  • The land would be designated for acquisition by the local authority and the owner would be given a specified period in which to secure planning permission; once the landowner secures planning permission, a further time limit will be set for the completion of the development;
  • If the landowner fails to comply with the above the local authority may acquire the land by Compulsory Purchase Order; the price paid for such land would be at a specified percentage above agricultural value;
  • If a local authority acquires land in this manner it would be required to develop it or procure its development within a specified timeframe.

The purpose of this study was to provide an economic proofing of the proposal. This was to be done by reference to the position in three housing authorities, two urban and one rural. This analysis was to include:

  • A profile of development land available for housing and the factors impeding its supply to the market, including the hoarding of land; and
  • Evaluation of the market and other impacts of the proposal.

1.2Context of the Analysis

This study is concerned with an economic proofing of the proposal. As such, its main concern is to establish whether there are inefficiencies in the housing and land markets arising from hoarding behaviour. It is not concerned, for example, with equity considerations. Thus, the fact that the betterment value arising from the zoning of land for residential purposes may accrue to relatively few individuals is not an issue that is addressed.

In order to assess economic impacts, there must be some vision of what an economically efficient market would look like. This is usually taken to be a market where the forces of demand and supply are free to operate. Viewed against this background, economists regard the planning development and control system as restrictive in that it interferes with the operation of market forces. This is not to suggest that the planning development and control system is without value or is unduly restrictive. There are negative external effects associated with free market operation that justify the system from a wider perspective.

1.3Layout of the Report

Section 2 of the report provides a background to the evaluation of the proposal, by considering developments in the housing and land markets and Government policies. Section 3 assesses the impact of land availability on housing supply and prices. Section 4 considers evidence that hoarding is a contributory factor in determining housing supply. The impact of the proposed initiative is considered in Section 5. Conclusions and Recommendations are considered in Section 6.

2.Developments in the Housing Market

2.1Introduction

Through the 1990s, the rate of increase in house prices far outstripped increases in general inflation. This has caused concern in relation to the affordability of housing, particularly for first time buyers. As a result, the Government has commissioned several analyses of the housing market and has put in place a variety of policy measures, action plans and legislation to reduce the rate of growth in the price and cost of housing. These analyses and policy decisions provide insights into the factors that have hindered housing supply. Government policy has been to increase housing supply in order to meet demand, thereby reducing the upward pressure on house prices. This section provides an overview of the trends in land and house prices and discusses the analyses undertaken and the policy decisions made, with particular reference to measures to increase supply.

2.2House Price Trends

Between 1996 and the first quarter of 2003, the average price of a home in Ireland increased by 172 per cent. This represented the combined increase of 147 per cent in the price of new homes, and 193 per cent in second hand homes. In the Dublin area, the price of homes increased even more dramatically, with prices rising by 220 per cent between 1996 and 2003.

Figure 2.1 below shows that house prices in Dublin have more than doubled since 1996. The growth in prices has occurred in every year during this period, but the rise was highest in 1998 and 2000. Furthermore, the rate of increase has been far higher in Dublin than in other areas of the country.

Figure 2.1: House Price Trends, Dublin and National, 1996 - 2003


Source: Department of the Environment, Heritage and Local Government

The rapid increase in house prices reflected the strong growth in demand for housing since the mid-1990s. This demand arose for a number of reasons. The population grew strongly, partly on foot of significant net immigration. Population growth in the key age cohort of 25 to 34 years was particularly substantial, giving rise to increased headship rates and demand from first time purchasers. Rising disposable incomes and low interest rates facilitated high levels of demand.

2.3Land Price Trends

Comprehensive and coherent data on land prices are difficult to assemble largely because of the variability in land purchases in terms of plot size, location and the ultimate uses to which the land may or can be put. Thus, sites with planning permission for high-density apartment development in prime urban locations are likely to command much higher prices than sites for housing on the urban fringe. The heterogeneity of land deals presents challenges for the development of a consistent index of land prices. In this study, two sources have been used. The first relates to the annual survey of land prices conducted by IAVI. Currently, approximately 100 estate agencies provide data on nation wide trends through this survey. The second relates to direct inquiries to estate agencies made by the consultants. The results of the IAVI survey for the Dublin area over the period 1996 to 2002 are set out in Table 2.1. [1] These indicate very rapid price inflation in the period 1996 to 1999 of over 25 per cent per annum. This was followed by two years – 2000 and 2001 - in which land prices tended to fall, only for the upward trend to re-establish itself in 2002. For the period 1995 to 2002 as a whole the data suggest that land prices increased two and one half times.

Direct enquiries with estate agents and the data collected from them suggest a more than trebling of prices in the same period. These direct enquiries revealed a similar pattern in the trend of land prices to the IAVI survey, in particular the decline of land prices in 2000-2001 and the subsequent resumption of inflation. The decline of land prices in 2000-2001 may be attributed to a number of factors including tighter margins in the building industry arising from cost inflation and the confirmation by the Supreme Court in August 2000 of the constitutionality of Part V of the Planning and Development Act, 2000.

Table 2.1. Annual Inflation in Dublin Land Prices

Year / Land for Houses
(%) / Land for Apartments
(%) / Land for Residential Developments Generally
(%)
1996
1997
1998
1999
2000
2001
2002 / N.a.
23
N.a.
N.a.
-10
-10
12 / N.a.
28
N.a.
N.a.
0
-9
13 / 26-29
N.a.
N.a.
26
N.a.
N.a.
N.a.

Source: IAVI Annual Survey

2.4Land Costs and House Prices and Costs

Data on the proportion that land costs are of total building costs or of house prices are not easily obtained. Land purchased for housing may take some years to develop, so that land costs and other building costs are incurred at different periods of time. The Joint Oireachtas Committee on Building Land (1973) examined a number of housing developments and developed two indicative models to indicate the relative order of magnitude of the components of building cost and house prices. These models suggested that land purchase costs could account for 27 per cent to 34 per cent of building costs and between 20 and 40 per cent of house prices. The reason for the greater variability in relation to house prices arises from the lag between land purchase and the sale of the housing and the potential for the prices that can be commanded for houses to reflect changing market conditions.

One way of estimating whether these estimates are still relevant is to examine the price paid for development sites currently and to relate these land costs to the price that housing on these sites would command at current market prices. Data on a number of site deals and on the number of housing units for which planning permission had been granted on these sites were collected from estate agents.[2] Approximate market values were then ascribed to these housing units. The results indicated that land costs were in the range of 20 to 33 per cent of house prices, depending on the location and the nature of the development.

The Annual Construction Industry Review published by the Department of Environment, Heritage and Local Government posits a figure for land costs at 22 per cent of the house price in 2002. This is a nation-wide estimate rather than one focused on urban areas. [3]

2.5Housing Supply

The number of private dwellings built annually in the State has tripled from 19,000 to almost 58,000 between 1993 and 2002. Most of this increase has taken place since 1996, as shown in Table 2.2 below.

The trend in the Dublin area was quite different. The annual rate of new home completions in Dublin has risen by 34 per cent in the past six years, but this is well below the increase in the country overall, which was 71 per cent. As a result, the proportion of new homes completed in the Dublin area has fallen from 28 per cent to 22 per cent as a proportion of national house completions. However, Dublin has still seen the addition of 69,396 homes in the past seven years, 64,000 of which were private homes. In addition, output in 2002 at 12,623 houses represents a significant increase on previous years.

There are four Local Authorities within the Dublin area, and there has been a significant variation in the number of units completed in each. Both Fingal and South County Dublin each account for 34 per cent of house completions in Dublin over the past seven years. Dublin City Council account for a further 25 per cent, and less than 9 per cent of all housing has been constructed in the area of Dun Laoghaire-Rathdown.

In addition, house building in the counties surrounding Dublin (Meath, Wicklow, Kildare and Louth) has seen housing output double from 5,191 per annum in 1996 to 9,975 per annum in 2002.

Table 2.2: House Completions, 1996-2002

Dun Laoghaire-Rathdown / Fingal / South County / Dublin City / Dublin Total / National Total
1996 / 1,053 / 2,024 / 2,244 / 4,125 / 9,446 / 33,725
1997 / 712 / 2,707 / 2,479 / 3,427 / 9,325 / 38,842
1998 / 549 / 2,618 / 2,013 / 3,777 / 8,957 / 42,349
1999 / 886 / 4,296 / 2,049 / 2,804 / 10,035 / 46,512
2000 / 860 / 4,044 / 2,139 / 2,362 / 9,405 / 49,812
2001 / 1,166 / 3,602 / 1,746 / 3,091 / 9,605 / 52,602
2002 / 785 / 4,308 / 3,406 / 4,124 / 12,623 / 57,695

Source: Housing Statistics Bulletin - Department of Environment, Heritage & Local Government

2.6Government Policy

2.6.1General Background

The rapid rise in house prices especially in the Dublin area and the evidence that house purchasers were being forced to consider commuting from locations at some distance from the Metropolitan Area raised concerns about the efficiency of the housing market and the factors hindering the supply of houses. The Government policy has been influenced by three reports, which were commissioned from Peter Bacon and Associates over a three-year period from 1998 to 2000. The Planning and Development Act 2000, which was amended in 2002, has been an important vehicle for change in relation to housing.