Nat O'Connor: It was reported today that "the 40,000 hectares of land zoned for residential development across the country will be reduced to 12,000 hectares over six years" (Irish Times). The Irish Independent's spin on the story was that "The move to dezone 28,000 hectares across the country will hit thousands of developers and landowners who bought land at the height of the boom. They now face the prospect of owning worthless land banks on which hefty bank loans were secured and which may never be developed." Is there not a substantial risk that the value of these land assets may be the only security underpinning loans from banks and that these loans, if passed to NAMA, will be nearly worthless?
If this comes to pass, NAMA will have to buy these loans at much more than a 50 per cent discount. But whether NAMA buys them at an incredible discount - or if the loans remain with the banks, and NAMA's business plan seems to suggest that they won't take on any old bad debt from the banks - they are going to even further weaken the bank's balance sheets, leading inevitably to further recapitalisation from the public purse.
In fairness, the decision to dezone is probably a wise rationalisation of the situation. It clarifies the real medium-term potential (say next twenty years) for most of these sites to be built on. That will help land valuation. By the by, it will also lower the liability of these landowners to land value tax.
Ciarán Cuffe, in announcing the measure, said "The provisions in the new legislation are designed to address this excess to deliver more compact, walkable and integrated communities with the necessary infrastructure and services." This is a good aspiration, and it reinforces the long-standing call for good integrated planning so that housing is well-knitted into nearby public transport, amenities, commerces, etc. And conversely, not built in an isolated field with no such links, which is too often the case for many new developments. Yet that is where this aspiration does not address the need to integrate existing isolated housing where people now live (and with negative equity may live for decades to come), which are too often car-dependent and isolated from shops and amenities.
The point has been made before, but it is worth repeating, that locational value - nearness to transport, employment, schools, shops, etc - is the central way in which land value and housing value will increase over time. It would make sense for the state to engage in a process of adding value to many isolated or half-occupied estates and apartment blocks, by ensuring that the local authority development plans explicitly seek to add locational value in order to integrate isolated housing. The Planning and Development Bill, now passed by the Seanad, does not to my knowledge do this. But local authority plans could still plan this in - if there was a pool of capital available.
Simple example: If NAMA pays €1 billion for several estates of housing, with an average unit price of €100,000 due to poor locational value, then it may or may not be able to sell them and break even for the taxpayer. The downside is that the buyers (or future renters) are likely to be living in circumstances that differ greatly from the stated integrated-into-a-locality policy aim. This in turn will decrease their chances of employment, quality of life, etc.
But if the state took those houses and spend €X million to add locational value (by building a school, better roads, shops, a playground, broadband and/or whatever else) and then sold them for a higher price each, this higher price could pay for the money spent in adding that locational value.
Therefore, in simple terms, if you can add a total of €X million to the price of a set of houses, then €X million is the kind of money that should be invested in making these houses better before selling them. As an externality, people with construction skills (who we have plenty of) would be employed for a time and the final occupants of those homes would have better quality of life and better employment prospects. And of course, the housing market as a whole would be strengthened, which will ease negative equity. It makes no difference to the state if NAMA buys the units for €1 billion and sells them for €1 billion, or if NAMA buys them for €1 billion, the local authorities spend say €250 million and the houses are sold for €1.25 billion. Yet it makes all the difference to those employed and to those who will live there for years!
It should be possible to do a study of the property market that can identify the X factor, that is, the housing price difference between areas which have high locational value and those with low locational value. The large amount of vacant property should provide an adequate sample to make actually quite good estimates of the difference. And since NAMA could have a large portfolio of property, it makes sense for a national plan to add value to it. There is a risk that NAMA will simply be unable to sell housing, except at a loss, due to the combined effect of poor locational value, unemployment and emigration on its portfolio of assets. And because the NAMA plan explicitly states that it won't hoard housing, it can't spend years waiting for property prices to rise again.
To avoid EU rules on direct state competition with the private sector, there could be open tendering for any construction projects associated with adding locational value.
The key assumption is that people seeking to buy would be willing and able to pay more for housing with higher locational value. This requires them to be offered affordable and responsible mortgages. But given that people are likely to be much less 'property ladder'-oriented now, and more likely to buy in a place where they may live for ten or twenty years, it seems reasonable to expect that they would indeed be willing to pay more for higher locational value. So that's where money can be found to improve the locational value of Ireland's stock of vacant housing (much of which will pass through NAMA) and also to provide a much needed boost to employment, and soften the blow for thousands laid off from construction.