Sunday 25 May 2008

Housing becomes unaffordable

Is Bernard McNamara’s row-back on a social development scheme justified?

The slowdown in the property market hit those on the bottom rung of the social ladder last week, when developer Bernard McNamara announced he would not be going ahead with €900 million worth of social and affordable housing schemes in Dublin city.

In the past, a slowdown in property would not affect social housing projects in places like O’Devaney Gardens or Sean McDermott Street, but because this was a public-private partnership, McNamara was due to recoup some of the cost of building social and affordable housing from selling private houses he would build on these sites.

A fall-off in the price he could expect to achieve for those private units would affect the whole financial basis on which the original deal was struck.

For McNamara, it wasn’t about pulling out. In a letter to Dublin City Council he described it more as a marriage that ‘‘it has not been possible to consummate’’.

Back in 2005 and 2006, McNamara won the tender to build 820 housing units at O’Devaney Gardens off the North Circular Road, 700 units at St Michael’s Estate in Inchicore, 360 units in Dominick Street, and others at Infirmary Road and Sean McDermott Street.

Each deal was different. Broadly speaking, he would get possession of the sites where there are old council houses and flats. He would build these new units and hand over around one third as social housing to Dublin City Council.

He would sell a further one third as affordable homes, which are subsidised and sold more cheaply than those on the open market. The final third he would sell himself and recoup his costs plus a profit.

McNamara has blamed a number of factors for not proceeding. These included changes in the rules governing the minimum size of apartments, under regulations that were introduced after he won the tenders.

He also cited delays in achieving planning permission and the fact that, where he was granted planning, it was either for a reduced number of units or it was appealed to An Bord Pleanála, causing further delay. The other main factor, he said, was the slowdown in the market.

In a letter to Dublin City Council, McNamara summed up his position. ‘‘The adversely changed circumstances of the current private housing market to that of 2005/ 2006, when the bids were submitted, along with the significant additional costs of increased apartment sizes and new energy regulations, have rendered the whole concept of using the sale of private housing units to fund social and affordable housing and community services along with a balancing site purchase figure, unsustainable in the current market, despite the best efforts of everybody involved.”

The reality is somewhat more complex. First, McNamara only signed contracts on two projects. These were the two where planning permission had been granted. It is understood that he would face some penalty clauses for pulling out of those contracts if the council were to show that the terms of the deal remained the same.

Secondly, where planning permission was granted, the new apartment size regulations do not apply. Third, where planning permission was not yet granted, he had not signed a binding contract at all and is free to walk away.

Correspondence between McNamara and Dublin City Council does reflect a genuine sense of frustration on the developer’s part with the complexity and delays in the process.

For example, in a letter dated last September, in relation to St Michael’s Estate, he asks whether, if he does not secure ‘‘acceptable’’ planning permission for Phase 2 of the project by December 2008 (as agreed in his original bid),the council could pay him €32 million. This ‘‘will facilitate Michael McNamara & Co securing construction finance for the completion of Phase 1’’.

‘‘Acceptable’’ planning, in this case, was permission for the same number of units as contained in the original bid.

McNamara can point to the fact that, in the planning process, there was the risk that the number of units would be reduced. In the case of Infirmary Road, the council agreed planning for 200 units but, after a Bord Pleanála appeal, this was reduced to 162.

McNamara can also point to the changes in the minimum size of apartments for the new schemes that would apply to those for which he does not yet have planning permission. This would also reduce his profit margin on the whole venture.

According to Des Geraghty, chairman of the Affordable Housing Partnership, which represents the Department of the Environment in putting these projects together, this setback is more likely to be a delay, rather than the end of these projects.

Joe Costello, Labour Party TD for Dublin Central, also sees this as a big disappointment, but not something that signals the end of these ventures.

It appears as if McNamara has genuine gripes about the changing market, the planning delays and the new regulations on some new units.

However, he is one of the most experienced property developers in the country. It is hard to imagine that, when he won these tenders by submitting far and away the lowest tender price, he didn’t realise the normal planning process would still apply.

Just because Dublin City Council agrees a tender with a developer to provide new units, does not mean that the normal rules of planning, where members of the public can object, are scrapped.

McNamara would have known this. One of the downsides is that the developer carries this risk in public-private partnerships of this kind. Sources say that McNamara would have known that Dublin City Council could not deliver an ‘‘appeal-free’’ process.

‘‘He signed up to this. There have been delays in planning, but the market was so buoyant in 2005 and 2006 that it was a risk worth taking. The potential returns were so massive. Now, they are not,” a source said.

Those involved in the affordable housing projects believe these developments will go ahead, but only following further lengthy delays. ‘‘If Dublin City Council has to put them out to tender again, it is practically back to square one,” one source said.

However, there are signs that McNamara will engage with Dublin City Council to see if a new formula can be found, to make the projects financially viable for the developer. One possibility would be to increase the price at which he can deliver the social and affordable houses.

Another would be for him to build his own private units on the site, with a view to renting them out, rather than selling them. The more compromises that are introduced into the process, the greater the possibility that the council will have to put them out to tender again. ‘‘The reality is that, in this falling market, the price of an affordable house is a lot closer to the full market price,’’ one source said.

McNamara has rightly pointed out that other developers who signed up for projects elsewhere are not progressing either. There are now doubts about the much-publicised Limerick regeneration project.

Whatever outcome is reached between the council and McNamara, could become the template for many of the other social and affordable housing public-private partnerships around the country. In the current economic environment, it is impossible to see the state proceeding alone and building these social housing units. In the end, those waiting for regeneration projects will have to wait.

Family furious about housing delay
Nadine Murphy and her teenage sons, Patrick and Peter, have spent years anticipating a move from their small two-bedroom flat in O’Devaney Gardens, to a new three-bed home, under Dublin City Council’s PPP agreement with builder Bernard McNamara.

However, her hopes for a new future were dashed when plans by the council and McNamara to build thousands of new units in a regeneration of five areas in Dublin city, collapsed.

Murphy’s mother moved into one of the 13 blocks of flats when they first opened in the 1950s and Murphy herself has had a home there for the past 13 years. Her sister, aunt, cousins and other relations also live there.

‘‘This week is the tenth anniversary of the first time a general public meeting was held here for the redevelopment of O’Devaney Gardens, and I am not going to wait another ten years for a new home,” said the Community Technical Aid worker.

‘‘The news that the developer pulled out was really a kick in the teeth. I have a two-bed flat with a tiny kitchenette and bathroom. My family, and all the others here, eat our dinners on our laps on the sofa because there is no dining area. You are almost hitting the wall in the bathroom when you get out of the shower.

‘‘Everyone was so happy here two years ago when we saw the regeneration plan that included apartments, duplexes and a community centre with a rooftop pitch. Now there is such dejection,” she said.

Anti-social behaviour has been increasing in recent weeks. An empty flat – one of 64 that will be demolished in July – was set on fire, along with a motorbike, according to Murphy, who said non-residents were coming into the complex and causing problems.

‘‘There are gangs now congregating here, and none of us know who these young people are,” Murphy said.

There will be an emergency meeting of the area’s regeneration board on Wednesday. Four resident representatives on this board, including Murphy, will demand to know what the council’s ‘Plan B’ is for them. Assistant city manager Ciarán McNamara and political and policing representatives are also board members.

‘‘I do not want to be a senior citizen when I get a new home,” Murphy said. ‘‘The flats may look depressing, but it is the 188 families who make O’Devaney Gardens a community. They have to keep their spirits up now, and fight for a better environment for their kids to grow up in.”

By Nicola Cooke
Sunday Business Post

No comments: