Planning to freeze this winter

Cost of living and the failure of land and housing policy

Robert Sweeney08/09/2022

Much of the public’s attention in recent times has been focused on Ireland’s cost of living, in one form or another. For the last few years it was housing that dominated and, more recently, it has been energy-driven inflation. Alongside that, a number of controversies involving land and housing have been brewing: the resignation of An Bord Pleanála deputy chairman, Robert Troy, Stephen Donnelly, and more. While local land and housing politics on the one hand, and global inflation on the other appear to have little in common, they are not as distant as one might think. Policy failures in housing and planning have not only affected house prices, but also bear on our most recent erosion in living standards. Better planning and housing policy could have alleviated the cost of living crisis.

Before the reopening of the economy after Covid, housing dominated the headlines. Much of Ireland’s housing problems are a legacy of the housing bubble of the 2000s, which was one the largest housing bubbles in world economic history, perhaps even the largest. Without rehashing all of the causes, part of it related to poor enforcement of planning rules as houses were built outside of the cities where there was little demand for them. This also incentivised land speculation, which added to the problem.

Fast forwarding to Ireland’s recovery, land speculation and hoarding have continued to be issues, especially after NAMA disposed of its portfolio. However, the main issue holding back private supply is that for many developers it is unviable to build. This is a complicated phenomenon with many moving parts. While I’m sceptical that planning should shoulder as much blame as some people claim, the time and uncertainty in Ireland’s planning system pushes up costs for developers. Despite the abundance of planning permissions granted, the process seems to be costly, magnifying the problems of construction viability.

In terms of evidence, it is patchy but suggestive. There is an wealth of econometric studies, which I’ve never been huge on, showing how land use regulation elevates development and ultimately housing costs. Moreover, urban land is less developed in Ireland relative to other countries which, while not necessarily a bad thing, does suggest a certain restrictiveness. More telling for me is that in conducting interviews with land traders for a recent report, two respondents independently said that the uplift in land values with and without planning permission is significantly higher in Ireland than the UK, again suggesting our planning system is more cumbersome. The UK, moreover, appears to be one of the most expensive places to build, at least according to a recent international comparison on the costs of laying rail. Industry types, unsurprisingly, lay the blame at government regulation and the planning system in particular. While this should be treated with some scepticism, it is noteworthy that in said international comparison English speaking countries cluster together at the top. This strongly suggests the problem is institutional.

For some this justifies expediting the planning process further, and deregulating apartment standards more, both of which have already been subject to a healthy whack of laissez faire reforms in recent years. However, it is also the case that objections and local participation block genuinely poor plans such as environmentally destructive development, which is not insignificant given Ireland’s terrible record on emissions. The problems and solutions are therefore complex. This is compounded by the fact that planning restrictiveness in some areas has been accompanied by free-for-all in other areas, such as one-off rural housing in the 2000s. It certainly doesn’t help matters that national policy contravenes local plans leading to judicial reviews and magnifying an already adversarial system.

Another approach would be to invest in the planning system. This would mean more ‘master planning’ by local authorities, which have thus far been used to only a limited extent in Ireland. Master plans have greater detail in terms of type and density of units that can be built. They specify detailed 3-D plans of what can be built, instead of the more broad brush, 2-D plans that we have today. It would require allocating more resources to local authorities in terms of architectural, quantity surveying, and environmental expertise. Under such a system, there is considerable consultation with communities in drawing up the plan, and limited grounds for objections at the planning permission stage. This would add greater certainty to the planning process, improve viability, help supply, and ultimately alleviate the cost of housing. It can also provide for aesthetically pleasing and well-organised built environments.

While the links between the planning system and the cost of housing are reasonably straightforward to make, aside from the price of housing what does planning have to do with the ongoing cost of living crisis? Inflation has been driven by rocketing energy prices. While this is a global phenomenon, it is not helped by home-grown policy failures, failures which once again emanate in the housing and planning system.

To take one example, electricity prices in Ireland were among the most expensive in the EU prior to this year. Much of this is driven by dependence on imported fossil fuels. Another factor, though, is Ireland’s legacy of poor spatial planning with lots of one-off rural housing and scattered urban sprawl. As a result, power lines need to run much further in Ireland to service Irish homes than in other EU countries. In fact, Ireland’s scattered population elevates the cost of public service delivery more generally, such as transport, which increases reliance on private cars.

Our planning system has also enabled the proliferation of poor quality units to be constructed. While there is no official cross-country data on the energy efficiency of housing, available evidence points to Ireland having among the least energy efficient homes in high-income European countries. An industry report, finds that out of 11 Western European countries, UK homes lose the most heat after 5 hours when the inside temperature is 20c and the outside temperature is 0c. While Ireland was not included in that study, energy use per dwelling here is 6.5% above the UK, which has largely the same climate as Ireland. More recently built housing is obviously of much higher standard, but our accumulated stock of leaky homes make them more costly to heat. The recent spike in energy prices makes heating all the more costly, especially for low-income households whose homes are the leakiest.

Whether it’s the boom and bust in Ireland’s housing market, or the most recent spike in energy prices, poor planning has been central to Ireland’s woes. It’s a complicated problem as local engagement is obviously central to democracy, and aspects of the planning system have been under-regulated, whereas other parts are cumbersome. It affects all of our quality of life and at the very least governance should be coherent and of high standard.

Posted in: EconomicsEuropeHousing

Tagged with: energyhousing

Robert Sweeney     @sweeneyr82

Sweeney, Robert

Robert Sweeney is a policy analyst at TASC and focuses on issues surrounding Irish political economy and distribution. He has a PhD in economics from University of Leeds, which concentrated on financial markets and investors, banking, international macroeconomics, and housing. He is also interested in debates on alternative schools and methodology in economics, and ownership.



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