The Government is currently reviewing the National Development Plan (‘NDP’), the 10 year capital expenditure plan from 2018-2027. Just before the summer recess it was announced that exchequer funding for the plan would increase by €45bn over the remaining six years.

Project Ireland 2040 and the National Development Plan have not been without their challenges with budgets increasing significantly on some projects and deliverability issues on others. However, there has been a marked increase in the commencement and delivery of projects, particularly in transport, housing and utilities.

The updated NDP is set to be released in the coming weeks with a strong emphasis on spending to deliver new homes, hospitals, schools and transport infrastructure as we emerge from the COVID-19 pandemic. 

Need for leadership & collaboration

The Housing for All plan provides for €12bn in direct exchequer funding for housing over the next 5 years, combined with commercial funding via the Land Development Agency of €3.5bn and €5bn through the Housing Finance Agency. This is a highly ambitious spending plan and relies on the ability of the various government agencies, local authorities, central government and private sector stakeholders to work collaboratively to deliver on the objectives.

In the recent past, many interactions and contractual relationships between Government and the private sector have been adversarial. The Construction Sector Group (‘CSG’) was established to address some of those shortcomings and to ensure regular and open dialogue between Government and the construction sector.  The Housing for All plan talks to the importance of the CSG and that its role will be enhanced. 

The historic adversarial culture must change, with Government ensuring the right leadership, governance, procurements and forms of contracting are in place if we are to deliver on the Housing for All plan. 

Housing plus infrastructure

With such a significant uplift in housing spending will come the need for supporting infrastructure and appropriate planning to facilitate this. This is alluded to in the Housing for All plan through references to Urban Development Zones, the Town Centre First strategy, the Irish Water Stimulus Package and an additional €1.3bn in the Urban and Rural Regenerations Funds. These measures are a step in the right direction in terms of the type of infrastructure required to either support housing redevelopment or to build out new infrastructure to facilitate development.  

In addition, new developments and increased population in urban areas will require new schools, new hospitals, better transport and appropriate utilities. The plan sets some of this out through the emphasis on a rollout of timely electricity connections and increased investment in new water infrastructure. It also suggests that the rollout of the National Broadband Plan may be accelerated. 

A new housing model

The Housing for All plan very clearly emphasises the pathway to home ownership and is proposing a move away from leasing and enhanced leasing by Local Authorities. These were recent models for delivery of social and affordable housing that attracted significant private sector investment in recent years. However, the Housing for All plan includes a number of measures that will impact on the commerciality of delivering more traditional forms of rental properties including energy efficiency requirements, widening of rent pressure zones and linkages to the HICP index.

Housing for All also sets out the plan to shift to a cost rental model whereby returns are considered more stable and attractive to long term investors such as pension funds and infrastructure investors. This model, aiming to provide 18,000 homes below 25% of market value, will likely have a dramatic effect of the overall rental market in Ireland if successful. 

Land value sharing

The delivery of major infrastructure projects are incredibly costly, often running into the billions to complete. And many of the projects, particularly in transport, can have a significant impact on the value of the land and surrounds when they become operational. The Government has a number of ambitious transport projects plans including the DART expansion, Luas expansion and a new Metrolink. These projects will need to be paid for and the Housing for All plan has set out a potential mechanism to assist with funding.

The land value sharing mechanism, linked to the uplift in value of property when infrastructure is delivered, is one that has been around for some time. It was used by Transport for London to help fund Crossrail and in other countries such as Hong Kong, Australia and the US to fund public infrastructure.

The Housing for All plan seems to set out a mechanism whereby land value is shared when land is re-zoned, rather than when new public infrastructure becomes operational. This is a variation on what has been seen in successful models globally. There are well documented challenges with the commercial viability of housing development on many sites across Ireland. While the principle of a mechanism like this is welcomed if it reforms the current development levy model and acts as an enabler to delivering much needed infrastructure, the ‘devil will be in the detail’. If this model provides for an imbalance of value share it could impact on commercial viability of developments and inadvertently set back the Housing for All plan.

Capacity to deliver

Critical to the successful delivery of the Housing for All plan will be the capacity of both the public and private sector to deliver. This is across many disciplines in the housing sector, built environment and also in the provision of infrastructure. It also applies to the capacity of the various delivery bodies including the LDA which is a newly created entity and the Local Authorities who have been short on delivery resources for some time now.

At the start of 2020 we were commissioned to write a report into the productivity of the construction sector and its capacity to deliver Project Ireland 2040 (available here). That report contained over 40 actions on recommendations on areas such as planning, contracting, procurement, technology, innovation, education and skills. Many of these recommendations still apply and have been emphasised further in this plan, in particular the need to up-skill and train people to increase the workforce in construction by 27,500.  

In summary

Overall, the Housing for All plan should be welcomed. It is ambitious with clear targets and an implementation plan for the provision of all types of housing and supporting infrastructure over the next five years. We look forward to the NDP review for further details on the wider areas of capital spend planned in health, climate action and education which will be critical to the success of the Housing for All plan.

Get in touch

The pace of change is challenging leaders like never before. To find out more about how KPMG perspectives and fresh thinking can help you focus on what’s next for your business or organisation, please get in touch with Rob Costello of our Corporate Finance team. We’d be delighted to hear from you. 

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