Data on planning permissions released by the CSO in recent weeks showed a 9% increase in the number of residential units granted permission in the final quarter of 2007 compared to the same quarter in 2006, writes Geoff Tucker.  

A total of 17,733 new homes were granted permission in Q4-07, of which 4,252 (-5.1%) were one-off houses, 8,833 (+3.6%) were multi-development houses and 4,598 (+43.8%) were apartments.

As a result 84,397 houses and apartments were granted planning permission across the county during 2007, up 7.2% on the 78,755 units granted in 2006. At first glance these figures seemed to contradict what is currently happening in the residential construction sector – permissions increasing despite a decline in the number of new home starts and completions.

Yet, the trend in planning permissions is somewhat misleading. Of the 17,733 units granted planning permission in the final three months of 2007, the majority (especially in the case of larger developments) will relate to planning applications submitted at least six months earlier i.e. in the second quarter of 2007 and earlier. In fact, allowing for an appeal to An Bord Pleanála, it can take up to two years (and longer in extreme cases) for many multi-unit developments to go from application to permission.

It is important to remember that planning permissions provide a snapshot of the potential construction capacity over the medium-term. An increase in the number of units granted planning permission does not immediately translate into an increase in construction activity. In fact, most developers have for the moment shelved plans for new developments or phases of existing residential sites until they have managed to shift their existing stock of unsold homes.

The planning figures do nothing to change our view that the number of new home completions will fall to 48,000 units this year and 38,000 units in 2009. These forecasts are based on our assessment of new home starts (of which we anticipate 35,000 starts in 2008 compared to 48,920 in 2007) and our knowledge of activity on-the-ground. Obviously the planning permission data show that completions in 2008 and 2009 will be at a level well below potential in the residential construction sector and that there is ample capacity for activity to increase in subsequent years.

However, the statistics on planning applications are far more revealing than those for planning permissions. Figures published by the Department of Environment, Heritage & Local Government show that 19,998 applications were submitted to planning authorities in the final quarter of 2007 – a fall of 28% compared to the 27,689 applications submitted in the same quarter a year earlier. This is much more in-line with experience on the ground, especially given the fall in activity in the development land market. The CSO statistics are therefore likely to show a drop in the number of units granted planning permission over the course of 2008.

This fall in the number of planning applications (and subsequently planning permissions) is probably one of the main reasons the Minister for Environment, Heritage & Local Government is looking at increasing development contributions, which in recent years have become a major source of funding for local authorities. It appears the Minister believes an increase in development contributions is needed to fund local social and economic infrastructure.

Of course it makes sense to ensure there is adequate provision of schools, community centres, public open space, roads and waste water facilities in areas where new residential communities are provided. But the existing local population benefits just as much from these infrastructural improvements as those moving into the area. Added to this, there are a number of residential areas that are long well established or have been constructed in recent years that are in desperate need of local infrastructure investment, either because it requires upgrading or because it wasn’t provided in the first place.

Placing the onus back on the developer – and subsequently the new home buyer – is not only inequitable, it is unsustainable.

Local government reform will be a key issue for the Government to address in the years ahead. A major part of this will require assessing how local authorities are funded – an increasing reliance on development contributions is not the way forward.

With the Government committed to introducing a directly elected mayor for Dublin by 2011 with executive powers (and inevitably extending this to the other main cities across the country), there is clearly a move to devolve some authority from central to local government. But these powers and authority will be completely meaningless if the financial autonomy isn’t there to back it up.

In order to deliver an efficiently functioning local government system that can properly provide for our cities and towns, new ways of generating local authority revenues will need to be considered and implemented. The most logical approach is the introduction of local taxes and decentralised budgets, which means that everyone living in an area will contribute to the development and general upkeep of that area. Introducing a completely new form of taxation will require some serious political willpower. The short-term alternative is to take the easy way out and get the developers to pay. But that is just postponing the inevitable.

Geoff Tucker is Economist with Hooke & MacDonald and can be contacted at geofft@hookemacdonald.ie