Most of the apartment building in Dublin is being facilitated through forward-purchase deals with investment funds. Investors typically pay a premium to buy in bulk as it is easier and cheaper to manage multiple units in one location.
If institutional buyers pay a higher price for property, the higher price becomes capitalised into land values. The interplay between land values and property prices is a key dynamic here. If sales prices increase, the value of land — comparable land — goes up by a multiple of the increase.
This, in turn, incentivises landowners to hold on to their assets to extract the maximum possible value. Put another way, it increases land speculation.
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Speculative activity in the development land market here was one of the key themes latched on to in a report on planning and housing by the Department of Public Expenditure. The report linked a growing gap between apartment completions and planning permissions for apartments to speculative behaviour. At the end of last year, there were more than 42,000 apartment units with planning permission that had yet to commence in Dublin alone, the report indicated.
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“Increasing uncommenced permitted units could indicate the speculative purchasing and holding of land with a view to greater future resale value,” it said. “Acquiring planning permission on land that is held as an asset could add value to the land by reducing risks or delays associated with the planning process by developers,” the report stated.
Considerable policy focus here has been on reducing construction costs — smaller units, no balconies, fewer car parking spaces — but the relationship between end prices and land values attracts less attention.
The 1973 Kenny report, which recommended the State adopt a system of “active land management”, suggested that local authorities be given the power to buy development land, using a compulsory purchase order, in an attempt to limit land speculation and rising land values. The recommendation was never acted upon.
