Can Dublin sustain its enviable growth?

Ireland’s economy is the envy of Europe. Since 2014 it has been leading the pack, and now, while the rest of the world is panicking about inflation, lack of office demand and zero growth, Dublin looks like it is sitting pretty. For Savills’ head of research in Ireland, John Ring, Dublin occupies an optimal position. “It has aligned itself with long-term structural drivers of the global economy such as tech, now life sciences, potentially pharma, etc. It occupies a sweet spot between the United States and Europe. Long-term, those fundamentals still underpin the Irish economy and its kind of unique dynamic out there.” Enviable, yes. But is it sustainable? Perhaps not, warn the panel at EG Cities Live: Dublin. “We could be in a situation where our attractiveness as a place to be and a place to live could be eroded quite quickly in two or three years’ time,” cautions Goodbody’s head of real estate, Colm Lauder. International stage Dublin’s investment picture has fundamentally changed in the past decade and a half. “Before the financial crash, Ireland was a place where Irish people sold to Irish people,” says Mairead Finlay, associate partner and head of real estate at EY Law Ireland, who advises international clients on investment in Dublin’s property. “International investment really only stepped up after the crash.” For Bartra’s strategic planning director, Hazel Jones, it started earlier than that, with changes to education attracting Intel to set up shop. “It must be more than 30 years since Intel first moved into Ireland. And of course, Intel moving into Ireland attracted lots of others. The foundations of the growth that we see not just in Dublin but in Ireland started a long time ago and they’ve been sustained for a long time.” Over the past few years, investment in Dublin’s real estate has grown exponentially, with tech firms looking to Ireland’s capital for their international headquarters and even a bit of a Brexit dividend, says Finlay. International investors whose gaze stopped at London have been looking hungrily at Dublin since 2016. And while international firms were once lured by low taxes, that is no longer the only appeal, says Jones. “You now have built up such a momentum of confidence in the tech sector, in the Irish situation, that it’s no longer just about tax, it’s about all the other stuff. It’s about an available workforce, a well-educated workforce. And it’s not just the tech sector, but the pharma sector, the food sector. We’re not just dependent on any single area – we’ve spread our eggs into a number of baskets. And I think that will help sustain us.” Housing crisis While Dublin may feel the effects of international “wobbles”, she says Dublin is “moving forwards”, with demand at unprecedented levels. But the issue is not the demand. The issue is on the supply side. One of the biggest problems facing Dublin is its lack of housing. Without accommodation for all the people required to help grow the economy, from the tech visionary to the barista who makes their daily cuppa, Dublin’s growth will not be sustainable. The government has said it will build 30,000 homes a year, but is that supply coming through? “No,” says Patrick Phelan, with finality. The managing director of Ballymore in Ireland pauses for dramatic effect. “I don’t see that coming through. We have all engines in Ballymore driving supply, and yet we’re still only able to get to 500 homes a year, excluding PRS.” Both the private sector and the public sector are eager to get building, so what is choking supply? “It’s a combination of planning services and production capacity,” says Phelan. “Do we have the construction people on side and do we have them in the right boxes? Do we have the right planning in the right locations? The answer is no. Unfortunately, in the Irish market there is that dislocation which is going to continue.” The construction worker shortage is a good problem, says Jones. “The reason we have a labour shortage and a skills shortage is that we have thousands of people working on major projects.” But there are other problems that aren’t as good. And the chief culprit is the planning system. “You can’t underwrite planning risk in any reasonable way in the country at the moment,” says Ring. “So you can’t even have a pessimistic view or an optimistic view. You just can’t have a view.” Constrained growth Dublin has long been constrained by height restrictions, imposed to retain the look and feel of the city. This has led to a greater degree of intensification and densification than seen in other cities. Now new guidance aimed at prohibiting sprawl is also playing a part, effectively reducing the amount of developable land by two-thirds. While this is intended to prevent sprawl, Savills’ Ring argues that it will simply stifle development. Bartra’s Jones agrees. “Planning is a huge challenge, and we just seem to consistently shoot ourselves in the foot when it comes to our planning system.” The problem, Lauder says, is structural. “We don’t have champions of urban development or of cities in the Irish political system. We haven’t got a centralised mayor. So when you look at who’s fighting for the agenda to develop Dublin into a modern city, there isn’t that figurehead there, there isn’t that agenda being set. And that feeds through not just the planning in terms of individual housing but also strategic planning.” Dublin, Jones says, is still struggling with the effects of splitting the planning function across several authorities in the 1990s. “The Dublin metropolitan area has seven different local authorities, seven different standards, seven different development plans. We absolutely need one metropolitan area for the greater Dublin area and one plan, one set of standards.” But as Lauder says, that isn’t the reality. “We don’t do strategic planning. We’ve been trying to build a Metro since the 1960s.” Much of the blame for the current shortage of housing is political, Phelan adds. “If anyone thinks any politician doesn’t want to solve the housing crisis, they’re wrong.” But housing needs land. “I have to be careful what I say here, but the political system is now slowing down the availability of land.” Carrot vs stick “There is no short-term solution,” says Jones. “There is no silver bullet, unfortunately, to solve supply.” Having said that, fewer policies imposing restrictions and more offering incentives wouldn’t go amiss. “The government needs to change its fiscal policy to almost a carrot approach,” she says. Because the sticks are impacting investment, says Finlay. “The planning system affects investors because there is no point in talking to investors until you have planning. They’re not interested in talking to you. And globally, people know about the problems in the Irish planning system.” And added to that there is more uncertainty. “In the funding markets, debt rates are rising. That’s going to make viability more challenging,” says Phelan. “I don’t think anybody should ignore that.” And there is another issue that will further choke supply, unless determined steps are taken to avoid it. The vast majority of Dublin’s office space falls well below ESG investment criteria. “Less than 20% of the existing office space is certified as green office space,” says Orlaith Malloy, partner and head of real estate at DWF. “So we obviously have to pull our socks up and look at that existing office space.” Shane Duffey, director of office agency at Savills, agrees, commenting: “For landlords of existing office stock, the horizon is perhaps a little bit more challenging and uncertain.” The differentiation between new stock and old stock is beginning to make itself felt. “We are starting to see better rents for good, sustainable new stock,” says Phelan. “I think that’s a trend, and I think it’s going to widen.” But with the cost of refurbishment rising ever higher, he questions the viability of converting that lagging 80% into sustainable, investment-grade stock. For now, though, Dublin is in an enviable position. “We still have really strong demand from the international community,” says Phelan. “But can we keep it, when we keep moving the goalposts? We keep going back and plucking the golden goose. But we need to be very, very careful because these investors will only put up with so much.” Finlay is even more optimistic: “Our economy is going very well, and as a result there is growth.” Everything is in place to maintain that growth, she says, except the housing supply. “So we just need to bring it together and then, I think, you keep growing.” “The only issue is that time is not particularly on our side,” cautions Lauder, who classes himself as a “realist”. What is needed is fewer restrictions and a bit more help from government. As Ring says: “If there is one takeaway from this, it is that we need less of a stick approach and more of a carrot approach.” Expert speakers Shane Duffey, director of office agency, Savills Mairead Finlay, associate partner and head of real estate, EY Law Ireland Hazel Jones, strategic planning director, Bartra Colm Lauder, head of real estate, investment banking, Goodbody Orlaith Molloy, partner and head of real estate, DWF Patrick Phelan, managing director, Ballymore John Ring, director of research, Savills   To send feedback, e-mail piers.wehner@eg.co.uk or tweet @PiersWehner or @EGPropertyNews Photo © Andrei Carina/Unsplash