The development of Dublin's docklands is testament to how an integrated social, economic and physical development agency with planning scheme capacity works.
The approach to planning in Dublin’s docklands is not flawed but the DDDA would have benefited from a performance review.
IT’S HARD TO see how the Dublin Docklands Development Authority (DDDA) can recover from its predicament.
It has finished up in a very bad place with potentially huge liabilities and not even enough cash to keep up the maintenance of the place. Perhaps it is about to pass away and be forgotten?
However, its immense legacy – and of the Custom House Docks Development Authority before it – cannot be ignored. Anyone who visited Sheriff Street, the North Wall or the Dublin Gas Works on Sir John Rogerson’s Quay in the mid-1990s will tell you how much and how quickly the place has changed.
From being a post-industrial economic wasteland it is now an ultra-modern mixed-use extension to the central business district of Dublin. Some argue that it is the new central business zone with such a concentration of banking, financial services and almost all the main legal firms based there.
Since the DDDA was set up in 1997 there must have been over 929,030sq m (10 million sq ft) of development along the river. The population of the area is up by 6,000 and the number of jobs has increased by 20,000.
The physical legacy of the docklands initiative also includes the riverside campshires, the conversion of the contaminated gas site into Grand Canal Square, the National College of Ireland campus, the soon-to-open National Conference Centre, the O2 arena, the Grand Canal Theatre, the Seán O’Casey Bridge, the Samuel Beckett Bridge, the restored Spencer Dock and the docklands Luas extension.
The DDDA has invested huge resources in educational and other social development programmes and, by the operation of the Docklands Council, kept a close relationship with community and other stakeholders while all this was happening.
The DDDA didn’t do all of this itself: there was a development strategy it managed against a masterplan vision which made the various elements viable.
It may be that you wouldn’t need a DDDA-type of organisation for every large scale regeneration project but the value of having the DDDA is that the vision of the original 1997 masterplan is substantially achieved and, up until the disaster of the Glass Bottle site, the DDDA hadn’t cost the taxpayer a cent.
I’ve read reports that the planning system in the docklands was unfair because it didn’t allow third party appeal. That is a misunderstanding of the planning process. The point of docklands planning was to plan an entire area in a transparent and predictable way. The DDDA had to work up its planning schemes and go through all the advertising, consultation and public meeting processes, including close liaison with Dublin City Council.
After that, the council of the DDDA had to be satisfied that the planning scheme was appropriate in its social, economic and physical proposal before it was put to the minister for approval. That was, in effect, the planning application.
The subsequent Section 25s were only notes to confirm that a building design conformed to the planning scheme and there was no need to waste time going back through all the consultation processes a second time. The quick turnaround of these Section 25s was the key to the rapid development of the docklands. Without it we would only have half a docklands and it may even have been too slow a process to give the level of confidence to achieve even that.
When mistakes are made recriminations will follow. But, even if the DDDA lost its way and blew everything on a high-risk land deal, we should not rush to conclude that the concept of an integrated social, economic and physical development agency with planning scheme capacity – as laid down in the DDDA Act of 1997 – is flawed. It is not, and the output of the docklands project is testament to that.
Perhaps, before 12 years of operations expired, the DDDA might have benefited from a performance review. But let’s not suggest that the model must be wrong because we waited until the engine blew up before checking the oil.
Wednesday, April 28, 2010
Tuesday, April 13, 2010
Planning must be for people, not developers
The Irish Planning Institute, of which I am a founder member, is focused on improving the art and science of town planning. Next Thursday and Friday the institute holds its annual conference in Tullamore, with the theme 'Planning for a Smarter Ireland'. It will focus on smart enterprise and the green new deal. It will suggest solutions to 'ghost estates', deal with the development of town centres and discuss smart travel. Planning overseas will be examined, with a case study of the city of Helsinki.
Speakers will include planners, property specialists and the chair of An Bord Pleanála. The conference will be attended by county councillors, county and city administrators, planners, designers and other urban professionals. I will be speaking to my planning peers about the challenge of ghost estates.
You might ask, 'What has planning got to do with property?' The answer is, quite a lot. Planning is the process of orderly management of urban growth and change. The output of good planning is good cities and towns. A quality community with good infrastructure is a good place in which to invest in property, to live and to run businesses. Well-managed towns with good environments are recognised as growth centres by business residents and investors. Property investors have long appreciated that well-planned and well-managed cities attract investment, while those that are badly planned or managed do not. For example, not long ago I invested in the town centre of Bath, England, which I regard as a very safe long-term urban environment, and I am hopeful of a good long-term return.
Back to this week's conference. We now have somewhere between 100,000 and 170,000 surplus housing units in estates which range in location and specification from excellent to awful. Some of the estates are incomplete to one degree or another. The dilemma considered on Wednesday will be: who does what about this situation? Planners? Government? Developers? Bankers? Nama? County councillors?
Our conference will look rationally and without emotion at the property and planning issues. The good news is that the market will – eventually – solve the problem in the majority of situations. The bad news is that the cost of maintaining a unit in good order is about €1,500 each year, or much more if there are infrastructure deficiencies. If these costs are not paid by someone, then both buildings and infrastructure will disintegrate, leading to a risk of slum estates. This situation is very hard on buyers who acquired units at full market prices, and they must be built into the equation.
Many of the developers controlling these estates are insolvent and owe more than they can expect to realise from low-price sales. Their motivation to find a solution may be impaired as a result and we may have to focus on banks, Nama and liquidators. Many professional builders who hope to be in the game in five years may stay involved, but where amateurs are involved as developers, they will just want out.
When liquidators are appointed in insolvency cases, their statutory duty is to realise liquid assets for their banking clients as quickly as possible and to as great an extent as possible. They have no community-focused remit. This results in fire sales and further falls in prices, as witnessed by the recent sale of apartments in Mullingar for about €70,000 – less than 50% of what they cost to build, well below the original pre-sales price and probably less than the original land cost.
Some ghost estates will come into the Nama remit. Those that do may be the lucky ones, because Nama will go about managing its loans and related assets in a structured and responsible way. Nama has a long-term remit and will have funds available in suitable cases to maintain these assets pending market recovery.
One of the past problems of Irish town planning was that it did not encompass the full gamut of stakeholders necessary to build a proper urban environment. Education is planned by the Department of Education, health by the HSE, transport by the RPA, etc. Heretofore there has been poor coordination (and indeed sheer stupidity) as agencies competed at political, regional and administrative levels. Various legislative and administrative steps are currently being taken, including giving teeth to regional planning authorities. These hoped-for solutions are in the Planning Bill currently before the Dáil. Undoubtedly many of these issues will also be debated in Tullamore.
The really hard cases will be those estates that have little or no prospect of long-term demands and are apart from Nama.
Speakers will include planners, property specialists and the chair of An Bord Pleanála. The conference will be attended by county councillors, county and city administrators, planners, designers and other urban professionals. I will be speaking to my planning peers about the challenge of ghost estates.
You might ask, 'What has planning got to do with property?' The answer is, quite a lot. Planning is the process of orderly management of urban growth and change. The output of good planning is good cities and towns. A quality community with good infrastructure is a good place in which to invest in property, to live and to run businesses. Well-managed towns with good environments are recognised as growth centres by business residents and investors. Property investors have long appreciated that well-planned and well-managed cities attract investment, while those that are badly planned or managed do not. For example, not long ago I invested in the town centre of Bath, England, which I regard as a very safe long-term urban environment, and I am hopeful of a good long-term return.
Back to this week's conference. We now have somewhere between 100,000 and 170,000 surplus housing units in estates which range in location and specification from excellent to awful. Some of the estates are incomplete to one degree or another. The dilemma considered on Wednesday will be: who does what about this situation? Planners? Government? Developers? Bankers? Nama? County councillors?
Our conference will look rationally and without emotion at the property and planning issues. The good news is that the market will – eventually – solve the problem in the majority of situations. The bad news is that the cost of maintaining a unit in good order is about €1,500 each year, or much more if there are infrastructure deficiencies. If these costs are not paid by someone, then both buildings and infrastructure will disintegrate, leading to a risk of slum estates. This situation is very hard on buyers who acquired units at full market prices, and they must be built into the equation.
Many of the developers controlling these estates are insolvent and owe more than they can expect to realise from low-price sales. Their motivation to find a solution may be impaired as a result and we may have to focus on banks, Nama and liquidators. Many professional builders who hope to be in the game in five years may stay involved, but where amateurs are involved as developers, they will just want out.
When liquidators are appointed in insolvency cases, their statutory duty is to realise liquid assets for their banking clients as quickly as possible and to as great an extent as possible. They have no community-focused remit. This results in fire sales and further falls in prices, as witnessed by the recent sale of apartments in Mullingar for about €70,000 – less than 50% of what they cost to build, well below the original pre-sales price and probably less than the original land cost.
Some ghost estates will come into the Nama remit. Those that do may be the lucky ones, because Nama will go about managing its loans and related assets in a structured and responsible way. Nama has a long-term remit and will have funds available in suitable cases to maintain these assets pending market recovery.
One of the past problems of Irish town planning was that it did not encompass the full gamut of stakeholders necessary to build a proper urban environment. Education is planned by the Department of Education, health by the HSE, transport by the RPA, etc. Heretofore there has been poor coordination (and indeed sheer stupidity) as agencies competed at political, regional and administrative levels. Various legislative and administrative steps are currently being taken, including giving teeth to regional planning authorities. These hoped-for solutions are in the Planning Bill currently before the Dáil. Undoubtedly many of these issues will also be debated in Tullamore.
The really hard cases will be those estates that have little or no prospect of long-term demands and are apart from Nama.
Seeds of the next property cycle are germinating
All indications are that the market will bottom out in 2010 followed by a slow recovery in values in the years ahead
We all know property values have crashed but the anatomy of that crash has become clear with the recent publication of the Society of Chartered Surveyors/Investment Property Database (SCS/IPD) figures and in particular those for the past two years. This is a database of institutional properties and their valuations from a number of banks and pension funds going back for nearly 30 years.
The first most striking feature is that for the typical institutional property portfolio, values are back at where they were in September 1999. That value would have risen to almost 2.25 times its September 1999 value by December 2007 before crashing back over the past two years. In other words, if it had been possible to invest €1,000 in a typical fund, that €1,000 would have reached a value of €2,250 in 2007 but would be back to being worth only €1,000 today.
The second most striking feature is that if €1,000 had been invested at the height of the boom in September 2007, it would be worth only €447 today. (All figures are without any gearing/borrowing).
So, with hindsight, it is easy to see why many people and the banks have a problem. They would have bought and borrowed right through the build-up of the bubble and few would have got out before the bubble burst in 2008. Much of the buying was done in the period 2003-2006.
Further analysis of the SCS/IPD figures shows that the technical driver of the price bubble was what property professionals call yield compression. This is the process whereby buyers are prepared to pay more and more for the same income. In 2002, the typical yield on an office block would have been about 6.4% but by 2007 this yield had fallen to less than 4.3%. This yield would move the rent multiplier from about 15.6 to 23.3, resulting in a 50% increase in the value of the property. Rents did move upwards but not anything like the same rate – with the exception of retail, where rents rose very significantly.
The third important message from the SCS/IPD figure is that what is bad for capital values is good for the income of acquiring investors. The figures show that income yields fell from just over 6.5% in September 1998 to 3.8% in 2007 but are now back to about 7% and still rising. This is because as yield compression reverses and values fall, then income yield increases.
The fourth striking feature of the IPD figures going back to 1983 is how clearly they depicted the property bubbles over that period. The first up to 1990, the second up until 2001 and our current one just ended (peaking in September 2007).
In reality, the current boom began in the early 1990s, was temporarily interrupted by 9/11 and the dotcom bust and finished in 2007, almost 14 years later.
But if property cycles are normal phenomena, can we use this cyclical pattern to predict when we might get out of the current depressed situation?
I believe we can if we understand the elements of a property cycle. Each property cycle is self-correcting. The normal process is that in recession, rental levels fall to the point that the market accepts the new 'norm'. Then yields rise to levels that are also accepted as the new 'norm'. This norm is set against yields from other forms of investment such as shares, bonds, deposits etc, adjusted of course for the normal property risks and cost factors. As values and rents fall, then new development becomes uneconomical because the cost of new development is more than the value of the finished buildings. This chokes off the new supply of buildings.
At this point, the fall in values generally bottoms out. The property market bumps along the bottom while the economy gradually absorbs the oversupply of built space. Those adjustments have been happening in Ireland for the past two years.
The big question is, are values at the bottom or have they further to fall? This is where I move from being an analyst to being a forecaster.
I believe we are almost at the bottom. Yields have reached a new level where investors are prepared to buy quality property let at market rents. The fall in rentals has slowed down and in some sectors, such as quality offices, is levelling off.
One has to look at what is happening in the real economy. The demand for floor space comes from business. While long-term property investors are patient and usually prepared to invest ahead of a recovery, the issue of their confidence in an economic recovery is critical. We may have reached a valuation floor but this will only hold for as long as investors and businesses believe that there is a real recovery in prospect.
I have to add a second caveat, which is that there is good, bad and ugly property out there as a result of the banking and development excesses. The IPD index has an in-built bias toward institutional or quality property so the messages from this database only apply to good property.
With these caveats, I believe that we will see a further fall of 3% to 5% by year-end before a bottoming out of property values in 2010. However we will see a slight recovery in values in the next few years of about 3% to 5% a year.
But remember, property investment is, or should be, more about income than about capital appreciation and definitely will be for the next few years.
Real property investors, as opposed to property speculators, are focused on income. Reliable income will be the key focus of the new breed of investors. Such investors, many from overseas, are currently watching Ireland and are ready, willing and able to do deals.
The seeds of the next property cycle are in the ground and slowly germinating as the detritus of the last boom are cleared away.
We all know property values have crashed but the anatomy of that crash has become clear with the recent publication of the Society of Chartered Surveyors/Investment Property Database (SCS/IPD) figures and in particular those for the past two years. This is a database of institutional properties and their valuations from a number of banks and pension funds going back for nearly 30 years.
The first most striking feature is that for the typical institutional property portfolio, values are back at where they were in September 1999. That value would have risen to almost 2.25 times its September 1999 value by December 2007 before crashing back over the past two years. In other words, if it had been possible to invest €1,000 in a typical fund, that €1,000 would have reached a value of €2,250 in 2007 but would be back to being worth only €1,000 today.
The second most striking feature is that if €1,000 had been invested at the height of the boom in September 2007, it would be worth only €447 today. (All figures are without any gearing/borrowing).
So, with hindsight, it is easy to see why many people and the banks have a problem. They would have bought and borrowed right through the build-up of the bubble and few would have got out before the bubble burst in 2008. Much of the buying was done in the period 2003-2006.
Further analysis of the SCS/IPD figures shows that the technical driver of the price bubble was what property professionals call yield compression. This is the process whereby buyers are prepared to pay more and more for the same income. In 2002, the typical yield on an office block would have been about 6.4% but by 2007 this yield had fallen to less than 4.3%. This yield would move the rent multiplier from about 15.6 to 23.3, resulting in a 50% increase in the value of the property. Rents did move upwards but not anything like the same rate – with the exception of retail, where rents rose very significantly.
The third important message from the SCS/IPD figure is that what is bad for capital values is good for the income of acquiring investors. The figures show that income yields fell from just over 6.5% in September 1998 to 3.8% in 2007 but are now back to about 7% and still rising. This is because as yield compression reverses and values fall, then income yield increases.
The fourth striking feature of the IPD figures going back to 1983 is how clearly they depicted the property bubbles over that period. The first up to 1990, the second up until 2001 and our current one just ended (peaking in September 2007).
In reality, the current boom began in the early 1990s, was temporarily interrupted by 9/11 and the dotcom bust and finished in 2007, almost 14 years later.
But if property cycles are normal phenomena, can we use this cyclical pattern to predict when we might get out of the current depressed situation?
I believe we can if we understand the elements of a property cycle. Each property cycle is self-correcting. The normal process is that in recession, rental levels fall to the point that the market accepts the new 'norm'. Then yields rise to levels that are also accepted as the new 'norm'. This norm is set against yields from other forms of investment such as shares, bonds, deposits etc, adjusted of course for the normal property risks and cost factors. As values and rents fall, then new development becomes uneconomical because the cost of new development is more than the value of the finished buildings. This chokes off the new supply of buildings.
At this point, the fall in values generally bottoms out. The property market bumps along the bottom while the economy gradually absorbs the oversupply of built space. Those adjustments have been happening in Ireland for the past two years.
The big question is, are values at the bottom or have they further to fall? This is where I move from being an analyst to being a forecaster.
I believe we are almost at the bottom. Yields have reached a new level where investors are prepared to buy quality property let at market rents. The fall in rentals has slowed down and in some sectors, such as quality offices, is levelling off.
One has to look at what is happening in the real economy. The demand for floor space comes from business. While long-term property investors are patient and usually prepared to invest ahead of a recovery, the issue of their confidence in an economic recovery is critical. We may have reached a valuation floor but this will only hold for as long as investors and businesses believe that there is a real recovery in prospect.
I have to add a second caveat, which is that there is good, bad and ugly property out there as a result of the banking and development excesses. The IPD index has an in-built bias toward institutional or quality property so the messages from this database only apply to good property.
With these caveats, I believe that we will see a further fall of 3% to 5% by year-end before a bottoming out of property values in 2010. However we will see a slight recovery in values in the next few years of about 3% to 5% a year.
But remember, property investment is, or should be, more about income than about capital appreciation and definitely will be for the next few years.
Real property investors, as opposed to property speculators, are focused on income. Reliable income will be the key focus of the new breed of investors. Such investors, many from overseas, are currently watching Ireland and are ready, willing and able to do deals.
The seeds of the next property cycle are in the ground and slowly germinating as the detritus of the last boom are cleared away.
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