Planning Reforms Intended to Limit Institutional Investors from Bulk Buying New Houses or Duplexes

Introduction

On 18 May 2021, the Minister for Housing, Local Government and Heritage, Darragh O’Brien TD, announced new planning measures intending to deal with “the issue of institutional investors crowding buyers out of the market”[1]. The reforms comprise:

1. New planning guidelines issued by the Irish Government on 20 May 2021, (the Guidelines). They require local authorities and An Bord Pleanála to “have regard to the need to” attach certain model planning conditions to planning permissions for five or more houses and/or duplex units. The planning conditions are intended to restrict first occupation of houses and duplex units to individual purchasers[2]. That is, to those not being a corporate entity, and/or by those eligible for the occupation of social and/or affordable housing, including cost rental housing, and

2. An 'owner-occupier guarantee' enabling local authorities to designate a specified number of houses and duplexes with a pre-determined range of at least 0-50% in a development for owner-occupiers.

How will these reforms change residential real estate in Ireland?

The Guidelines were introduced under Section 28 of the Planning & Development Act 2000 (as amended) (the Act). Planning authorities and An Bord Pleanála are required to “have regard” to guidelines issued under this section in the performance of their functions, including when granting planning permission.

Under Section 39(2) of the Act, a planning condition can restrict the use of a home to use by persons of a particular class or description. This can be done under a section 47 agreement. The Guidelines prescribe two types of model planning conditions, one for a mixed-use development, and one for a residential development. The planning conditions cannot be applied to new residential development that is specified as being for ‘build-to-rent’ purposes at the planning application stage.

Broadly, both planning conditions require that, prior to the commencement of any house or duplex unit, the applicant or any person with an interest must enter into a section 47 agreement. This would restrict all houses and duplex units to first occupation by individual purchasers and social and/or affordable housing occupants. The agreement will apply for the duration of the planning permission unless, no less than two years after completion of each specified housing unit, sufficient evidence demonstrates that it has not been possible to sell to individual purchasers. It appears, although it is unclear, that the restriction cannot be lifted in part, and the evidence must relate to all houses and duplexes.

The “owner-occupier” guarantee will be introduced via legislative amendment. The Government indicated that the amendment will be similar to requirements under Part V of the Act. Part V requires each local authority to prepare a “Housing Needs and Demand Assessment” as part of its housing strategy. This assessment will be used to decide the number of houses that will have an owner-occupier guarantee. Again, local authorities are expected to have discretion in arriving at the final percentage[3].

Conclusion

There may be delays in implementation. The Guidelines are now in place, but it may take time for local authorities and An Bord Pleanála to decide in what circumstances the planning conditions are needed. The legislative amendments are also not yet in force.

After the restrictions filter through to planning permissions, bulk-buyers will be excluded from a part of the new housing stock to the benefit of owner-occupiers. Developers may, therefore, consider changing their housing mix to accommodate individual owners’ budgets. This could also drive down their profits and viability, meaning developers ultimately build fewer units. That said, if sufficient evidence of unsaleability to individual purchasers is provided to remove the restriction, those homes will be available again for investors.

Alternatively, developers may focus on building more apartments. The reforms exclude apartments which continue to be sought by bulk-buyers looking to receive a rental income. Despite calls for apartments to be included in the reforms, the Government has not included them as it is feared that their inclusion would have significant negative consequences on supply. It remains to be seen whether apartments will one day be included in these reforms.