The housing sector has responded to the proposal by Sinn Féin infrastructure minister John O’Dowd to charge developers to modernise NI Water.
The Irish News this week carried an article by David Little, chair of the Forum for Better Homes NI, whose members include private developers, housing associations, construction industry bodies, estate agents and banks.
He raised three objections to O’Dowd’s plan: fairness, cash flow and industry capacity.
Charging developers for the extra funding NI Water needs might add £15,000 to the cost of each new house. Is it fair that only purchasers of new houses should pay to upgrade the sewers? They would be like the last people into an Oasis concert, charged vastly more than the people around them for exactly the same service.
Despite the fuss over Oasis tickets, this form of pricing – known as marginal pricing – is hardly unusual. You experience it every time you buy an airline ticket, for example.
The question could also be turned around: is it fair that everyone who already has a sewage connection has to pay for more?
In practice, the cost would be lost in the noise of house prices, which have risen by almost £15,000 in the past two years, partly due to the constraints of an overloaded sewage system. The ultimate unfairness, to developers and buyers alike, is that without modernising NI Water there will be no new houses to buy.
Developers may be able to pass the cost on but they might still have to cover it for years, hence the concern about cash flow.
A decade routinely passes between planning applications and sale of completed houses. In Monday’s piece, Mr Little said it would not be viable for the typical small developer, building 20 houses a year, to front up £300,000 every year to NI Water with no certainty as to when they might get that money back.
This is a genuine concern but there are solutions. The usual approach would be for firms to approach a bank for a bridging loan. Interest on this might add another £3,000 to the cost of a new house.
Alternatively, Stormont could front up the payment to NI Water and recoup it when houses are sold. There is enough scope for this within the executive’s overdraft facility. Cash flow is a manageable problem – the real question is who pays the interest.
The £15,000 figure I have used in this and previous articles assumes Northern Ireland could build the 10,000 houses it needs every year. Mr Little says “there are significant constraints that make this impossible”, citing problems with the planning system as well as the water system.
Fewer new houses would mean a higher charge. House-building is currently running at just over 5,000 a year, implying an eye-watering £30,000 cost per connection.
While I must yield to the forum’s expertise, it is a fact that Northern Ireland was building more than 10,000 houses a year from the mid-1960s until the 2008 financial crash. Annual completions regularly reached 15,000 in the 2000s, almost all by private developers.
This was at a time of unprecedented prices, proving the industry could deliver high volumes and sell at high costs. The average price in 2007 was £250,000, higher than today’s £207,000 and twice as high if adjusted for inflation.
Although that was the peak of a bubble, prices for much of the preceding decade were still higher than today in real terms. Whatever obstacles house-building faces, we should aspire to what was possible for most of the past half-century.
Of course, Sinn Féin’s proposal is far from perfect. There are numerous ways in which it would be more expensive, awkward and inefficient than a straightforward new funding model for NI Water, involving some kind of domestic water charge.
We should also be wary of anything that makes a populist punch-bag of developers. Absurdly, a major contributor to the housing shortage is that careers in construction lack the social status they deserve, causing recruitment problems at every level. Anyone still building houses in Northern Ireland deserves applause, not opprobrium.
The true advantage of O’Dowd’s idea is that it is politically possible, a lone yet overwhelming point in its favour. Sinn Féin cannot countenance domestic water charges, a red line for its voters, north and south. The DUP will admit privately that water charges are necessary but it has never shown any inclination to press the issue.
A developer charge, for all its faults, is the only plausible alternative yet offered that might actually happen.
Charging developers for the extra funding NI Water needs might add £15,000 to the cost of each new house