New home buyers face being priced out of housing market

Despite record levels of homelessness in Northern Ireland, house building has fallen to a historically low level. This is primarily due to a chronic lack of investment in wastewater infrastructure which is making it increasingly difficult to connect new homes to the sewerage network.

With a decreasing supply of suitable sites, Northern Ireland’s 11 largest house builders have confirmed that they expect the overall number of approved housing units in their development pipelines to decrease, some by up to 30% compared to recent years.

The warning was included in Build Homes NI’s response to the Department for Infrastructure’s consultation on ‘Developers Contributions for Wastewater’. The group described the proposed contribution as a new home buyers’ tax that would further reduce housing supply, increase costs and help price new buyers out of the market.

Paul McErlean, Director, Build Homes NI, said: “Northern Ireland has been failing to build enough homes for almost 20-years. With housing supply falling and demand increasing, homelessness has soared to record levels and annual rent increases are now among the highest in the UK.

“This is due largely to Northern Ireland’s failing wastewater infrastructure, caused by the NI Executive’s inability to fund NI Water to the level recommended independently by the Utility Regulator.

“NI Water is now warning that it may not have enough funds to enhance its clean water assets and that Northern Ireland could be facing a permanent wastewater crisis. This is calamitous, not just for those trying to get on the housing ladder but also for our environment which is being increasingly polluted by raw sewage from an overloaded wastewater network.”

The Department for Infrastructure’s consultation is seeking views on proposals to introduce a ‘Developers Contribution’ to be levied on new housing. The stated purpose of the payment is to help “fund necessary improvements” to Northern Ireland’s wastewater infrastructure and facilitate more house connections. The consultation acknowledges that the contributions will not address the scale of the wastewater funding crisis.

According to Build Homes NI, housebuilding costs over the past decade, including substantial contributions to related infrastructure, have increased by 40% while margins have fallen by 20%. With no capacity left to absorb further costs Build Homes NI is warning that the likelihood is that the cost of the levy will be passed on in its entirety to new home buyers.

The group also expressed concerns that the levy will distort the housing market. The charge would make lower priced starter homes increasingly unaffordable to build and encourage builders to focus instead on more expensive higher-end private developments, primarily in the Greater Belfast area, where there is more scope for buyers to pay the additional cost.

Build Homes NI warned that the increasing challenge of house building in Northern Ireland is forcing its members to begin looking at alternative opportunities on sites in Great Britain and Ireland.

Mr McErlean added: “Bringing Northern Ireland’s wastewater infrastructure up to modern standards will cost billions and take years to deliver. This is a system-wide failure which requires a system-wide solution from the Northern Ireland Executive. The debate around ‘Developer Contributions’ is a distraction from the real issue of how to fund NI Water properly.

“Apart from lacking basic information such as how much the proposed levy will be, the consultation is detached from economic realities.

“At a time when we need to dramatically increase the number of houses being built, taxing new houses will reduce rather than increase supply by making them more expensive. This is totally at odds with the Executive’s belief that good homes are a “basic right”1.

“Wastewater is a civic good that benefits all of society. The entire premise of the consultation - focussing solely on new home buyers - is flawed and regressive. It is deeply unfair that new homebuyers who tend to be younger and on lower incomes will be expected to pay a de facto water tax for infrastructure that everyone benefits from.

“We ask the Northern Ireland Executive to urgently commission an expert-review of alternative funding and governance arrangements for NI Water as requested by the NI Audit Office (March 2024) and accept the conclusion of the NI Fiscal Council that NI Water’s funding model isn’t fit for purpose.”

Build Homes NI also argued that as part of the solution to the wastewater crisis the Executive should be encouraging rather than discouraging new house building. Unlike older housing stock which relies on combined water sewage connections, new housing developments use less fresh water and relieve pressure on wastewater treatment plants by redirecting stormwater away from them.