Homebuyer’s Hero can deliver on the promises of a state-run builder far more efficiently

About Us

Dr Rory Hearne, Assistant Professor in Social Policy in The Department of Applied Social Studies in Maynooth University, has been vocal for quite some time regarding the state of the housing crisis here in Ireland. I find myself in complete agreement with him in that I too feel that the current systems we are using to meet one of humanity’s most basic needs – shelter – are simply not working. It is for this very reason that Homebuyer’s Hero exists.

I believe that we need to separate the provision of shelter from the ups and downs of the economy in general, and the boom and bust cycles of the housing markets in particular. This seems obvious to me. As a former estate agent I have had the dubious honour of having a front row seat to all manner of family tragedies, borne out of the property bubble first inflating, then bursting so spectacularly since the noughties. We can all see the fallout from the past boom all around us, on an on-going basis. In bad times and in good, we need homes. Why have we created systems which require the provision of this basic need to play second fiddle to the economy? Systems that accumulate and compound market risks, amplify boom/bust cycles and all the rest? I have to wonder, what if water supply systems were similarly vulnerable to human inadequacies? Or food?

We need to fix the broken housing market infrastructure to alleviate misery it imposes on households and costs it levies on the society and the economy. We need to fix them not only for ourselves, but for the generations to come. We have the resources, so what’s holding us back?

As Dr Hearne quite rightly points out, having a home, especially one, in my view, to call one’s own, is so much more than providing a roof or a shelter. It has deep impacts on health, well-being, education, quality of family life, and life opportunities – the list goes on. Providing a family with a home in a true sense of this word means helping create, sustain and strengthen communities and society at large.


A state-owned entity to build homes

Dr Hearne has called for a state owned entity, something like the ESB, to be set up which would be tasked with building houses. The advantages might include providing well-paid, secure jobs to the construction workers, so that we a) maintain and expand construction skill-sets for home building and b) attract workers to an entity exclusively for home building, rather than having workers doing other things at this time of crisis. There are many construction workers building hotels and office blocks right now and I completely agree that it would be much better for us all if they could be re-tasked to building houses. In fact, Homebuyer’s Hero is on a mission to do just that. No state-run builder required.

There will be a great debate, I’m sure, about the cost efficiencies of such an entity. Can scale deliver lower costs – at least on the order that might matter? Lower costs per unit constructed may not even be one of the main goals of such an entity, after it would be all thrashed out. Depending on the configuration of the government which would bring it into being, and the will of the people who vote for that government, simply, numbers of heads on pillows might be the leading metric. So, let’s forget about cost efficiencies.

If I understand Dr Hearne correctly, in relation to workers, the logic is that this entity will re-task workers who are currently working on commercial projects.

On the journey of building a start-up, I have learned through experience that there is nothing so satisfying and inspiring as working something out logically and then, nothing so disappointing as when, in practice, something one failed to consider pops in out of the blue and causes things to play out differently than one imagined. I think that the devil is in the details and that the logic may not hold up in practice.


Do all construction workers want the same thing? Does it matter?

How many of the workers who are now engaged on commercial construction sites are displaced from areas all around the country? Provincial towns and small villages perhaps. I have no exact figures – but there used to be construction workers distributed everywhere.
Boom-era construction workers and at this stage, their offspring too, can be seen all around the country, early in the mornings, getting into logo-less vans, heading to construction sites in the larger urban areas. Some leave early on a Monday morning and don’t come back until late on Friday evening. If the pay and conditions were good enough, I suppose it is logical to think that there might be a move from private employment to employment in the new entity.
But is that what this particular subset of construction workers want – a full career of driving long-distance to work?

Many construction workers who are working on commercial projects would be the target workers of Dr Hearne’s new state-run builder. But many are from the rural and semi-rural areas and are just waiting for the day to return whereby they can build houses at or near their home locations. Would the new housing company solve this? Would it attract these workers, long-term? If you ask them, yes, they want job security. But that, to them, is a functioning construction sector and viable property market – preferably near where they are from. It’s not too much to ask, or expect. We had it before.

Would the state-owned construction company be able to reinvigorate local economies in Ireland’s smaller towns and villages? Would it provide balanced housing market development across the entire country and in line with the diversity and complexity of demand for housing we face? Because that’s what would be needed to swing workers from quasi-rural areas into this new entity.

I don’t think such a state builder can deliver on that. And here is why.

Construction Risk

Such a new state-run company, even if it were to build in semi-rural areas at all, will not break the linkage between visible housing demand in an area and the types of homes it would build and where it would build them. It would be bound by risk in much the same way the developers are now – due to a lack of market transparency and demand visibility.

Today, construction finance lenders need to look at current house prices and market activity in an area to see if they can bear the risk of providing construction finance. In a lot of quasi-rural areas, such data is simply hard to come by due to the lack of transactions and due to the fact that many property transactions happen off the market. When the lenders do gain access to market data, financing is extended at a gearing and within a framework which can entice only the bravest risk takers to pick up a shovel.

What for the state run building company? The state builder would simply compound the aforementioned risk management problems. Why? Because it’s executives would be unlikely to seek to develop property in areas for which evidence is weak that there is a demand.
Our demand-visibility and signalling is all kinds of broken and I see nothing about such a new entity which may change this. For example, although there is a large cohort of people who are full-time remote-working enabled, and many of them wish to live in quasi-rural areas, just try to get finance for a development under current norms. Financiers look at risk and it is too risky to adopt a “build-it-and-they-will-come” attitude.

In my view, a new state-run company would end up building more homes in urban areas where most demand is perceived. This is already where we are producing homes though. Maybe producing more homes in these places would be a good thing in itself? But are there any unintended consequences which may arise from competing against the part of the private sector which is working already, to some degree at least? But maybe the fact it would attract workers due to pay and conditions might be the key.

OK, exactly which workers would work for the state-run company?

Would it be those nomadic workers from quasi-rural areas – those workers who would love to build their own projects at home, if given half the chance? Would they stop driving to hotel, office and other commercial sites – just to drive to urban housing sites? Are they happy to do this, long-term? Maybe. I have a feeling though that the most eager workers to jump ship from private to public sector life might be the workers who are themselves living in the urban areas where the new entity would operate. In fact, they’d probably take a pay cut in return for the job security, but I understand that the plan would be to offer very good pay and conditions, in order to entice workers.

If that’s the case, will the entity only hire people currently working on sites other than housing? Is there any point in providing state jobs in areas where construction workers already have reasonable pay and security?

Get them building – at home.

It seems to me it would be far better to somehow get all the nomadic workers working where they live, or close to it. That’s where the deficit really is now in terms of job security and the number of units being built. Also, how many of our diaspora, our construction workers who left after the crash, want to come back to live in the urban areas? Where would someone now in Australia – from Roscommon originally – most likely wish to live, if they are thinking about coming home to the construction sector here in Ireland? One of the cities, or at home?

If there was solid, predictable construction work available in the quasi-rural areas around Ireland, might they be more likely to return? Logic might suggest that those from urban areas originally may well have returned already, as work has been available ‘at home’, from their perspective, for quite some time.


The Homebuyer’s Hero model

Let’s stand back a minute. We know we have a huge demand for homes. We know that for many occupations and even whole sectors of the economy, home-working or remote / hub working or hybrid working is the reality of the future. How can we enable a high number of builders / developers to get active all around the country, where people who are less attached to urban employment would want to live?

The answer is relatively simple and the solution to this problem is the first order of business for Homebuyer’s Hero.

We have a new model of how property can be marketed which contains within it a mechanism to overcome much of the construction finance risk, with our geographical start-up niche being areas of a quasi-rural nature. (Niche two could well be town centre renewal projects.) These quasi-rural areas of initial focus happen to be, in my view, where the construction workers live who are most eager to ditch the commute to commercial sites, in favour of residential construction near home.

As regards construction finance, we are engaged with a number of lenders who are actively trying to make it fit their needs, especially since we can deliver projects with a huge reduction in construction finance risk. Others are still in ‘explore’mode with us, but I am very confident our model will result in higher gearing than the current norm. This will broaden the net, as it were, and make development a viable personal risk proposition for a large number of quasi-rural, would-be developers.

Developers – and builders thinking about becoming developers – see this model as a very, low-risk way to establish the viability of a development, as early as in pre-planning stages. The reason for this is that our technology removes reliance on past transaction prices in determining demand for properties and buyers’ willingness to pay.

Homebuyers are excited at the prospect of getting a home in a small town or village – our first niche among buyers is reasonably well-off remote-enabled workers looking to leave the cities. We are just about ready to take this concept to the next level and build audiences among homebuyers, developers, site owners, design professionals and estate agents across the country. We are hopeful that it will not be too long at all before we have a test-case development available for buyers to take a look at. Before we do, we intend to show our house design to the potential market and even let them have their say and guide its final design, while we line things up in the background on sites.

How does it work?

We are partnering with design professionals who see merit in the model. Simply, they front-load the work needed to get a development to a stage where it can be marketed under our new model. Once the development is understood and accepted by potential buyers we get the developments online and with some (for now commercially sensitive) technology, we identify buyers willing to buy the homes to be built. The developer and our partner professionals take the development through the planning process and we keep everyone up to date through the process, removing any information asymmetries and biases that exist in the current market environment.

As a side benefit, under our model, developments will no longer be victims of NIMBY-ism. Real people – the prospective buyers, able and willing to buy these properties – will be making submissions on the planning applications and the An Bord Pleanala appeals if necessary.

Everyone Wins

Is the developer wishing to make too much profit? Is the proportion of home purchase price going to the site above the norm? Buyers will have an option to choose their development based on these, and other metrics. Developers get a de-risked project, much like they had won a tender – rather than engage in the risk taking that the current systems require them to do. Savings from this de-risking will be both transparent to all participants in the home purchase transactions and passed through to the home buyers. In addition to price savings, buyers get houses in the areas they actually want to live in, reducing competition for homes in suburbs and city centres.

We can scale this quickly after our first test cases go through the marketing phase.

What exactly is Homebuyer’s Hero doing here?

  • Decoupling project viability from current prevailing prices in a market, with highest positive impact accruing in the markets with low volumes and frequencies of transactions (rural and semi-rural as well as small towns)
  • Enabling construction workers to test projects at practically no cost
  • Allowing buyers to get locations they want rather than forcing demand into urban and suburban areas or competing for extremely limited stock in rural areas
  • Reducing excess demand in urban and suburban areas
  • Increasing number of simultaneous projects and reducing diseconomies of smaller scale developments
  • Proving the model as a defacto first choice for marketing – enabling its future development and deployment to deliver better value for homebuyers in urban areas
  • Business model actively reduces house price inflation by reducing the risk/reward (speculative) model which drives it up
  • Homebuyer’s Hero is incentivised to push prices as low as possible
  • Our data transparency to all users reduces developers’ ability to ‘pocket’ additional profits, forcing them to pass savings on financing and development costs to the buyers
  • Builder who is currently driving long distance gets to work near home and make an appropriate and publicly transparent profit at greatly reduced risk
  • Construction workers have more stable local employment
  • Lenders have access to de-risked and project-targeted data volunteered by the buyers  – their creditworthiness, demand for homes, willingness to pay for homes and are required to step into the development transaction at a much more mature stage

OK, if the state run building company can match that, then I am all for it.

Maybe it could, now that I have outlined what we are doing and how to do it. However, we can do it now essentially, at a fraction of the likely cost of the proposed state run company, without any risk to the Exchequer, by altering the dynamics of the market that will have to be altered anyway, even with the state-owned building company in place. We don’t need a big entity, in my view which, as I said, would still not alter the nature of construction finance risk.

What we need is innovation. This is it. And this is just the beginning. This is how Homebuyer’s Hero will enter the market, but we have big plans for completely changing the balance of power in the property market as a whole, to even out the troughs and peaks, and bring complete transparency and stability to the market. I say bye-bye, boom / bust! But that’s for a later post.

Up next I’ll be writing a post entitled “Why I believe a state-backed proptech fund would be better than a state-backed construction company”.

It’s not a binary choice – state or private sector

None of this is to say, of course, that those people who would call for a state-run builder are wrong in any way. I agree with Dr Hearne’s assessment of what’s wrong in the market and his frustration that the private sector just isn’t delivering.

My point is simply that the ‘private sector’ isn’t just one fixed way of doing things. All we need is to allow for innovation and allow for clearing out the old, to be replaced with more equitable business models capable of delivering what we need, in good times or bad.

The state-run company is one idea. Homebuyer’s Hero is another. I genuinely believe we can achieve the same goals, far more efficiently than something which is state-run. However, having the state do things is a valid response to years of private-sector mess. It’s just that having the state do things comes with some baggage itself. But let’s not see it like a switch – one way or the other – or a simple fork in the road – left or right. Let’s look at every solution that comes along. There’s no reason to assume we can’t attack the issue from many angles at once.

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