What’s stopping us converting Dublin’s O’Connell St into a residential neighbourhood?

It’s not bad people who destroy cities, it’s bad incentives. Bear this economic rule in mind when digesting the State’s welcome initiative to save Dublin city, which was unveiled this week.

“Saving the city” might sound dramatic, but without significant remedial action, Dublin as an attractive, lived-in and innovative capital is over. We know that parts of the city are falling down, blighted by dereliction, vacancy and a general feeling of decay. The capital city of one of the richest countries in the world looks so dilapidated because it is not profitable to build homes there. If we change the incentive structure to make it profitable, improvements will follow.

Great cities die without care – as many Americans know. Cities are built from the bottom up, not top-down. Unless citizens are given an opportunity to participate in regeneration, big government initiatives will fail when initial investment is not supported by ongoing incremental spending. From now on, it must be cheaper and more profitable to build, renovate and restore in the city than anywhere else in the country. This means using the tax system to create incentives in specific areas and even specific streets. Once the incentive – and this means the price – is right, builders will respond and invest enthusiastically.

The Dublin City Taskforce has unveiled a blueprint to rejuvenate the capital’s centre, calling for €750 million to €1 billion in new investment and identifying “Ten Big Moves” to restore safety, vibrancy and liveability in the capital. While these proposals are all urgently needed, the real prize is to get investment money flowing into the capital on a daily basis.

The source of this investment should be the €150 billion of ordinary Irish people’s savings that is sitting on deposit in the banking system, doing nothing. In the same way as living creatures require a constant flow of blood pumped by the heart, cities need a constant flow of money, incentivised by constant profitable opportunity. The domestic banking system could be the source of this investment.

The traditional role of the banking system is to recycle savings of those who don’t want to spend and make that money available to those who want to invest. Unfortunately, the Irish banking system acts more like a safe-deposit box in which savings are parked and not used profitably in the economy, despite the average of only 0.13 per cent interest earned. A special savings vehicle targeted at refurbishing old buildings with a tax break would liberate 10s of millions of euro into the centre of the city.

Any successful redevelopment of Dublin city must incorporate a tax scheme to coax that money out of the deposits and into private residential building. The best example of reinforcing tax programmes were the urban renewal efforts of the 1990s, where huge swathes of derelict Dublin were rebuilt, and thousands of apartments were constructed in the city. It was tax-efficient to buy and live in these properties, which benefited from generous tax breaks for mortgage-holders, which made it a no-brainer to live in the city as opposed to the suburbs.

Temple Bar was a good if uneven example of the success of such directed tax schemes. The new plan for the city, which proposes a special purpose vehicle – a fancy term for an independent State body – looks to be based on a similar tax structure, which is promising. Overall, this Government initiative is positive, but to make it work effectively and to tie it in with an ongoing financing requirement from the private sector, there must be a little more financial and fiscal creativity.

Once it makes financial sense to live in the city, people will do so. People – not police – make a city safe. People police their own streets. Empty streets are dangerous streets, lively streets are safe streets, and the more people who live in an area, the more they look after their own patch. This is called having a stake in the place, and residents have a greater stake than passersby.

Of course we need more gardaí on the streets, but the real game-changer is locals turning a street into a neighbourhood. For example, there are officially no residents on O’Connell Street, not one. Yet over the shops is ample space for living. What is stopping builders from converting O’Connell Street into a residential street? Incentives again. Make it tax-efficient to refurbish and tax-efficient to buy these flats, and people will come.

I’ve personal experience. In the early 1990s, on an average salary (IR£16,000 a year), I bought a flat on Parliament Street, in a building that was the first residential owner-occupier initiative on that street in more than 100 years. The small first-time developer was incentivised by tax breaks to buy the derelict building, and that made the refurbishment feasible. He built three flats above the ground-floor shop front.

We were the only residents on Parliament Street, which was otherwise bleak and dilapidated. There were no shops or restaurants, and the roofs of many of these beautiful buildings were falling in. Lots of people thought it was mad to buy in the city, but it was much cheaper than renting in the suburbs. As a young owner, my monthly mortgage was dramatically reduced by a significant tax break. In the following few years we were followed by many more residents, and the same incentives allowed young people to buy and encouraged many young developers to take a risk and imagine a residential future over the shop for old, unloved buildings.

It worked, and today Parliament Street, soon to be pedestrianised, is a wonderful place to live. Why not copy and paste this model in hundreds of city streets?

As well as encouraging people to move into the city, it is essential to dissuade owners from hoarding or allowing buildings to become derelict. Again, incentives pave the way. Dereliction and vacant sites are the results of choices made by owners. It is time to put a draconian price on those choices. Urban policy should penalise bad behaviour such as presiding over dereliction, and reward good behaviour such as refurbishing old buildings. It’s not that difficult, is it?

We should start with vacant buildings. Recent figures from An Post’s data company GeoDirectory estimate that 14,500 residential and commercial properties lie vacant across Dublin – 4,000 of which are in the city centre. There has been a marked deterioration since last year, and things are getting worse. The majority (63 per cent) of these properties have been unoccupied for one to two years, with a minority of about 23 per cent idle for more than four years.

Between the canals, there are 4,082 vacant buildings. Half of them are commercial, roughly a third residential and the remainder mixed-use. The greatest concentration is in Dublin 2, home to 41 per cent of these vacant buildings, the vast majority (75 per cent) of which are commercial. D1’s Victorian commercial districts (Parnell, Talbot, Capel and Dorset streets) account for more than half (610) of the vacant flats above commercial units.

This column has suggested an amnesty for people who might own these properties but don’t have the money or the legal clearance to refurbish them. The State could force them to sell by offering them a chance to avoid hefty penalties if they sell within a year. If not, tax them at source on other income and put the property on the market. The resulting glut of properties would force prices down, allowing responsible new owners who intend to build to buy at a bargain price. In no time the city would be transformed.

We’ve done it before. Incentives work. Let’s do it again.