Based on current information it is estimated that S.I.9 could cost the economy €532 million per year for residential projects alone. To put it another way that is a 21.6% surcharge on every single home completed, for which the consumer has no tangible benefit.
In February 2014 we did an overview of the possible cost of S.I.9 to the economy. Now, six months on, we have updated this review and will look at the various sectors of the construction industry.
In this first post we concentrate on the residential sector. We have drawn on recent information from the representative body for self-builders (IAOSB best estimate from their membership), current market rates for construction and the additional workload estimated by construction professional bodies and specialists. The following costs excludes all domestic non-qualifying extensions/ refurbishments in accordance with Building Control Management System (BCMS) data to date.
BC(A)R S.I.9 ANNUAL COST FOR RESIDENTIAL PROJECTS (€2.464bn qualifying)
- Self-build houses abandoned (800 houses @ €180k each )= €144m
- Increased costs for self-builders- (€2.464bn /3) @ 22% = €181m
- Increased costs for consumer (2/3 x €2.464bn) @ 11%= €181m
- Delays due to validation procedure 3-5 weeks (€3k each)= €26m
- TOTAL S.I.9 RESIDENTIAL COST (annual costs) – €532m
As the current construction levels are assumed to be at the bottom of the current cycle these S.I.9 costs should pro-rata upwards as construction output recovers in coming years i.e. annual S.I.9 cost will increase in line with increasing output. The number of self-build projects abandoned or postponed will increase significantly once the contractors’ register (CIRI) becomes mandatory from 2015 onwards (25 % may rise to 40%: source IAOSB).
Do the benefits of S.I.9 outweigh the costs? We will do a similar updated estimate for non-residential projects in a second post next week.
Assumptions in compiling the above figures:
- Commencement figures verified with the Building Control Management System (BCMS) to date indicate completions will be at best similar to 2012 at 8,700 (optimistic) – this is dependent on current levels improving significantly.
- Figures are based on 2012 construction outputs from a Forfás report (table 2.12 (p16) Value and volume of construction output, 2012-2012E; Source: DKM Economic Consultants analysis for Forfás, 2012). See link below.
- We have discounted the residential sector output by 30% (we assume €2.464bn qualifies under SI.9 out of a total of €3.52bn) to take into account 30% of commencement notices that are exempt from SI.9 as registered on the BCMS to date. Our figure excludes completely €427m for public housing (even qualifying part-ownership projects).
- We will assume the number of of self-build projects abandoned and postponed will contribute towards output remaining flat compared to 2013. Approximate number of self-builds abandoned are currently estimated at 800 (25% total self-build output- source IAOSB). We are assuming an average cost here of €180k per house. This figure may rise over 1200 by the end of the year due to unavailability of certifiers. The number of self-build projects that have commenced (and have assumed the risks on completion highlighted by the Law Society) along with the number of projects abandoned/ postponed indefinitely is based on surveys conducted by the IAOSB.
- One third of total residential output will be other self-builds that absorb the extra SI9 cost of 22% (see link below).
- The remaining residential projects will be procured normally (with main contractor) and will have a SI9 cost increase of 11% (see link below).
- A minimum 3 week delay is assumed on all projects due to increased administration and paperwork, lack of Local Authority resources, invalidations at completion and commencement etc. In the previous estimate we assumed this would be a once-off 2014 cost issue. However it may be appropriate to assume this as a recurring delay due to increased invalidations due to lack of staff in Local Authorities and increasing workloads in coming years.
- We have excluded extra costs for all sub-certifier roles, ancillary certifiers and sub-contractors, other insurance costs etc.
- Costs for a typical dwelling have been posted separately by Bregs Blog.
Link to Forfas report here:
Extract off Forfas report table 2.12 p 16
Posts mentioned of interest: