“House building costs are 17% more than 2003 despite recession” – Bruce Shaw

Ch.3_—_Ireland

Ireland, Knowledge Centre – Bruce Shaw

Professionals frequently refer to the Bruce Shaw Annual Review for information on costs, trends and the construction industry generally. In this post we look at activity in the house building sector and where savings could be targeted to make housing more affordable. Here’s  link to the full document: Bruce Shaw Knowledge Centre

This year’s edition of the Bruce Shaw Annual Review is no different providing a wealth of interesting and accurate information on a multitude of aspects of the construction industry. It is not the only one of its type but source information frequently is Central statistics Office data so is quite reliable.

We noted there has been a lot of media attention at a predicted “construction boom” with an output of €11Bn forecast for 2015. When one removes the €600m associated with water meter installation, this figure reduces to €10.4Bn. A 15% increase on 2014 projected level of €9Bn is good news; however we are coming from a historic low point in construction activity.

€10Bn is the same as the 2010 level of construction output and well below the level needed to achieve a sustainable level of construction activity in the medium term- see Forfas Report (p10):

forfas report page 10.pdf [Converted]

(Pdf of Forfas Report: Ireland’s Construction Sector: Outlook and Strategic Plan to 2015: forfas)

Construction output is half a normal sustainable level and this indicates that there may be further market distortions due to supply and demand issues in some sectors and locations etc. To give this more modest forecast some background here is a graph with recent years construction output noted:

Value of Construction Output €m 2004 – 2014

construction output

We also note construction costs for housing remain stubbornly high. In the following graph we see that house-building costs are over 17% higher than in 2003, despite the recession. The graph illustrates that house-builders appear have kept costs high, preferring to delay activity to build demand and maintain profit margins rather than reduce costs. We note a recent Davy Research report that suggested Irish construction costs were 50% higher than in Northern Ireland. Economist Ronan Lyons has been calling for a full audit of the cost of building a home for some time- this would have many benefits because state investment in social housing would go further and new homes would become more affordable. (Link to Ronan Lyons commentary here).

House Construction Cost Index

houe cost index

In this series of tables showing house completions, we see that only 11%, 922 of the total of 8,301 dwellings completed in 2013 were apartments, suggesting that individual commissioned or self-built houses comprised a very high proportion of dwellings completed that year. Self-builders may well comprise over 50% of all houses completed in any one year.

Annual House Completions 2003 – 2013

house completions

Annual House Completions by Type 2003 – 2013

completions by type

Finally of interest to Government will be house building costs. Note the specific exclusions which generally add approximately +12.5% and additional costs of SI.9, estimated at between €20,000- €40,000 for a typical 4 bed house.

The Bruce Shaw figures exclude VAT, professional fees, SI.9 costs, developer’s profit and site costs. When the extra SI.9 cost of €21k ex vat, developers profit of 20% and other costs along with VAT of 13.5% is added to the build cost, the sales price of a typical 3-4 bed 125 SqM house is over €290,000 excluding site purchase costs. This excludes the cost impact of recently introduced social and affordable (Part V) levy of 10%.

 

house build costs.pdf [Converted]*Breg Blog note: for additional SI.9 costs for a typical house see SI.9 costs for a typical house | BRegs Blog

Other posts of interest:

€ 5 billion | The extraordinary cost of S.I.9 self-certification by 2020

How much would 100% independent inspections by Local Authorities cost?

‘Onerous’ Building Regulations must be amended – Minister Kelly

SI.9 Cost for 2014 = 3 x Ballymun Regeneration Projects

Ronan Lyons | Regulations pushing up the costs of homes

CSO- Dwelling units approved down 16.6% in one year

World Bank Report 2015 | Ireland’s poor construction regulations are the biggest drag on our ranking

12,000 social + affordable houses at no cost to taxpayer?

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