27 January 2015
When you examine the figures below you can understand why there is no rush to provide housing in Ireland at the moment, The cost of building apartments along with other factors such as availability of finance, may well be determining the pace of residential supply.
In a previous post the BRegs Blog posted that the average cost in Ireland of a developer-led speculative house was in the region of €297,000 excluding site cost (see post here). Today we table a similar break-down of a two-bedroom apartment in a higher density project which would have basement parking. The calculation is based on current market rates as per Bruce Shaw figures (see post below). The estimates indicate that a typical apartment costs €278,000, almost seven times the average 2014 industrial wage (€41.8k) to construct without factoring in site purchase costs or social and affordable housing levies. This is not sustainable.
The following calculations were confirmed by a development finance specialist and a builder-developer as being an accurate assessment of the cost of such a speculative apartment in a high-density scheme. Please note there may be cost savings on the administration of the new building regulations by availing of a pilot HomeBond scheme. However, the SI.9 cost has had to be loaded due to additional financing costs due to the phasing and completion restrictions associated with the regulations.
Developer-Led projected Sales Price for a Typical Apartment (multi-unit)
Base build cost= €1751 x 85 sq.m. = €149,000
plus 8% for professional fees (+€12k)= €161,000
plus SI.9 Professional + specification Costs (+€15k)*= €176,000
plus legal, marketing, sales and other costs of 5% (+€9k)= €185,000
plus developer’s net sales profit of 20% (+€37k)= €222,000
plus vat @ 13.5% on sales (+€30k)= €252,000
plus carparking cost (+€20k)= €272,000
plus planning levies (+€6k)= €278,000 Projected sales price
(The above cost calculation excludes site purchase costs.)
*Loading on costs here due to the current multiple-unit completion issues, uncertainty regarding implementation and the requirement for total completion of overall structure – not just phases of build.
- Bruce Shaw cost range for new build €1250- 1850 per sq.m. (av. €1550) excluding VAT. We add-in 13% for exceptional or once-off site development or infrastructure costs= €1751 per sq.m. (assume lift/communal areas included in this total). Dublin and other urban areas with be higher.
- For the purposes of this calculation we will assume a typical 2 bed apartment size is 85 sq.m.
- Car parking space cost (single-level basement) 12.5k- 28k (av €20k). Assume 1 space per apartment.
- Site and construction costs will be higher in urban areas like Dublin, Galway or Cork.
- The costs exclude upgrades due to increased performance (Part L etc) required to reach net carbon zero targets, and other changes to regulations due in 2018.
- The costs exclude 10% social and affordable costs [Part V] recently introduced. This will likely result in higher site costs and consequent higher sales prices.
- The following calculation excludes site costs. Assume average site prices of between €25,000 up to €50,000 per apartment for larger sites excluding VAT. Profit normally would be factored onto sales price so following calculation is at lower end of estimated costs.
The above calculation suggests that it is still cheaper to buy than build notwithstanding recent increases in many locations, and will remain so until sales prices increase significantly (or the cost of building is lowered).
Other posts of interest: