Speculative Residential Costs and Sales prices | Look back 12

LookBackGfx12 August 2015

There has been a lot of discussion in the media on building costs and the effect on housing supply. Despite recent sharp rises many consider sales prices still to be lower than the cost of building. Some industry members have suggested lowering building standards may significantly reduce costs and improve supply of new dwellings to the market. More detailed analysis of construction costs suggest this suggestion does not stack up. The reality may well be that there simply is not enough profit for speculative residential developers at current sales prices. In this ‘look back’ edition we re-publish two posts that accurately detail speculative costs and sales prices for both a typical 3-4 bed house, and a 2 bed apartment. The following posts were based on detailed input from experienced residential developers, quantity surveyors and architects. Readers can clearly see the massive cost BC(A)R SI.9 has added to residential costs for little or no added consumer protection. SI.9 costs listed are at the conservative end in the following posts, Commentators have noted the real-world cost of building control regulations introduced in March 2014 may be a multiple of figures used here (see post “Regulations add up to €60k to house cost | Karl Deeter“).

Original posts here:

Developer-Led Costs for a Typical Apartment

Developer-Led projected Sales Price for a Typical House

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BlkA_WestElevDeveloper-Led Costs for a Typical Apartment

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.

Notes:

  • 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).

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Developer-Led projected Sales Price for a Typical House

Published on 22 Dec 2014

gchomeplans

In a previous post “House building costs are 17% more than 2003 despite recession” it was suggested that when VAT, SI.9 costs and developer’s profit is added, the sales price of a typical 125 sq.m. house is currently in the region of €300,000 excluding the site purchase costs.

Typical site values for houses in the country would suggest we are well over €350,000 when the site cost is taken into account. As the average sales price for a typical house is in the region of €250,000, this would suggest that it is still cheaper to buy than to develop.

Here is a breakdown of these figures. In an earlier post we noted an architect’s assessment of additional SI.9 costs for a typical house (see below). The following calculation was confirmed by a development finance specialist and a builder-developer as being an accurate assessment of the cost of a speculative house in a larger scheme. We note the developer suggested cost savings may be made on the administration of the new building regulations by availing of the pilot HomeBond scheme.

Here is the breakdown received:

Developer-Led projected Sales Price for a Typical House 

Base build cost= €1271 x 125 = €159,000

plus 13% for professional fees (+€20.7k)*= €180,000

plus SI.9 Professional + specification Costs (+€21k)*= €201,000

plus legal, marketing, sales and other costs of 5% (+€10k)= €211,000

plus developer’s net sales profit of 20% (+€42.2k)= €253,000

plus vat @ 13.5% on sales (+€34.2k)= €287,000

plus planning levies (+€10k)= €297,000 Projected sales price

(The above cost calculation excludes site purchase costs.)

Notes:

  • Bruce Shaw cost range for new build €1000- 1250 per sq.m. (av. €1125) excluding VAT. It recommends adding in  13% for additional development costs= €1271 per sq.m. Exceptional or once-off site development or infrastructure costs may be higher.
  • For the purposes of this calculation we will assume a typical 3-4 bed house size is 125 sq.m.
  • Once-off individual sites 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.
  • 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 €40,000 up to €80,000 per house for larger sites excluding VAT. Profit normally would be factored onto sales price so following calculation is at lower end of estimated costs.

This cost, along with other factors such as availability of finance, may well be determining the pace of residential supply currently.

The average house sales price nationally is around €250,000. The above calculation suggests that it is still cheaper to buy than build notwithstanding recent increases, and will remain so until sales prices increase significantly (or the cost of building is lowered).

One can see that the additional cost of the new regulatory red-tape bureaucracy is €21,000 when VAT is added  (consultants fees plus specification costs). Developer’s profit is at €48,000 when vat added on to consumer. The cost in the base-build use a main contractor is in the region of €21,000 incl. VAT. So the additional costs  to a self-builder in buying a speculative built house when vat, SI.9 costs and developer’s profit is added, is in the region of €90,000. An additional 30% cost increase.

If the government adopted incentives, like in the UK co-housing initiative, to stimulate the self-build sector and reduced regulatory costs with the introduction of a low-cost independent inspector system similar to the UK, the cost of once-off housing could be significantly reduced.

Other posts in “Look-Back” series

Is the scene set for another Priory Hall? | Look Back 11

Simon Carswell: Politicians, Construction industry lobbying and banking | look back 10

Legal perspective: consumer benefit? BC(A)R SI.9 | look back 9

Minister Hogan defends BC(A)R SI.9 | look back 8

Christmas Past – What did you hope for from Santa in 2013? Look back 7

Ghost estates and public housing: BC(A)R SI.9 | look back 6 

Government Reports + Professional Opinion Ignored in SI.9 | look back 5

SCSI | “Highly unlikely Priory Hall would happen in Britain”- Look Back 4

BRAB and BC(A)R SI.9- Look Back 3 

Inadequate Regulatory Impact Assessment for S.I.9- Look Back 2

World Bank Rankings, Ireland & SI.9 – Look Back 1

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