08 December 2016
The following is a summary of “The Cost of a Local Authority vs Speculative developed Typical House- alternative procurement models for social housing delivery” a submission submitted by Maoilíosa Reynolds MRIAI to the Oireachtas Committee on Housing and Homelessness in May 2016.
Asking prices of existing housing for sale are still below reasonable construction costs in many parts of the country. NAMA are funding some well-known developers in Dublin but these are in the middle to upper end of the market and not aimed at first-time-buyers. A recent Knight Frank survey confirms that the majority of residential projects are schemes with less than 50 units. Budget initiatives appear ill-informed as to what will actually work and are light on practical measures to enhance affordable housing supply. Falling planning application levels are confirmation of a lackluster industry reaction to recent budgetary efforts (see Irish Times article here).
In Dublin the average asking dwelling price is €306,540. Elsewhere the average is €166,677 (see Ibec publication here). In 2012 the Irish Home Builders Association estimated the average cost and sales value of a typical house was €248,685 (see IHBA costs p3 here). The average now is €327,226:
In the absence of meaningful efforts by government to reduce costs, asking prices will increase significantly before house building on any scale will commence.
VAT + Planning Levies
Reducing VAT to 9%, and planning levies by 50% would save €23,000 for a typical apartment in Dublin. This will not reduce asking prices or significantly improve affordability. VAT is a cost reduction (along with planning levies) however these are costs to the state and reductions are essentially to grants to developers. Reducing planning levies or VAT will not address the gap between current asking prices and construction costs. It’s a short term measure which will result in deterioration of affordability. It is unreasonable to expect the private speculative sector to develop housing at ‘below cost’.
Local Authority Housing
Significant residential cost reductions are possible by changing the procurement model to Local Authority direct procurement [BReg Blog note: projects are competitively tendered by Local Authorities to commercial builders] as follows:
- Reduction of site cost (Co-Housing initiatives/ site rental model): €41,600
- Removal of developer’s profit: €37,613
- Re-introduce Local Authority Inspections: €25,100
- Remove Part V (unnecessary for 100% local authority projects): €10,000
By removing developer’s profit, passing on lower site costs (renting land), introducing a system of Local Authority Building control inspections and reducing VAT, sales values and total costs could be reduced by over 38%. With no reduction in standards or size, Local Authority directly commissioned and managed procurement of housing could reasonably result in typical 3 bed houses with a total cost of €180,055 in Dublin, less elsewhere:
Barriers to residential supply were created by Government with the introduction of complex and costly administrative Building Control procedures BC(A)R SI.9 in March 2014 along with revised inflexible Part V social and affordable revised requirements in 2015. Industry experts believe SI.9 building control procedures add little in the way of consumer protection (see Deirdre Ní Fhloinn here) and 98% of industry believe these regulations are a barrier to residential supply (see Knight Frank survey here).
The current construction climate is reliant on low to non-existent margins to deliver projects at current levels. It is unrealistic to expect this situation to continue for an extended period and many have already observed sharp rises in construction costs (see Bruce Shaw document here).
The continued absence of any large-scale Local Authority housing programme will ensure that social housing supply will not improve, and affordability for first-time-buyers will continue to deteriorate. Inappropriate pro-cyclical measures will result in increased site values and development margins, but no improvement in affordability.
PDF of Oireachtas Submission 3: The Cost of a Local Authority vs Speculative Developed Typical House
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