Tag Archives: regulations increase cost

Is Irish Building Control a threat to Foreign Direct Investment?

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April 8th 2015

Are Building Regulations a threat to Foreign Direct Investment?

One area overlooked by commentators and policy makers in the Building Regulations debate are non-residential projects, and in particular foreign direct investment (FDI) projects. The massive costs and delays due to SI.9 introduction last March on the residential sector have been well documented, PMI and CSO indicators all showing an initial surge to get projects started before March, petering out towards the end of last year.

Richard Bruton T.D. at a meeting last year with the World Bank recognised that there was “…a fundamental link between competitiveness and job creation” (see more here).

It is remarkable that there has been no effort to address Ireland’s continued slide in international rankings for ease of construction. The World Bank in their annual “Doing Business” report compare 189 countries in the world in various sectors. Ireland’s overall country ranking is a reasonable 13th, ahead of competitors like Switzerland, Netherlands and Israel.

However when it comes to construction permits and building regulations the World Bank places Ireland at a dismal 128th place, way down between Algeria and Bolivia. For a typical FDI building, Ireland’s regulatory costs are over seven times those in the UK.

World Bank  “Dealing with construction permits” Ranking

The World Bank  take a typical production/warehouse building (13,000 Sqm valued at €1.46m), a standardised template for industry, and based on information from respective government departments calculates the time needed and cost of obtaining all relevant statutory permissions to enable owners to build and occupy buildings. Our direct competitor, the UK, is seen as a “best practice system.

The World Bank reports that the total cost to obtain permits for a typical FDI unit in the UK is €19,035 (£15,039 or 1.2% of the capital cost of the development) and includes 100% independent inspections for building control (approved inspector model). There are 12 procedures to get all statutory permissions for a typical unit and this will take 150 days. See detailed data for UK here (click on title):

Doing Business in United Kingdom – World Bank Group

By contrast in Ireland the cost of statutory fees is an eye-watering €138,379, or 9.4% of the capital cost. There are 38 procedures that take a minimum of 208 days (if owners risk various tasks being undertaken in parallel). These costs do not include our privatised self-certification system of Building Control. Planning contributions alone comprise €126,184 to this inflated cost in Ireland. See detailed data for Ireland here (click on title):

Dealing with Construction Permits in Ireland – World Bank Group

The next report could include additional S.I.9 costs will include design, assigned and ancillary certification costs, defensive specifications and delays due to inadequate Local Authority resources and staffing.

This could add an additional 7% of the capital cost of the development, or over  €100,000 for this building type. Our actual total costs for construction permits, if the real cost of our ‘off-balance sheet reinforced system of building control’ is included, may be more than 10x that in the UK.

Acknowledged by Minister Kelly as “using a  mallet to crack a nut” there is a risk that our fragile recovery and in particular the FDI sector will bear the brunt of ill-conceived regulations, reducing competitiveness, costing valuable jobs and putting our recovery in jeopardy. Conceived as ‘political solution’ for speculatve built housing issues, SI.9 has been applied without any cost-benefit analysis to the entire construction sector and is proving very costly to other non-residential building types. Over 60 school projects have been delayed and Government capital projects costs are increasing across the board.

The recent annual review of the building regulations announced by Ministers Kelly and Coffey excludes all non-residential buildings, with a political focus on once-off housing.

A significant 25% drop in overall building commencement levels in the 12 months since the introduction of SI.9 was confirmed in the Dáil last month.

Ireland’s ranking for “Dealing with construction permits” has slid from 117th in 2014 to 128th in 2015 – a drop of  11 places in one year. In this sector the UK, our main competitor, is placed 17th this year, well over 100 places ahead of Ireland.

Last month on RTE Radio One a number of business owners were complaining about the cost of planning contributions around the country. There is widespread concern that a failure to deal with ‘stealth’ charges is impacting on competitiveness and job creation, particularly for SME’s. The World Bank report provides an objective independent confirmation of the experience of these business owners.

Policy-makers in Ireland may be unfamiliar with the work of the World Bank investigations but international investors may be wondering when the ‘best little country to do business’ will catch up?

Other posts of interest:

World Bank Report 2015 | UK v Ireland the real cost of “Dealing with construction permits”

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

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

Press: lack of office space may affect FDI

FDI (Foreign Direct Investment) Projects & BC(A)R SI.9

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

Practical posts 3: Change of Use – FDI and offices

FDI (Foreign Direct Investment) Projects & BC(A)R SI.9

Everything you wanted to know about “Approved Inspectors”

Collins & O’Cofaigh | “the 38 steps” and the complexity of our regulations

Surveyors call for examination of Building Regulation costs

Costs of SI.9 regulations are 30-50% of average deposit for a new home!

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January 21st 2014

Regulations add €20,000+ to house cost

Ireland needs to restore the link between house costs and average incomes if the housing crisis is to be resolved. Simply increasing the amount of money available to buy houses will only inflate the price without increasing the supply. The housing crisis has been the subject of much recent media coverage and some of this is outlined below.

In today’s Independent , factors affecting house prices, affordability and cost, such as the recent proposal by the Central Bank to limit the amount owners can borrow to 20% of the total purchase price of a property, are outlined by Brendan Burgess of askaboutmoney.com. Link to full article:  “New mortgage rules are a tough but necessary step to stop reckless lending

In the Independent article Burgess writes:

“Successive government policies has resulted in this unnecessarily high [building] cost. Approximately €40,000 of the sales price is directly imposed by the State in terms of VAT, social housing levies and development levies……..successive governments have introduced new building regulations without thinking of the impact they would have on building costs and consequently the supply and selling prices of new houses. It is estimated that these regulations add around €20,000 to the selling price of a house.

This € 20,000 cost of Building Regulations figure equates with between 30 and 50% of the average deposit for a new home which is politically very sensitive in view of tighter lending controls by the Central Bank.

Yesterday on “Today with Sean O’Rourke” the presenter asked his guest, Professor Ronan Lyons of TCD, if building costs are making housing projects unviable  (listen to clip here).  Lyons who has repeatedly called for a full audit of the costs of new homes replied:

“There was huge growth in house prices, 350%, from 1995 to 2007. If we had not had loose credit we would have had 180% in the same period. Now prices are half of where we were in 2007. Half of house price increases was due to credit. What we want is a housing policy – abundant affordable housing. Affordable housing is rationed credit. By 2020 we need 100,000 homes. Build more homes not create more credit.

Karl Deeter of Irish Mortgage Brokers and the Sunday Business Post, another guest on the radio programme, added that:

“affordability is the key issue. The Loan to Value ratio will not stop prices increasing. Unit numbers on the ground were not resolved. We have had boom-bust and still have a housing shortage.”

The above issues were also raised at yesterday’s Oireachtas Committee as reported in today’s Irish Times (see article Social housing provision focus of Planning Bill debate).

 

Other posts of interest

Surveyors call for examination of Building Regulation costs

Fewer than 90 social housing dwellings completed in 2014

“30 % of self-builds in 2014 have been postponed or abandoned” | IAOSB

Housing Crisis | Less than 1,000 homes completed in Dublin in 2014

10,500 housing units completed in 2014

Developer-Led projected Sales Price for a Typical House

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

Soaring house prices and rising rents could damage economy | National Competitiveness Council