# "Building more units is the only way to solve the housing crisis"



## Brendan Burgess (24 Oct 2014)

I referred to this article by Dr John McCartney of Savills before, but it's so clearly written and so obvious, that it deserves to be shouted from the rooftops 

*Investors are not the enemy in the housing crisis and only building more units will fix it*




> Perhaps inevitably, this upsurge in buy-to-let activity has caused  consternation among pundits who argue that commercially-motivated  investors are crowding traditional homebuyers out of the market and  driving up housing costs. ...
> 
> 
> At one  level, these concerns may be understandable. It is undeniable that every  property bought by an investor leads to one less unit being available  to an owner-occupier. Furthermore, by competing alongside traditional  home-buyers, investors add to the demand for housing. In a context of  tight supply, this undoubtedly drives up prices.
> ...


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## Brendan Burgess (24 Oct 2014)

*Summary of the cost of building 
*See attached Report on the cost of constructing a 3 bed house



 House costs|€104k 
External works|€16k
Site development|€16k
Site indirect costs|€10k 
Contingency|€5k
*Total Construction costs|€150k *

Social Housing contribution|€10k
Development contribution|€12k
Finance, design and marketing|€23k
*Total cost excluding site and profit |€195k **So how is the sale price determined? 

*

 Site cost| €30k 
Cost of building|€195k 
Profit| €30k 
Sales price before VAT|€255k
VAT|€35k
Price paid by buyer|€290k


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## Brendan Burgess (24 Oct 2014)

I am trying to clarify my thinking on these issues 

1) There is a severe shortage of housing units in Dublin and the surrounding area 
2) This shortage pushes up the price of houses and rents 
3) The only solution is to build more houses 
4) It's less important whether those houses are sold to occupiers or landlords 



5) It costs around €200,000 to build a 3 bed house before any allowance for profit and the cost of buying the land - see attached report 
6) The builder must add VAT at 13.5% which brings the selling price to around €230k before any profit for the cost of buying land.
7) Adding a profit margin of 15% brings the sales price up to around €260k before site acquisition cost. 
8) The only way to improve supply is to bring down the cost of building houses


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## Padraigb (24 Oct 2014)

You need to bear in mind that BTLs are still housing units and, with few exceptions, become homes for people. So driving investors out of the market won't do anything to solve the accommodation problem.

A few years ago people were prepared to undertake fairly long commutes so that they could have a nice family home. I think the appetite for that has diminished a lot. More people want to live closer to their workplace, and not spend 2-3 hours of their day travelling.


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## Brendan Burgess (24 Oct 2014)

Padraigb said:


> You need to bear in mind that BTLs are still housing units and, with few exceptions, become homes for people. So driving investors out of the market won't do anything to solve the accommodation problem.



Hi Padraig

I fully agree with you. Is there something in my comments or the initial article which conveys the alternative opinion?


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## Brendan Burgess (24 Oct 2014)

*Do we want house prices to continue rising? 

*If house prices rise, building will become profitable again and so the supply of housing units should increase. 

But if house prices rise, would-be first time buyers will not be able to afford to buy houses. 

So do we want to see house prices falling?  If house prices fall, then there will be little or no new building. 

The more I think about it, the only way to solve the housing crisis is to reduce the cost of building housing units. 

This way we can increase the supply and reduce the price of houses.


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## Padraigb (24 Oct 2014)

Brendan Burgess said:


> ...
> I fully agree with you. Is there something in my comments or the initial article which conveys the alternative opinion?


No.

But there has been a general tendency to see "investors" as some kind of social evil. The high rents in Dublin suggest to me that the supply shortage is just as significant for investors.


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## Brendan Burgess (24 Oct 2014)

Ronan Lyons also wrote a good piece on the topic

*Construction, not rent control, the solution to the housing crisis*


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## Dermot (24 Oct 2014)

Padraigb said:


> No.
> 
> But there has been a general tendency to see "investors" as some kind of social evil. The high rents in Dublin suggest to me that the supply shortage is just as significant for investors.



I agree.  It is always particularly popular for politicians to bash investors/Landlords.  There has been to many decisions made by governments against landlords dressed up as good for social policy but turned to be detrimental to tenants.
We need a long term fair and balanced policy to both Tenants and Landlords/Investors which is not being chopped and changed at the whim of a Government.
To go back to the central theme the only solution is supply.  If you have 20 loaves and you have 30 people wanting one each it does not matter whether you are giving them away for free or charging 4 times their value there will be 10 people short.


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## Protocol (24 Oct 2014)

Brendan Burgess said:


> 5) It probably costs around €250,000 to build a 3 bed house before the cost of buying the land



Although I admit I have no proof, just chats with builders, the build cost of a 3-bed semi *in a scheme *is well below 250k.

A 100-200 unit scheme means economies of scale, bulk discounts, etc.

Excl land+financing costs+dev levies+VAT, I'd be confident that a no-frills 3-bed semi can be built for under 150k.


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## Delboy (24 Oct 2014)

Investors should'nt really be competing with FTB's or young families in the suburbs for new housing developments, at least not with the shortage we're currently going through.

We need more and more Apartments built in central-ish locations...every time I hear of a new job announcement by Facebook, Google etc, I just think of more immigrants coming in looking for housing. And as they can't find accomm (mainly apts) in the city centre where I'm sure most of them would probably like to live, they are coming out to the inner suburbs (bit of a contradiction there, but you know what I mean) renting houses.
Look at the top of O'Connell St around the Bolton St/Dorset St area....lots of empty and boarded up delapidated buildings, and pityful looking social housing/flats. Was looking around there the other day and how this area wasn't regenerated from the 90's on with all the tax incentives around the place is beyond me.It's less than a 5 minute walk from O'Connell St!!!!

While getting building of new houses up and going along and beyond the M50 belt, surely it's time to start building up in these type of city centre locations...and quickly


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## fearbeag (24 Oct 2014)

Brendan Burgess said:


> *Do we want house prices to continue rising?
> 
> *


*

I would hope the current spurt in house prices in Dublin would tail off and only rise in line with inflation or at least only a few percentage points above inflation. Continual uncontrolled rise in prices in the double digits will only lead us back on the painful road of the past. 

The continual very strong rise in both house prices and rents in the Greater Dublin area clearly indicates there is a problem with supply. Obviously building more houses should help alleviate this. However there is often a scarcity of development land in areas where the demand is greatest. I would like to see a lot more development of properly planned apartment blocks, i.e. two /three / four bedroom apartments, that are designed with families in mind. I have lived in both poorly designed and well designed apartment blocks and the difference is immense.*


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## Brendan Burgess (24 Oct 2014)

Delboy said:


> Investors shouldn't really be competing with FTB's or young families in the suburbs for new housing developments, at least not with the shortage we're currently going through.



Hi Delboy

Have a read of the article linked to in the first post. 

The key point is that investors are also suppliers of accommodation to renters.  If you banned investors from buying housing in the suburbs you would be artificially restricting supply to the rental market. 

Brendan


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## Brendan Burgess (24 Oct 2014)

Protocol said:


> Although I admit I have no proof, just chats with builders, the build cost of a 3-bed semi *in a scheme *is well below 250k.
> 
> A 100-200 unit scheme means economies of scale, bulk discounts, etc.
> 
> Excl land+financing costs+dev levies+VAT, I'd be confident that a no-frills 3-bed semi can be built for under 150k.



Hi Protocol 

I have attached a report done for the  Irish Home Builders Association  to the second post in the thread.  It estimates that the cost of a house in a 100 unit development is €225k.  Add VAT and the selling price must be €253k to cover the cost of building i.e. before site acquisition costs.

The gap to your estimate is around €40,000 



 Your estimate| €150,000
Financial contribution|€12,400
Part V|€12,000
Finance|€7,000 
Total before VAT| €181,000
Including VAT |€210,000 They are allowing €30,000 for profit and €8,000 for marketing. 

I have updated my figures accordingly.

So, the selling price before any profit is about €220,000.


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## Purple (3 Nov 2014)

Brendan,

The main cost is still construction. The article you linked doesn't break down labour and materials but I'm surprised that rainwater harvesting and solar panels are now a basic requirement on residential builds.
As I have said in previous threads the construction methods used in this country are archaic and hopelessly inefficient. Until the construction sector addresses these issues then tax breaks and incentives in the sector will have the same effect as subsidising Irish Steel or any other industry that refuses to engage in modern work practices.


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