Why there is so little house building in Ireland

Brendan Burgess

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I have been trying to figure out why there is a shortage of supply of housing in Ireland. It's simply not profitable to build houses in most parts of the country.

As of May 2012, the cost of building a 3 bed semi before site cost and profit was €194k. (Source : Report by Walsh Associates for the Irish Home Builders Association) The costs will have risen since due to the additional requirements of site inspection, but I have not adjusted them. I understand that the IHBA is updating the report.


Here are the summary costs

Cost of building a 1189 Sq ft 3 bed house

House building |€97,000|includes €5k contingency
Drains, walls and gardens|€11,000
Overall site development|€22,000
Part V costs|€5,000| Social housing
Development levies|€15,000
Marketing|€8,000| Probably lower now
Professional fees|€6,000|no allowance for site inspection
Financing costs|€7,000
Total cost before site cost|€171,000
Vat at 13,5%|23,000
Break even selling price before site cost and profit| €194,000
In other words, if the developer was given the site for free, the minimum selling price would be €194k



Of course, a developer has to buy the site and won’t build unless there is a profit.


Daft.ie selling price of 3 bed semi Q1 2014

South County Dublin| €405k
North County Dublin| €225k
West Dublin |€191k
Cork City| €154k
Galway City|€140k
Limerick City |€116k
Waterford City |€98k
So it's just not profitable for a developer to buy a site, build houses and sell them, except in parts of Dublin. But the site costs in these parts of Dublin probably rule it out.
 

Brendan Burgess

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So, what can the government do to increase the supply of housing? Assuming we do not want to start bringing back in tax incentives, the only way is to reduce the cost of building.

So how could the government reduce the cost of building?
· Scrap the Part V levies
· Scrap the Development levies
· Scrap VAT
This would bring the price down by €43,000.


House building |€97,000|includes €5k contingency
Drains, walls and gardens|€11,000
Overall site development|€22,000
Part V costs| 0| Social housing
Development levies|0
Marketing|€8,000| Probably lower now
Professional fees|€6,000|no allowance for site inspection
Financing costs|€7,000
Total cost before site cost|€151,000
Vat at 13.5%|
Break even selling price before site cost and profit| €151,000
House building could resume in Dublin if this was done.
 

dereko1969

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Bring in a use it or lose it policy whereby land holders who have land zoned for housing must develop within 12 months or lose the planning permission.

Re-zone all the industrial land beside Broombridge for housing.

Bring in a constitutional amendment so that property rights are reduced for the public good.
 

Brendan Burgess

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Bring in a use it or lose it policy whereby land holders who have land zoned for housing must develop within 12 months or lose the planning permission.
Eh, that is why I did the above exercise.

It is not profitable to develop houses in Ireland at present, even if the site is free. So people are not hoarding in order to make super profits.

They are just waiting until it becomes profitable.

If house prices rise and costs fall, so that house development becomes massively profitable, then by all means, bring in a "use it or lose it" rule.

Brendan
 

ang1170

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Two questions:

1. What do the daft.ie figures refer to? Average selling prices? Don't forget that new builds typically sell for a premium over second hand.

2. What to the build costs refer to? Is it the cost of building a single house? If so, some of the costs (e.g. professional fees) will be lower if multiple (identical) units are built, as they will (or rather, should!) average out at a lower per-unit cost.
 

RainyDay

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As of May 2012, the cost of building a 3 bed semi before site cost and profit was €194k. (Source : Report by Walsh Associates for the Irish Home Builders Association) The costs will have risen since due to the additional requirements of site inspection, but I have not adjusted them. I understand that the IHBA is updating the report.
Is the report in the public domain? I'm wondering if the IHBA might possibily have a vested interest in bigging up these costs? IHBA seems to be part of CIF, but I can't find anything on the CIF website.

By contrast, the Society of Chartered Surveyors gives me a rebuild cost of about €168k for a 1000 sq ft 3-bed semi.

http://www.scsi.ie/about_us/rebuildcalculator
 

Brendan Burgess

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It's the cost of building a house of 1,189 sq ft .

Yes, the IHBA would have a vested interest, but the costs do seem reasonable. I have not been able to find any completely independent analysis of it. I presume that the DoE has done something on it?

It refers to the average cost per house, for an estate of 100 houses. According to the SCSI calculator, that would cost €203k to rebuild, almost double the pure building costs of the IHBA report. I suspect it's probably more expensive to rebuild a house which has been damaged by fire, than it is to build a house on a site from scratch with 99 other houses.

There are two key points, even if the IHBA figures are overstated.

1) It's probably not profitable to build new houses at present prices
2) The government can improve the equation by 20% by cutting their take.
 

RainyDay

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2) The government can improve the equation by 20% by cutting their take.
Wouldn't this be just tax incentives of a slightly different kind?

VAT is VAT - development levies are to cover the costs of infrastructure to the house - Part V is to provide integrated social housing
 

dub_nerd

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I built a 3-bed house a few years back (but not too many years) for less than that cost, even minus the levies. It was 1,650 sq.ft. and was finished to a very decent spec. The average 100 house development is not finished to such a high spec, in fact some of them in recent years are downright shoddy. With the economies of scale that should be achievable on a large development, I simply don't believe those IHBA numbers... at least, not without a detailed description of the house type.
 
M

mercman

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In the main your figures are fairly realistic. However the financing costs are way off. This needs a multiplier of at least 5. There is no banking system in this country and unless and until the banks are insisted to lend money, we're going nowhere very fast.
 

RainyDay

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Maybe Govt should just eliminate the need for profit by building social housing? I know we've no money, so I think the current plan is for off balance sheet borrowing through housing associations (Cluid, Sophia and many others). And maybe they can find a way to eliminate the large amounts of waste and rework that seem to go with house building, and reduce costs that way.
 

Jim2007

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The most amazing thing about this tread is the assumption that the promotion of house building and home ownership is the right approach without question! Given the recent experience in this country and the USA plus the UK and Finland in the past, it is about time people started question the approach and examine the approaches to social housing adapted in other countries where property bubbles have been avoided?
 

SoylentGreen

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I am on the look out for a site in South County Dublin to build a 3 bed roomed house. The plan would be to look at alternative types of construction when the time comes rather than the bog standard Irish type of house. Timber framed, flat pack style of house springs to mind.
 

Brendan Burgess

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The most amazing thing about this tread is the assumption that the promotion of house building and home ownership is the right approach without question! Given the recent experience in this country and the USA plus the UK and Finland in the past, it is about time people started question the approach and examine the approaches to social housing adapted in other countries where property bubbles have been avoided?

Hi Jim

I think you are making an assumption about our assumptions. There is no such assumption being made by me, and I don't see it being made by anyone else in the thread either.

There is a shortage of housing, so houses must be built.

They can be built by the state as Rainyday suggests.

They can be built by the private sector, which most of them will be.

Those built by the private sector can be retained by the developer as an investment, sold to people as their principal private residences, or sold to investors to be let.

The bottom line is that we have too few houses and they must be built.
 

Purple

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The bottom line is that the construction sector was not open to any real competition for decades and so never had to reduce their costs and/or become efficient. Now they have no clue how to take out costs while maintaining quality (and let's face it Irish builders are rubbish quality wise so the bar is set very low). Their solution is to moan and bellyache to the government for tax cuts or pay-outs instead of finding a way to getting their act together.
The problem is that the construction sector is inefficient and can't provide houses at the price the market will stand. The solution is for them to figure out how to do the same job for less money. The export sector has been doing that for 25 years. Welcome to the real world lads.
 

jpd

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As well as scrapping the costs imposed by the Government (part V, Dev Tax and VAT), can we not have a go at reducing the balance?

A recent report in the Irish Times cited a Eurostat report which said that consumers prices in Ireland are still 18% higher than the EU norm - if we could approach the norm, then prices overall would fall and perhaps the build cost would fall from € 151,000 to € 128,000. I agree this is an overly simplistic argument, but it does highlight the fact we are a high cost society, for whatever reason.
 

Purple

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As well as scrapping the costs imposed by the Government (part V, Dev Tax and VAT), can we not have a go at reducing the balance?

A recent report in the Irish Times cited a Eurostat report which said that consumers prices in Ireland are still 18% higher than the EU norm - if we could approach the norm, then prices overall would fall and perhaps the build cost would fall from € 151,000 to € 128,000. I agree this is an overly simplistic argument, but it does highlight the fact we are a high cost society, for whatever reason.
I would suggest that the construction sector difference is higher than 18%.
 

Jim2007

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There is a shortage of housing, so houses must be built.
Why the automatic assumption that houses must be built??? There is a need to provide social accommodation, but that does not automatically mean that we should built more houses financed by borrowing. The reality is that the banks are fully loaded up on property and need to dramatically reduce their holdings if they are ever going to get to the point where they can start to seriously finance SMEs etc.. which should lead to sustainable job creating. We need to start challenging the assumptions of the past and seek new solutions because if we are not very careful we could well end up like Finland in the early 1990s!
 
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