Society of Chartered Surveyors Ireland publish new cost of housing report

30 July 2020 SCSI

 

 

The Main Findings:

 

The average cost of building a 3-bed semi in Greater Dublin Area is €371K

 

Construction or hard costs come to €179K, 48% of total

 

Soft costs - land, margin and VAT etc make up €192K or 52%

 

Over the last 4 years, hard costs have increased by 19% while soft costs have increased by 7%

 

Cost of site development works and new regulations cited as significant factors

 

Affordability gap for a couple on the average wage trying to buy a new 3 bed semi is €25K+

 

Surveyors call for establishment for a Commission on Housing to review the tax treatment of new housing and the cost impacts of public procurement and new regulations

 

Cost of delivering social housing is between €210 to €230K

 

Society calls for commencement of largescale public sector house building programme

 

Thursday 30th July 2020. A major new report has found that the cost of building a three-bedroom semi-detached house in the Greater Dublin Area has increased by €41,000 over the last four year and now stands at €371,000. This is an increase of 12% or 3% averaged over the last four years.

 

The Society of Chartered Surveyors Ireland, which published the report, says the increase has been largely driven by an increase in ‘hard costs’ – bricks and mortar – up 19% or €29K while ‘soft costs’ – land, development levies, fees,  vat, margin – increased by just 7%  or €12K.

 

‘The Real Cost of New Housing Delivery 2020’ – which is based on a detailed study of 30 live sites in the Greater Dublin Area - found that ‘hard costs’ came to €179K, which at 48% is less than half of the overall cost of providing a new house.

 

The report identifies a number of contributory factors for the increase in hard costs including the introduction of new building and compliance regulations as well as increased labour costs and general inflation.

 

Land and acquisition costs of €61K (16%) VAT of €44K (12%) and a margin of €44K (12%) make up the main elements of the soft costs which total €192K or 52% of the total cost.

 

The most significant increases on the construction side are associated with higher costs for site development works such as drainage, water connections, landscaping and paving. On average the cost of siteworks is approximately €40,000, an increase of over 43% since 2016. Structural costs increased by more than 15% - more than €7,400 per unit - due to the costs of increased fire regulations and additional supports.

 

When the SCSI conducted its first study in 2016, soft costs made up 55% of total costs while hard costs comprised 45%.

 

 

Table 1 Breakdown of the costs in delivering a new 3 bed-semi.

 

House Building Cost - 37%
 Land Acquisition Costs - 16%
 VAT - 12%
 Margin - 11%
 Site Development - 8%
 Finance Cost - 5%
 Levies - 4%
 Siteworks Within Site Curtilage - 3%
 Sales & Marketing Costs - 2%
 Professional Fees - 2%

 

 

Commentary

Micheál Mahon, incoming President of the SCSI said the housing crisis will not be resolved until the critical balance between affordability for consumers and viability for developers is addressed.

 

“New private housing supply will only increase to meet demand when the affordability/viability issue is placed at the centre of housing policy development and critically, it must be based on a detailed examination of the real costs of housing delivery.”

 

“If the Government is serious about tackling the housing crisis and building the 30,000 to 35,000 homes which are required it needs to tackle the significant increases which have occurred in housing delivery costs as a matter of urgency.”

 

“The current model will not deliver the volume of homes we need which is between 30,000 and 35,000 a year. There is a major affordability gap for first time buyers trying to purchase a home in line with Central Bank of Ireland regulations and this gap raises serious questions over the viability of new house building.”

 

“The SCSI does not believe there is a single solution to this problem. That is why we are advocating a multifaceted approach, including; the establishment of a Commission on Housing – as set out in the Programme for Government - to review the tax treatment of new housing. VAT makes up 12% (€44K) of the total cost of a new home, in the UK there is no VAT on new houses.

 

The Commission would also examine the cost impact of the public procurement process, and review best practice in relation to new regulations and how the cost implications,  particularly in the area of water connections and other utilities can best be managed. All new regulations and statutory measures should undergo an independent cost benefit analysis to assess their cost impact and potential benefits to the consumer.”

 

“Our study shows that if the costs of accessing finance for developers were reduced from 9% to 5%, this would lead to a saving of €10,000, if development levies and Irish Water connection charges were reduced by 30% this would lead to a decrease of €5,000 and if land prices were reduced by 10% this would lead to a decrease of €8,500. These three measures alone would lead to a reduction of +€23K per unit, almost bridging the affordability gap.”

 

“There has been a significant data gap on land costs for policy makers and we would like to see a public register established for all development land transactions. The construction sector for its part needs to increase productivity through the adoption of the latest technology and the SCSI is looking to advance this through its Chairmanship of the Construction Industry Council, its participation in the Construction Sector Group and the creation of a National Centre of Excellence.”

 

The SCSI believes the Help to Buy scheme should continue to assist first time buyers with deposit requirements while consideration should also be given to the introduction of a shared ownership scheme – similar to the UK model – to assist those looking to get on the property ladder.

 

Abnormal costs and Covid-19

It’s important to note that the figure of €371K does not take account of “abnormal costs” that are often encountered when dealing with contaminated sites, difficult topography or any other case specific site challenges. “Abnormal” costs are a regular feature of development and on average, can amount to as much as €15,000 per unit.

 

The “Covid-19” cost is a new factor that has not been captured in the overall delivery cost figure.  As a result of new health and safety protocols the costs associated with social distancing and the provision of PPE gear and associated hygiene facilities will have to be borne by the sector. The SCSI plans to report on this cost element when sufficient data is available.

 

Social Housing

The report highlights that the cost saving differential in the delivery of private housing compared to social housing can be within the range of €140,000-€160,000 due to the nil cost attributed to land, levies, finance, developers’ margin and sales and marketing costs. VAT rates are also adjusted accordingly. Social housing projects do see an increase in the cost of professional fees, this is due to the fact that there is more design input at the tender stage of projects. Therefore, our figures suggest that social housing can be delivered within the range of €210,000 to €230,000 per 3-bedroom semi-detached house in the Greater Dublin Area.

 

The SCSI believes the Government should commence a large-scale public-sector house building programme via local authorities to take advantage of a likely softening in construction costs over the coming  years. It also believes the Government should leverage the Land Development Agency and local authorities to deliver alternative models of delivery for social housing.

 

Case Study – The Affordability Challenge

The report includes a case study of a couple, both of whom are earning an average salary in Dublin of €44K and thus have a combined salary of €88K. The average asking price for a 3- bed semi in Dublin according to the latest Daft.ie report is €380K Based on that price the couple will need to save a deposit of €38,000. The maximum amount they can borrow is €308K, (3.5 times income) bringing total borrowing amount to €346,000. This leaves an average shortfall of €34,000 for the price of a 3-bedroom semi-detached house (or a €25,300 shortfall on the average cost of delivering a 3-bed semi as outlined in this report).

 

 

Ends.

 

For further information

Contact Kieran Garry

GPR Communications

0872368366

kierangarry@gprcomms.com

 

 Note to Editor

 

The Society of Chartered Surveyors Ireland undertook an extensive and detailed study of 30 live development sites in the Greater Dublin Area with a minimum of 35 units.  The data was received during the months January 2020 to June 2020. Our findings report that the average overall cost of providing a three-bed semi-detached house of 114sq.m (1,227 sq.ft) in the Greater Dublin Area is €371,311 (including V.A.T).

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