Builders ‘can’t make viable profit’ on €320,000 apartments

Government report sought industry group input, who say housing estates only marginally viable

Apartment supply is the main concern when it comes to building costs, with house building seen as satisfactory by sources. Photograph: Neil Hall/Reuters

Apartment supply is the main concern when it comes to building costs, with house building seen as satisfactory by sources. Photograph: Neil Hall/Reuters

 

It is not financially viable for builders to construct “affordable apartments” with sales prices of between €240,000 and €320,000, a Government report has found.

The report, which assesses the cost of building, finds that while it is easier for builders to construct affordable suburban housing estates, it is still only “marginally viable” for them to do so.

The report was carried out by officials in the Department of Housing, who sought input from industry groups, and was discussed at a Cabinet sub committee on Tuesday night.

It says restricting green space in housing estates would help bring down costs but acknowledges this would be an “emotive issue”.

“A public green space imposition above 10 per cent will impact viability, where land costs are high and there is limited land available,” it says.

Government sources pointed out that viability for builders is achieved with a profit margin of 10-12 per cent but the profit on an apartment could fall substantially below this in the current climate. The profit on a house would just be above that threshold.

Apartment supply is the main concern when it comes to building costs, with house building seen as satisfactory by sources.

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Land costs and hoarding could be tackled by targeting the release of State land for affordable development in areas where the cost of sites have increased dramatically, the report states.

It was based on the cost of a Dublin apartment building with 252 units over six storeys on one hectare of land, and a suburban housing estate with 164 three- or four-bedroom homes on a five-hectare site.

Optimal solution

Six-storey buildings are the optimal solution for high-density apartments and anything more adds “substantial structure, fire preliminaries and finance costs”. There should also be a “higher ratio” of one- and two-bed apartments.

Reducing the number of car parking spaces is also proposed, as is offering builders a rebate on their development contribution for affordable homes in inner city areas.

Another solution is to temporarily “rebalance” the disparity between development levies for residential and commercial buildings in cities. Builders may also be able to pay their contributions in different stages.

The affordability of such properties was based on a couple with two salaries, or a salary and half, on the average industrial wage with a 10 per cent mortgage deposit.

Meanwhile bedsits are set to make a return under new plans to be unveiled by Minister for Housing Eoghan Murphy next week in a bid to tackle the housing crisis. In early 2013, it became illegal for landlords to rent out bedsit-type accommodation in the State over concerns that many were dilapidated, run-down and inadequate for modern habitation. At the time there was an estimated 5,000 bedsits in the State, most of them in Dublin.

‘Overheat’ economy

Separately the Fiscal Advisory Council, the Government’s budget watchdog, warns on Tuesday that rapidly increasing housebuilding to meet the demand for homes could “overheat” the economy.

In a submission to the Dáil Budget Oversight Committee, the Council warns that while meeting housing needs would be welcome, any construction-based overheating of the economy – such as took place prior to the economic crash – would have to be tackled by policy measures.

In effect these “offsetting actions”, as the Council describes them, would mean tax increases or spending cuts.

The Fiscal Council has repeatedly warned against too much loosening of budgetary policy, and it will repeat that warning today. “It is important to acknowledge that Government debt levels remain very high following the crisis,” it says, leaving Ireland vulnerable to shocks, such as a hard Brexit.

Progress in bringing down the levels of debt have slowed in recent years because of the extra money provided by the Government to meet the regular overspending of health budgets.

“Although the health service is again on course to burst its budget this year, the Fiscal Advisory Council issues a sharp warning against providing extra money this year”.