Builders hold key to cutting cost of housing

While lower VAT might boost construction, builders could also simply reduce their prices

Cork property developer Michael O’Flynn rarely pulls his punches. On Tuesday, I spoke to him about the current state of the housing market here and he didn’t hold back in his opinions.

His view is that the Government isn't facing up to the depth of the crisis, or at least the Enda Kenny-led Fine Gael minority administration didn't.

We have a new Taoiseach now in Leo Varadkar and a new Minister for Housing in Eoghan Murphy so that might change.

O’Flynn is not encouraged by the early signals that the new administration is said to be considering scrapping the Help-to-Buy scheme, which only opened to applications in January and was due to run until the end of 2019.


He rejects the idea that developers have simply pushed up the prices of new houses based on the fact that first-time buyers can now access up to €20,000 in assistance from the Government towards the cost of purchasing a new build.

To be fair, O’Flynn is basing this view on the experience of his own company. However, a lot of his new homes are outside the reach of first-time buyers, as I witnessed myself when I met him at the company’s Rokeby Park scheme near Lucan village last year. Prices there ranged upwards from €675,000.

“They didn’t assess it [Help to Buy] before putting it in and I hope they don’t knee-jerk it out without doing an assessment,” is his view.

Housing supply

The good news for O'Flynn is that Murphy has been tasked with a review of the Rebuilding Ireland housing strategy by September, with the Sunday Times reporting that this was likely focus on how to increase supply.

O'Flynn offers a number of solutions to the crisis. He wants a National Planning Authority to co-ordinate planning permissions and zonings, and a National Infrastructure Body to prioritise funding for key pieces of infrastructure that could open up land for development.

It sounds great in theory. But if the establishment of Irish Water teaches us anything, it is that it is complete folly to expect to be able to set up a new national utility to take on all of the functions of the local authorities in providing water, while also establishing a corporate structure, a new payments framework for customers, an operations division to deal with a national programme of metering, a unit to deal with regulators and stakeholders, and all of the associated administrative tasks across HR, sales and marketing, and communications in a relatively short space of time.

All of that in the face of significant public opposition to the idea of charging for domestic water services in the first place.

Setting up these bodies would require a long lead-in time to hire new staff or to transfer the workers who are carrying out these functions already within local authorities or other State agencies, while also establishing the various corporate structures necessary to make it all hang together.

Dysfunctional Dáil

That’s to say nothing of the legislation that would be required to transfer powers for zoning, planning and finance to the new bodies. The current dysfunctional Dáil has so far been short on actual new legislation.

What if O'Flynn were granted an audience with Murphy and the new Minister for Finance, Paschal Donohoe, and they asked him for one recommendation to help solve the housing crisis?

“Reduce the VAT,” he says, quick as a flash. “I would drop the price of my houses and apartments if the cost of VAT was reduced but the great thing is that it would allow me to bring more housing into the market because there would be more viability.”

The construction sector has lobbied for the current VAT rate of 13.5 per cent to be reduced to 9 per cent, at least until the market normalises.

There was speculation last year that the Government might actually implement this measure but it never materialised. A similar move for the tourism sector worked well in the aftermath of the economic crash, helping to get the sector back on its feet.

Input costs

To O’Flynn, the big issue is supply, and reducing input costs such as VAT are key to tackling this problem.

Developers paying a bit less for their sites would also help. Last week Cairn Homes agreed to buy nearly nine acres of prime development land in Donnybrook from RTÉ for €107.5 million. That was 43 per cent more than the asking price and is a considerable input cost all on its own.

There are other input costs largely within the gift of the building industry itself. I’m currently pricing a renovation project for my house in Dublin. Among other things, the builder quoted €500 for varnishing a banister.

We’re not talking a french polishing job here, just some routine varnishing. When the figure was questioned as part of an exercise to trim the bill, the quantity surveyor just shrugged and said “that’s what it is”. Take it or leave it.

I could go on and on in the same vein, and might well do in a future column, but the point is that the property industry has to take some responsibility for the cost equation, too. Meanwhile, I’m off to buy some varnish and a paint brush.

Twitter: @CiaranHancock1