Housing crisis here to stay in absence of big rethink, industry warns

The housing crisis will be a “permanent issue in Irish society” unless there is a radical rethink on how to deliver more affordable homes, industry body Irish Institutional Property (IIP) has warned.

In a report, the group which represents large property developers warns that the supply of new homes is grossly out-of-kilter with demand and that this mismatch is “intrinsically linked” to affordability.

As many as 47,000 homes will have to be built each year for the next five years just to meet demand, it says, while noting that the Government’s target in Project Ireland 2040 is just 25,000.

It estimates that Dublin alone needs an additional 125,000 apartments to meet demand.

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“The overall need for housing is greater than current levels of output and the targets set in national plans,” the report says.

Fewer units

Supply this year will be significantly less than expected as a result of the coronavirus, 16,000-18,000 units according to the Central Bank.

IIP, which includes Cairn Homes and Ires Reit, says demand is being driven by a combination of factors including natural population growth, net immigration, changes in household size and the obsolescence of existing stock.

“Assuming the economy continues to grow and attract net immigration alongside the natural increase, it is estimated that housing supply will need to grow by 55 per cent or 940,000 units over the next 20 years,” it says.

Development costs are cited as a key factor driving the current undersupply.

In its report, IIP estimates the typical development costs of a number of different housing types, noting delivery costs and affordability vary significantly by location and type.

It puts the cost of a two-bed apartment in a semi-urban area at €455,000, rising to the €615,000 in city centre locations. The cost of a two-bed town house is put at €306,000.

Costs and hurdles

“There is a lot of misleading commentary that discusses the typical development costs associated with a single residential unit,” it says.

“In reality the issue is much more complex as the costs and hurdles associated with development vary hugely across different areas of our cities,” it says.

IIP also insists that land costs, often cited by critics of the State’s housing policy as a key driver of costs, are not a major expense and typically range from 8 to 18 per cent of the total delivery costs.

The report suggests there are certain costs that the private market must pass onto buyers and renters such as land, VAT and levies.

It suggests that these costs could be “subsumed” or “loaned” by the State to bring down the delivery cost of both housing and apartments.

"This policy may require the State to forgo this cost in the short to medium term by way of an equity loan or home equity share arrangement as European Union market rules may not allow them to be forgone totally," it says.