The Irish Times view on the cost of housing: putting homes out of reach
The speculative market for land in the Republic incentivises landowners to drip feed it into the market on a cyclical basis to exact the best price
File photo dated 22/01/08 of houses as more than a million struggling British families are spending at least a third of their income on housing costs, a think-tank has revealed today. PRESS ASSOCIATION Photo. Issue date: Thursday May 16, 2013. Work by the Resolution Foundation shows 1.3 million households on low to middle incomes are spending more than they can reasonably afford on mortgage payments, rent and maintenance costs - forgoing other essentials such as food to pay their bills. See PA story MONEY Housing. Photo credit should read: Rui Vieira/PA Wire
The cost of building a three-bed semi-detached home in Dublin has increased by €41,000 over the last four years and now stands at €371,000, according to a report published last week by Society of Chartered Surveyors Ireland (SCSI), effectively the voice of the construction industry. The €371,000 figure is 7.5 times the average annual full-time income (€49,000) in the Republic, a ratio that illustrates just how unaffordable housing here – even for people on good salaries – has become.
The SCSI’s report indicates that a two-income family earning €88,000 per annum with a deposit of €38,000, would only qualify for a mortgage, under the current Central Bank rules, of €308,000, leaving them with a significant shortfall. And that’s presuming the properties in question come onto the market for €371,000. The report makes clear that the private sector can’t build homes at affordable rates and that the cost of construction is now terminally out of kilter with wages. And it’s questionable whether a big jump in supply – long seen as the solution – is going to square the circle. Equally Government initiatives aimed at bridging the affordability gap such as Help to Buyreinforce prevailing market prices, and may even be inflationary.
The elephant in the room is land. The report suggests that the “soft costs” of construction – land, development levies, professional fees, VAT and developers’ margin – account for 52 per ent of the €371,000 figure. And that land accounted for the single largest component at €61,000. The speculative market for land in the Republic incentivises landowners to drip feed it into the market on a cyclical basis to exact the best price. This is what drives construction costs and fuels prices.
The SCSI’s report notes 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”. The Government, it says, should begin a large-scale public-sector house building programme via local authorities.