Land scarcity, planning issues and spiralling costs delay delivery of new homes

A combination of a shortage of residential development land, planning delays and spiralling labour and material costs are hindering the construction sector’s ability to deliver the level of housing required to meet consistently increasing demand.

The results from Knight Frank’s latest annual survey of Ireland’s top residential developers show that the new homes construction industry recovered strongly from last year’s Covid-induced disruption which effectively shut the sector for the first four months of the year. In all, 55 per cent of respondents stated that their development activity in 2021 was stronger than in 2020.

This was also reflected in official data from the Department of Housing as 31,000 units commenced construction in 2021 — the highest number of new housing starts since comparable data were first published. With completions having been effectively static for the past two years (with about 20,000 units being delivered), this higher number of commencements is likely to translate into a welcome increase in supply this year with 25,000-26,000 units expected to be completed in 2022.

Although 56 per cent of respondents believe that their development activity will be stronger again in 2022, our survey highlights a number of critical issues such as the shortage of residential development land, planning delays and spiralling labour and material costs, which raises questions about the industry’s ability to deliver sustained improvements in the number of completions over the medium term.

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Tight supply

Firstly, while the appetite for acquiring development land remains strong among our respondents, with 73 per cent intending on adding to their land bank in 2022, opportunities are scarce. Eighty-four per cent of respondents find that the supply of residential development land is tight.

Secondly, the planning system, in particular the length of time required to obtain permission, is a significant concern for developers. To illustrate this, 40 per cent of respondents report setting aside 11-15 months to receive a grant of planning permission from a local authority, while a further 42 per cent are setting aside more than 16 months. Additionally, 61 per cent of respondents report setting aside up to 12 months in the event that their planning application is subject to appeal or judicial review, while 39 per cent are setting aside more than 12 months.

Thirdly, rising workloads following the Covid-19 pandemic are putting a strain on the supply of labour and materials, which have been disrupted by Brexit, Covid-19 and the war in Ukraine. This has resulted in price increases intensifying during the past 12 months, with respondents stating that the cost of labour and materials has on average risen by 15 per cent and 24 per cent respectively during this period.

Developers are unanimous in their view that the scale of these cost increases is impacting the pricing and completion timelines for current projects as well as the viability of future projects.

Finally, but related to the previous finding, there are now growing concerns among developers that rising build-cost inflation will impact their ability to secure development finance, with the uncertainty around costs adding a layer of caution from lenders. In all, 42 per cent of respondents believe that the environment for raising development finance has become more difficult during the past 12 months.

In conclusion, the issues raised by the Knight Frank research inject considerable uncertainty into the debate as to whether the construction industry, having recovered well from the impact of the Covid-19 pandemic, can forge ahead and deliver the sustained improvements in completions that are required to reach the target of delivering 35,000 units per annum — which is the minimum number of units required to meet demand. It is in this context that there needs to be sustained action from government to work with the construction sector on these issues, in particular planning and the cost of materials and labour if we are to ever get a handle on the housing crisis.

Robert O’Connor is senior research analyst with Knight Frank Ireland