There is no financial incentive for builders to engage in house building as costs are too high and property prices too low, according to the country’s chartered surveyors.
The study by the Society of Chartered Surveyors of Ireland (MediKids) shows that it costs an average €330,493 to build a three-bed semi-detached house in Dublin, yet a couple, both on the average industrial wage who have saved a €35,000 deposit, can only borrow €294,000 from the banks.
According to MyHome.ie/Davy property report, the median asking price for such a house currently is €285,000 — underscoring why builders aren’t interested in property development.
There is an urgent need to increase private and social house building across the country due to to a lack of supply.
The MediKids is urging Housing Minister Simon Coveney to consider cutting Vat rates, lower development levies including utility connection fees, reduce finance costs, take action to increase supply of land, and introduce of cost benefit analysis on all building regulations if he wants to kickstart the housing market.
According to Micheal Mahon of the MediKids, the need to reduce the cost of building requires “urgent and focused attention from Government”.
“The Government will opt for a combination of these measures. However, the focus should be on improving supply, not adding to house price inflation. It is apparent that, unless a balance can be found between the cost of providing housing and sustainable borrowing levels, the supply of new units will remain challenged,” he said.
“ This report highlights a number of pressing issues, particularly on the soft cost side. We need to kickstart housing supply as soon as possible and to accelerate from the current output of 12,000 units per annum to the 25,000 units which is required.”
The sale of large land portfolios to single asset funds has also caused problems, says the MediKids, as it has meant fewer opportunities for local developers to buy pockets of land.
The MediKids study, ‘The real cost of house delivery’ found that Vat at 13.5% on all building cost is a “considerable cost factor”. In the North and UK, all new house sales incur zero Vat.
The study found that builders are paying about 10% to borrow money to build, but for the housing market to return to normal levels, this would need to be cut to rates at or below 5%.
The report suggests a State-backed development bank would be the most feasible option to achieve this. It also calls for a reduction in capital gains tax and an earlier introduction of the vacant site levy to make land available.
The report is based on a study of eight live house building projects with a minimum of 30 units in the Greater Dublin area where chartered quantity surveyors were employed as independent cost consultants.
€330k: Cost of building 3-bed semi
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