Total costs of delivery have fallen for some apartment types in Dublin but affordability remains a huge challenge

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Total costs of delivery have fallen for some apartment types in Dublin but affordability remains a huge challenge

Society of Chartered Surveyors Ireland report “The Real Costs of New Apartment Delivery 2020” – While total development costs have fallen for some apartment types in the Greater Dublin Area and viability has improved significantly, affordability remains a huge challenge.

Main Findings:

  • Total development costs of delivering medium-rise apartments in Dublin city and suburbs have fallen by between 2% and 9% since 2017
  • The total development costs of medium rise apartments now ranges from €411K to €619K including VAT
  • Cost savings are largely due to the introduction of new apartment design guidelines in 2018
  • New locations of developments in 2020 report are reflected in lower site costs than those in 2017
  • Affordability remains a critical issue - lowest priced, low rise suburban apartments requires income of at least €98K
  • Construction costs or ‘hard costs’ of medium rise blocks now make up 47% of total costs, up from 43% since 2017, while soft costs make up 42% and land 11%
  • Total development costs of developing low rise apartments in Dublin suburbs ranges from €359K to €413K – an increase of 8% and 7% respectively
  • While only one low rise apartment type was viable in 2017, this has now risen to two, with two other types are very close, including medium rise in the suburbs
  • Report shows Build to Rent is viable in locations that Build to Sell is not
  • Surveyors call for more targeted supports for buyers struggling to get on property ladder and say delays in the planning process and by Irish Water as well as court actions are adding to costs

A major new report has found that the total development costs of delivering medium rise apartments in the Greater Dublin Area (GDA) have fallen by between 2% and 9% over the past three years while the viability of this type of apartment has improved significantly over the same period.

However, the report also found that affordability remains a critical issue and that a first-time buying couple would require a deposit of €38K and a joint income of €98K to purchase the lowest price apartment type.

The Real Costs of New Apartment Delivery 2020’, which is published by the Society of Chartered Surveyors Ireland, found that the all-in cost of delivering medium rise (5-8 storey) two-bedroom apartments in the GDA ranged from €411K for a low spec unit in the suburbs to €619K for a high spec one medium rise (9-15 storeys) in the city.

The latest report is based on data covering almost 10,000 apartments in four different categories in 49 schemes. A low spec and high spec version is included for each category. Last July the SCSI’s ‘Real Cost of New Housing Delivery’ found the cost of delivering a 3-bed semi in the Dublin area was €371K.

Breakdown of Costs

The Real Costs of New Apartment Delivery 2020’ also found that the actual cost of building a medium rise apartment – known as hard costs – made up 47% or less than half of the overall costs. This is up from 43% in 2017.

Soft costs’ such as VAT, levies, margins and fees make up 42% of the total costs of a medium rise apartment, while site costs accounted for 11% of the total, a fall of 5% on 2017.

The biggest increases in hard costs between 2017 and 2020 were recorded for low rise suburban apartments, +15% and +13% respectively and for high spec suburban medium rise units, +14%. Hard costs for the other three apartment types were -1% for low spec suburban medium rise and 0% and +3% for low and high spec urban medium rise.

Paul Mitchell, Chair of the SCSI working group that authored the report, said the reduction in costs and improved viability were positive signs but he said the Build to Sell model still faced serious challenges.

We can really see the impact of the Department of Housing Guidelines from 2018 on apartments coming through in these figures, especially the reduction in carparking requirements. Those reductions, together with different site costs, bigger schemes and more efficient design have all helped to offset tender price inflation and regulatory cost increases”.

The Guidelines have also had a positive impact on supply – reflected in a substantial increase in the number of planning applications and approvals for apartments - and helped overall viability. When we published our first apartment report in 2017 only the low rise, low spec unit in the suburbs was viable, now we have two apartment types viable, with another two very close - including medium rise in the suburbs.”

In this report, we have included a new category for 9-15 storeys, which shows schemes are increasing in height. However, it is important to reiterate, that contrary to popular belief, building costs increase rather than decrease when building higher and become much more pronounced after 15 storeys / 50m. As such high rise is not typically used for affordable solutions.”

Build to Rent v Build to Sell

The report compared the viability of the traditional Build to Sell (BTS) model with Build to Rent (BTR) which was introduced by the Department of Housing in 2016 and updated in 2018. There are less restrictions on BTR schemes relating to the apartment mix, car parking and size.

Mitchell said the pension funds and other investment funds which purchased these schemes had made a major contribution to apartment supply.

Our report shows that when you compare BTS to BTR, the latter is viable because the funds which buy them can take a long-term view of the asset. While viability has improved for BTS since 2017, it is still difficult unless they are built in more expensive areas where higher sales prices are achievable. In a direct comparison 3 sub-categories of BTR apartments are viable while only 1BTS is. It is not surprising therefore that 76% of the units analysed are for rental rather than sale.”

Affordability

According to the report the sales price of the two-bed apartments reviewed ranges from €375K for a low-rise, low spec unit in the suburbs to €569K for a medium rise (9-15 storeys) high spec apartment in the city. Based on the Central Bank lending rules of a Loan to Value of 90% and Loan to Income cap of 3.5 times salary, a first-time buyer couple would require a deposit ranging from €38K to €57K and a combined salary range of €96K to €146K to afford these.

However, a couple both earning €44K and with a combined salary of €88K and a deposit of €37,500 would not be able to meet the mortgage requirements of the lowest priced apartment, the low-rise suburban unit priced at €375K. (See Table 1 Affordability Scenarios in Note to Editor).

According to the CSO just 20% of all households have earnings over €80K with just 14% earning more than €100K.

The President of the SCSI, Micheál Mahon said while there was no one solution to the affordability issue, the Government needed to accelerate the roll out of a range of targeted supports to people struggling to get on the property ladder.

“The early indications from our analysis is that cost rental is an effective model and can serve a proportion of overall housing needs. The recent announcement of the introduction of a shared equity scheme is a positive move but a more generous version of the scheme with a longer-term payback of the equity loan should be considered for apartment owner/occupiers.”

“We are also calling for a long-term strategy to be adopted for the Help to Buy scheme with inbuilt targets so that consumers and developers have a clear view of the timeline of the scheme and can plan accordingly. The Government should also consider additional supports within the scheme for those seeking to purchase apartments in urban centres.”
Increasing Supply and Overcoming Delays

Mr Mahon said it was clear that BTS and social housing alone would not meet the target of 35,000 units which we require each year.

“There has been much debate recently in relation to the delivery of accommodation and in particular whether it should be delivered by the public sector or the private sector. It is quite clear that the only route to achieving the delivery numbers we require is for both to increase output without delay. We have consistently advocated a major public sector housebuilding programme - which includes apartment development - in conjunction with private sector delivery, whether it be through traditional private sector development, or indeed, in collaboration with the public sector.”

With our population forecast to increase by 600,000 over the next ten years he said all accommodation types had a role and needed to be considered as part of a sustainable solution.

“We have a shortage of serviced land for apartment and housing development, so we need to pre-fund site infrastructure to enable sustainable residential development. When considering local area plans, we need to carry out financial viability tests prior to implementation to ensure units can be delivered, especially where increased density is envisaged. We also believe the LDA should use its CPO powers as required in its management of state lands”

Mr Mahon said that driving efficiencies within the construction process could deliver much-needed cost savings. He also highlighted a number of bottlenecks in the system which needed to be addressed.

“It takes 14-18 months to get a 100-unit scheme to planning which adds significant holding costs. Planning reform and additional resources are urgently required. Judicial reviews can add further delays – sometimes over, apparently, relatively minor administrative errors - and we need to examine the legal threshold for allowing reviews. Delays by utility companies, especially Irish Water, are also proving extremely costly and need to be addressed. As this report shows, apartment construction is a costly business. Delays and inefficiencies all add to the bottom line, making it more expensive still.”

‘The Real Costs of New Apartment Delivery 2020’ is available at www.scsi.ie.

Article Published: 26/01/2021