What are the supply side issues?

Muahahaha

A quote from an Indo article today on supply of houses

And there are very few new builds. Just 8,000 residential constructions were begun last year. We need many thousands more than that.
Builders say high taxes and levies make it uneconomic to build. Property prices are still 35pc to 40pc below the peak attained in 2006.

As usual the Indo takes the line that property prices like we had in 2006 where people were borrowing up to 10 times their salary is a good thing. But that aside why is it we're being told that we have to get back to 2006 price levels so builders can make a profit? Are we now supposed to believe that when builders were building in the 2000-2005 period they making a loss?

So what has changed between then and now that is stalling the supply side? Levies by councils have always existed but did they go up so much during the boom that they now make houses unaffordable in the crash? We are all paying the Local Property Tax now which is ring fenced for the councils, I had thought the idea of this was to broaden the tax base and get away from being over reliant on stamp duty derived from selling houses to each other?

What about the actual cost of building matierals? Does anyone know have these risen substantially in the last 10 years?

I often keep an eye on the self build forum here and posters there usually report a build cost of circa €1200 per square metre. If self builders can bring it in at that price surely a developer with economies of scale could do it cheaper?

4ensic15

Pre 2007 there was credit at almost every stage of the build process for a developer. the architect was only paid when the development sold, likewise the solicitor, the builders provider and often many of the sub-contractors.
the current situation is that everyone wants to be paid as they go along. This adds massively to the cost of the build of itself. Compliance costs are now much higher with certification at every stage. Bank credit is much tighter than in the boom years and much more expensive.
Building on a pay as you go basis is far more expensive than pay when you are done.

godtabh

4ensic15 wrote: »

Pre 2007 there was credit at almost every stage of the build process for a developer. the architect was only paid when the development sold, likewise the solicitor, the builders provider and often many of the sub-contractors.
the current situation is that everyone wants to be paid as they go along. This adds massively to the cost of the build of itself. Compliance costs are now much higher with certification at every stage. Bank credit is much tighter than in the boom years and much more expensive.
Building on a pay as you go basis is far more expensive than pay when you are done.

An architect was never paid at the end of the job. They were paid through out the project with a higher proportion at the start.

Planing is one of the biggest issues for developers. Some LA are pro development some arent. I've been working on a site in Meath that has full planning permission for 200 apartments. The developer wants to build the exact same development but with houses. It has been refused by the LA and will probably go to ABP.

D_D

You also have the fact that building standards have also greatly improved since the days of 2000-2005 (and rightly so). To build a house today is more costly to build a house 10 years ago. Although, if Alan Kelly remained in power, there were talks of relaxing these new building standards so that constructing houses could be made cheaper. That, I hope, is not seen as a solution to this current crisis by any new government...

Sleepy

• Sites bought at ludicrous boom-time prices that no one has ever been forced to crystallise their losses on (and no government have thought to tax unused land banks).
• Inflated profit expectations - Tom Parland quoted 15% as the margin builders expected to make. Economically that's a Supernormal Profit and, as such, can never be sustained.
• High wage expectations set during the boom when unskilled labourers were out-earning college graduates.
• Higher building regulations.
• Stupid insistence that no-one can build higher than the union's eyesore on the Quays in Dublin. Our cities need to go high-rise.

Personally, I could stomach the government offering lower rates on VAT on building costs (similar to the concession granted to the hospitality industry) to promote development as long as they came hand-in-glove with punitive "use it or lose it" taxation on un(der)developed land but I'll be pretty upset if they're just handed such concessions to off-set their losses on the stupid prices they paid for land or in order to help them maintain insane profit levels.

seamus

One of the big issues with supply is that it's basically not as simple as turning on a tap. Building takes a long time; from the initial inception to drawing up plans, planning permission, lining up your contractors, and starting construction; having the first finished houses appearing can easily be 18-30 months.

It was really mid-2014 before banks started opening up finance and builders started seriously looking at developing big estates again.

Demand ratchets up far faster than that because people are very flexible, so the demand was already there in mid-2014 before anyone took it seriously.

Supply will begin to improve this year, we'll start seeing big numbers of completions in Dublin. Everyone's still a bit tentative after being so badly burned last time, so it hopefully won't result in the 60,000+ completions we were seeing in 2006/2007.

riclad

Property prices are still 35pc to 40pc below the peak attained in 2006.

when we were in a boom,
based on ever rising prices ,
And reckless lending based on bank bonus culture and regulators
who were not doing their job or were incompetent .
Are they saying prices are too low,
eg a house in cavan should be worth 150k instead of 75k,
an ordinary apartment in santry should be 200k,
instead of 120k .
Prices now are based in reality and proper rules and regulation,
eg you save a deposit ,
You can borrow 3-4 times your income.
one example ,builders bought sites for millions ,
nothing to do realistic profit projections.
are we supposed to go back to the crazy days of the boom,
so builders can get rich ,

I would say house prices are roughly at their real value ,
looking back to the boom when any house was worth at least 100k
makes no economic sense.

Builders may have a point in that 30- 40 per cent of the cost of a house is made up in taxes .

they may as well say was it great when you could go into town go for a meal
and a film and still have change out of a tenner .
Maybe some investors are annoyed cos they paid millions
for a small site in 2004 and now its not worth while building houses on it,
as the profit is too small .

At least we are better than the uk,
in the uk, david cameron says 130 sterling is an affordable house .

athtrasna

riclad wrote: »

Property prices are still 35pc to 40pc below the peak attained in 2006.

when we were in a boom,
based on ever rising prices ,
And reckless lending based on bank bonus culture and regulators
who were not doing their job or were incompetent .
Are they saying prices are too low,
eg a house in cavan should be worth 150k instead of 75k,
an ordinary apartment in santry should be 200k,
instead of 120k .
Prices now are based in reality and proper rules and regulation,
eg you save a deposit ,
You can borrow 3-4 times your income.
one example ,builders bought sites for millions ,
nothing to do realistic profit projections.
are we supposed to go back to the crazy days of the boom,
so builders can get rich ,

I would say house prices are roughly at their real value ,
looking back to the boom when any house was worth at least 100k
makes no economic sense.

Builders may have a point in that 30- 40 per cent of the cost of a house is made up in taxes .

they may as well say was it great when you could go into town go for a meal
and a film and still have change out of a tenner .
Maybe some investors are annoyed cos they paid millions
for a small site in 2004 and now its not worth while building houses on it,
as the profit is too small .

At least we are better than the uk,
in the uk, david cameron says 130 sterling is an affordable house .

And this has what to do with the thread topic?

Gandalph

Muahahaha wrote: »

I often keep an eye on the self build forum here and posters there usually report a build cost of circa €1200 per square metre. If self builders can bring it in at that price surely a developer with economies of scale could do it cheaper?

Maybe just for raw materials. The larger schemes incur a lot more fees, depending on spec it can range anywhere from 1500-2000. A lot of developers I believe are trying to capitalise on this shortage but the time frame between application and commencement is massive. It is not worthwhile for them to buy sites that already have planning granted because it is already factored in on the price and unless they have really cheap builds costs it just doesn't work out.

The majority of buyers in the market are FDIs that do not have cheap build costs as they tend to use big international and reputable construction companies so they apply a buy and hold tactic until some magical upturn in the market peeks it head out.

Ray Palmer

I think people over estimate the height issue as it really only applies to the city centre but there isn't many plots you could build up within the canals. Then the suggestion is can you suddenly build huge towers in the middle of the existing suburbs? Again not really many plots that large to accommodate massively tall tower and reasonably consider the neighbourhood. It wouldn't really add massive amounts of property.

beauf

Muahahaha wrote: »

...As usual the Indo takes the line that property prices like we had in 2006 where people were borrowing up to 10 times their salary is a good thing. But that aside why is it we're being told that we have to get back to 2006 price levels so builders can make a profit? Are we now supposed to believe that when builders were building in the 2000-2005 period they making a loss? ..

I think you also have to look at how affordable rent/mortgage is in relation to salaries. Big disparity there. Especially when you consider all the rises in the cost of living and taxes.

The other worry here is the rush to build houses and focus on the cost to build for the building industry, and the lack of building standards, enforcement. Means its very likely we will (again) see very poor quality property being built. We will also see shoeboxes being built that are not suitable in the longterm.

Muahahaha

All the posts give good reasons for sure. But I still don't get how at 35% below peak 2006/7 levels it is unprofitable to build at a time when demand is pent up. Are we really supposed to get back to 2006/7 prices where a 2 bed apartment in Dublin city centre was fetching €500,000. Surely this is just back to bubble territory all over again?

And if developers are landbanking surely a tax on undeveloped land that is zoned residential should be in order?

The_Conductor

The single biggest issue on the supply side- is lack for finance for builders/developers. AIB and BOI- are now typically charging between 12 and 15% on loans to builders- which is significantly higher than even the rates charged to private individuals on unsecured loans.

There are plenty of serviced sites even in the Dublin area- many ready to go- but finance, or lack thereof, is the key............

As to the suggestions (above) that losses on development land bought and sold during the boom haven't been crystalised- that simply is not true. There are a few really nice developments coming on stream at the moment- one in Stepaside, another at Laraghcon in Lucan- both of which paid over 24m for access to the road network, water and sewage- a cost which their gross realizable value is never going to repay.

Working capital is the predominant supply side constraint (wholly independent of a massive hemorrhage of the various construction skillsets- and indeed, irrational wage levels in the industry which were never addressed in a sustainable manner).

quadrifoglio verde

A rated houses aren't cheap to build

Is a builder even allowed build c rated houses anymore?
Every new development seems to be a3 rates at a minimum

As for capital, while I agree access is tough, there seems to be no problem getting finance for office buildings

beauf

That depends if they are actually built to the standard they claim to be.

Eric Cartman

quadrifoglio verde wrote: »

A rated houses aren't cheap to build

Is a builder even allowed build c rated houses anymore?
Every new development seems to be a3 rates at a minimum

As for capital, while I agree access is tough, there seems to be no problem getting finance for office buildings

once you go to 2500sq ft + you'd find some stuff can't but meet c' ratings. The problem is that the public have basically been told that the BER is an infallible guide to how much your house is going to cost to heat. In 5 bedroom / dream home / leafy south dublin million quid land that makes no odds to the sale. But in apartments, 3 bed semi and duplex land, the allure of "free" heating and hot water holds up. building houses of that size that aren't A rated would be a serious mistake when it comes time to sell them.

quadrifoglio verde

Eric Cartman wrote: »

once you go to 2500sq ft + you'd find some stuff can't but meet c' ratings. The problem is that the public have basically been told that the BER is an infallible guide to how much your house is going to cost to heat. In 5 bedroom / dream home / leafy south dublin million quid land that makes no odds to the sale. But in apartments, 3 bed semi and duplex land, the allure of "free" heating and hot water holds up. building houses of that size that aren't A rated would be a serious mistake when it comes time to sell them.

Even if they were significantly cheaper? I'm not upto speeds on Costs of building an A rated houses, but triple glazing, tonnes of insulation, solar heating and heat recovery systems aren't exactly cheap are they?

Or is it your typical Irish person who overlooks the 2K 750 because it has higher tax for the 40K 5 series with its chape tax?

Eric Cartman

quadrifoglio verde wrote: »

Even if they were significantly cheaper? I'm not upto speeds on Costs of building an A rated houses, but triple glazing, tonnes of insulation, solar heating and heat recovery systems aren't exactly cheap are they?

Or is it your typical Irish person who overlooks the 2K 750 because it has higher tax for the 40K 5 series with its chape tax?

bingo. Basically moving the cost of heating your house into the mortgage and paying for it over 30 years.

OfflerCrocGod

Eric Cartman wrote: »

bingo. Basically moving the cost of heating your house into the mortgage and paying for it over 30 years.

Maybe. I'd say people prefer the higher comfort too. I'm in a D rated house atm and it's horrid during winter, I really don't want to take a step down and I most definitively would prefer a B+.

Cuddlesworth

OfflerCrocGod wrote: »

Maybe. I'd say people prefer the higher comfort too. I'm in a D rated house atm and it's horrid during winter, I really don't want to take a step down and I most definitively would prefer a B+.

Word of advise. There are reasonable ways to invest in a D rated house which would lead to a comfortable environment without requiring a A rating.

quadrifoglio verde

Is this correct?
Average cost to build a 2 bed apartment is 280K
http://www.independent.ie/life/home-garden/homes/cost-of-building-homes-needs-to-come-down-34533784.html

Holy ****

Sleepy

quadrifoglio verde wrote: »

Is this correct?
Average cost to build a 2 bed apartment is 280K
http://www.independent.ie/life/home-garden/homes/cost-of-building-homes-needs-to-come-down-34533784.html

Holy ****

And that's *excluding* land price at a profit margin of 12.5%

Would love to see a breakdown of those figures!

Cuddlesworth

Sleepy wrote: »

And that's *excluding* land price at a profit margin of 12.5%

Would love to see a breakdown of those figures!

You won't because he doesn't have them. I really struggle to see where you get those figures outside of land cost.

quadrifoglio verde

Cuddlesworth wrote: »

You won't because he doesn't have them. I really struggle to see where you get those figures outside of land cost.

That's my thinking as well.
However it's Ronan Lyon's, he is quite well regarded for his property research so I'd like to think he's right

Might bang of an email to him on my tcd email address.
Pretend I'm a student there still :pac:

powerstar

quadrifoglio verde wrote: »

Is this correct?
Average cost to build a 2 bed apartment is 280K
http://www.independent.ie/life/home-garden/homes/cost-of-building-homes-needs-to-come-down-34533784.html

Holy ****

I think that's a lot for 2 bed apartment.

Muahahaha

I remember a developer last year came out and said a 2 bed apartment in Greystones would attract €55,000 of fees to the council. He never said what he could build one for though.

€280,000 for a 2 bed does sound excessive, if it was 70sqm it would work out at €4000 a square metre which seems insane. Would like to see a breakdown of Lyons figures too

quadrifoglio verde

After a bit of digging, I've came across a good breakdown here
http://www.bregsforum.com/2015/01/27/developer-led-sales-price-for-a-typical-apartment/

It gives the breakdown of price before land costs and part v levies (10%) at 278000 for your typical 2 bedroom apartment.

While the size of the apartment used in this example is bigger than the minimum standard of 73 sq. metres, that size apartment aparently can't legally be built. The vice president of the RIAI says in this article that the minimum possible size under the new regs is 80 sq. metres but even that would be difficult.
http://www.irishtimes.com/news/environment/kelly-s-smaller-apartment-sizes-cannot-be-built-says-riai-1.2508780

A size of 85 sq metre isn't too bad as an example then.

Likewise the developer net profit of 20% is high, but even if this was reduced down to a small 10% (at which point even if they could build, they wouldn't) the net cost works out at around 257K before land costs and part V levies.

Even if we were to go one step forward and nationalise all the developers (shudder), the cost to build works out at 236K euro. As it is now state owned, Id hope to christ there would be no part V, and lets pretend the land is free (as I'd already calculated it for that and my brain is a bit fizzled at this hour).
Under this scenario, a married couple would need a deposit of 25200 euro and a combined gross income of 60200 euro per year to buy our 2 bedroom apartment, that your typical irish person doesn't want to live in anyway.
However with the cost of renting a modest 1 bed shoebox in D8 at 1100 per month (daft q3 2015) it is going to take our married couple around 2 years to get that deposit together.

Suddenly that 800 sq foot ex council house for 180k in clondalkin, with a garden should our couple pop a child out becomes attractive


Are we about to see the gentrification of traditional working class areas where the cost to buy is far cheaper than the cost to build?


For those wondering, Ive emailed Ronan Lyons asking for his breakdown of costs. If he replies I shall let you know (once he's happy for me to post up the details). Im not confident of him replying but it is worth a shot

Muahahaha

Property developer on Claire Byrne said earlier that you can't find finance unless you can show a 15% profit.

I think the suggestion of reducing VAT on building matierals has merit. We could also do with taking a look at council levies, they still seem at Celtic Tiger levels despite the local property tax supposed to be funding them.

Victor

Muahahaha wrote: »

I think the suggestion of reducing VAT on building matierals has merit.

That only reduces prices for non-VAT registered entities like self-builders and scam artists. If you wanted to reduce costs, then reduce the VAT element on overall construction, not materials. However, realise that just reduces cost to the builder / developer, not the price paid by the buyer, which is more strongly linked to purchasing power.

We could also do with taking a look at council levies, they still seem at Celtic Tiger levels despite the local property tax supposed to be funding them.

They tend to fund different things. A large chunk of levies funds things that facilitate specific development as opposed to the wider community.

quadrifoglio verde

So Ronan Lyon's has got back to me and below is the email which I received. He is happy for me to post this as well



Hi qv,
Thanks for getting in touch and delighted to see that it's generating a discussion! A lot of the incredulity about the cost of building apartments stems from people's experience building houses, which is a slightly different kettle of fish, as you don't have basement car parking, lifts, etc. I am not aware of anyone familiar with apartment building who believes that hard costs of construction are less than €1,750 per sqm and you often hear of figures closer to €2,000 per sqm. (Again, without official figures, we can only go by people's own assessments of tenders and trends in tenders.)

On top of these hard costs, you have to add VAT, local authority levies, the cost of financing the construction, professional's fees and the developer's margin. So for every €1 in hard costs, there is probably about 75c in "soft" costs. Obviously in the real world, you also have to add stamp duty, the purchase and finance cost of land, etc.

It's my belief - although I'm happy to corrected once we get good enough evidence on this - that the ratio of hard to soft costs is not out of line in Ireland compared to other countries. Instead, what is out of line is the level of hard costs. This seems to stem from a hotch potch of poorly thought out regulations, including the BCAR issue you talked about, which leads to what are known as very defensive specifications, but also things like basement car parking spaces and lifts, which are expensive to build (and in the case of lifts very expensive to maintain).

Anyway, as I mentioned in the article, I'm trying to coax officialdom to take ownership of what is an incredibly important set of figures. Hopefully that will happen this year. I happen to agree that a family of two adults and two children will find an 85-sqm apartment tight - but if they can't even afford that, what hope is there of affording a 100-sqm three-bedroom apartment? (Therefore, I agree that unless action is taken fast, this will get a lot worse before it gets any better.)

Hope that helps,
Ronan.

dubrov

That estimate just doesn't make any sense to me.

Sure apartments have some extra costs like underground car parks/lifts but these are more than offset by the savings in the build cost versus a house (shared foundations/walls etc.).

What I don't understand is how can a self-build of a detached house more than twice the size cost less than a 2 bed apartment built as part of a large block of apartments?

As I understand both would have similar legal/professional fee/VAT costs but the builder should be able to pay much less due to economy of scale.
Are there extra fees levied on builders that don't apply to self-builds?

Here is an example of a new build semi-detached house for €275k in Dublin with BER A3.
http://www.myhome.ie/residential/brochure/3-bedroom-homes-belltree-clongriffin-dublin-13/3340373

The decision for this build was probably over 12 months ago and property is probably up at least 10% since then.
Assuming this semi-detached house would cost considerably more to build than the mentioned 2-bed, this builder made a massive loss even with the 10% rise in prices. It just doesn't make any sense as to why he would start the build in the first place.

I suspect the build estimate of 280k came from the construction industry who have a vested interest in over stating build costs with the aim of encouraging the government to reduce taxes.