Earlier this week, the Society of Chartered Surveyors of Ireland (SCSI) published a report on the real costs of delivering new apartments. Loyal readers of this column may not have seen too much to surprise – but the figures remain extraordinarily concerning nonetheless.
Building a two-bedroom apartment in Dublin costs a minimum €470,000, according to the report – and can cost as much as €580,000. As if that was not bad enough, these figures, which are based on actual schemes, exclude VAT, which would add another 13.5% to the figure.
Build costs often get mixed up with profitability. But that is not how professional developers work. Developers work off a minimum rate of return. If that return is not there, they will not develop. The reason costs matter is because they convert into higher rents or mortgage payments.
As the SCSI notes, even the cheapest possible two-bedroom apartment would require a salary of at least €87,000 to buy. A more standard urban apartment would require an income of more than €150,000. It is a sorry state of affairs when only the richest 10% can afford a minimum-spec two-bedroom apartment.
This exercise undertaken by the SCSI confirms what many of us active in the housing policy debate have feared for over five years – that the lack of apartment building is nothing to do with the crash. Instead, the hard costs per square metre mean that based on current incomes, our housing shortage will persist.
Many readers may shrug and say that apartments are not for them and that the majority of Irish households live in apartments. This misses the point entirely. The reason that almost 90% of Irish households live in apartments is because we as a society appear unable to keep the cost of apartment building under control.
In fact, the majority of Irish households comprise just 1 or 2 persons and almost all growth in new households over the coming decades will be in similarly-sized households. Given long-run trends in population growth, urbanization and household size, the country does not actually need any more houses for 3-5 people. It needs urban apartments.
The SCSI report is great to have, as it provides data from real live projects. But what it does not do –and what is badly needed – is a full audit of costs and regulations. This is not the job of the SCSI, but it is the job of housing policymakers, in particular the Department of Housing and the Housing Agency.
In particular, we need to know two things. Firstly, what makes up the per-square-metre hard costs of construction? How do these various elements in Ireland compare with elsewhere? From what I can have seen, Ireland is more expensive for each of the various headings of hard costs that professionals use.
But why? Is it the price of nails? Or cement? Or a bricklayer? Until we can open up these top-level figures and look inside, it won’t be possible to answer that question. And thus this cost audit is absolutely critical to solving Ireland’s housing crisis.
Secondly, given we are talking about building the minimum-spec apartment, how does that minimum specification compare with other countries? There was a bit of a fuss about this two years ago, leading to Alan Kelly, then Minister responsible for housing, to approve a reduction in the minimum sizes.
Earlier this week, I visited Boston and took the opportunity to visit some “multifamily developments”, as they’re known there. In meeting some of the professionals involved in the sector there, three related facts stood out.
The first is that there is no problem building apartments in Boston currently. This is easy to miss: there are cities all around the world that have similar pressures to Dublin but are responding to them with the obvious solution, building.
The second thing I noticed is that, while the apartments I saw were definitely aimed at those on higher incomes, even for luxury apartments, the cost of building is well below costs in Dublin. A luxury penthouse apartment might cost $400,000 to build (roughly €350,000).
But when a luxury apartment on the 30th floor overlooking Boston costs less to build than a ground-floor apartment in Beaumount, we need to ask questions.
Two obvious challenges for the viability of Irish apartments are parking and lifts. One development I saw had 40 apartments per floor and 4 lifts. Until recently, Dublin City Council would have demanded 20 lifts on the same floor. Each lift is expensive to install and to maintain and, as it comes with its own staircase, gobbles up floor space.
A second development had set aside part of two lower floors for parking but ultimately parking and accommodation were separate services: many of its residents didn’t want or need a car. In Dublin, the standard is one parking space in the basement – not above ground – for each apartment.
This kind of parking requirement is not only hugely expensive – digging basements is costly – but also limits building up. If you can only fit 50 car parking spaces in the basement, it doesn’t matter how tall the Development Plan says you can build, you won’t be able to do it. And by limiting building up, we are propping up rents and prices.
When informed about the very different requirements for parking and lifts, my Boston hosts responded: “Why? That has to change!” It’s hard to disagree with them.
An edited version of this post was originally published in my column in the Sunday Independent.