GDP

The Times: “How to lift Ireland’s housing crisis? Aim high with apartments”


Author: GPD Ireland | Date: 09/01/2019


Source: , The Times

 

About five years into a housing crisis, Ireland seems to finally be making some steps in the right direction.

 

The most recent statistics show supply is up sharply, albeit from a low base, and there could be 25,000 housing completions in 2019, a level which is near the estimated annual demand for the state.

But there are still issues, one of the main ones being the lack of new apartments.

 

 

The latest stats from the CSO show that just 644 were completed during the third quarter of 2018. This is not an aberration – apartment building has been consistently low for years, and Ireland’s apartment stock is among the lowest in Europe on a per capita basis.

Many policy experts and analysts agree that Ireland needs to build more high density housing. Many agree that large apartment schemes in urban centres would be a good fit, would help address urban sprawl, and would be an efficient way to tackle the housing supply shortage.

 

Eoghan Murphy, the Housing Minister, himself said earlier this year that Ireland need to build “tens of thousands of apartments” in urban centres if the housing crisis is to be solved.

So – why are we not building them?

 

 

An obvious issue is the cost of development. Research from the Society of Chartered Surveyors Ireland (SCSI) published in October 2017 found that a developer needs to sell medium-rise apartments in Dublin city centre for a minimum of €470,000 for a project to be viable, a price far out of reach for most people.

 

 

The least expensive units, suburban low rise apartments, were found to be viable once sold for just under €300,000. The SCSI said that this would require prospective buyers to have a gross salary of €87,000 a year, but only the top 20 per cent of households in Ireland earn more than €80,000 a year.

 

 

This has been the main issue – due to the cost of building, the cost of an apartment is out of reach for the average household.

If no one can afford to buy the apartments, there is little point in building them, so developers have generally stayed away except in a small number of wealthier areas.

 

 

Since then the government has brought in new standards which means that developers can build less car parking spaces when building apartment blocks, and allows more units to be fit on each floor.

 

 

Paul Mitchell, chairman of the working group that authored the SCSI report, said that while apartments are still expensive to build and sell, the changes have made it feasible to build apartments with the intention of renting them out.

 

 

“Since the regulations came out in March, we’ve seen a phenomenal increase in the number of apartment schemes being brought forward,” he said.

However, a government report found that the number of apartments actually under construction across the country dropped by 25 per cent year-on-year during the third quarter, after the standards changes were announced.

 

 

Ronan Lyons, an economist at Trinity College Dublin, said that the changes to building standards has created uncertainty for developers, and has likely caused many projects to be delayed.

 

 

“If you can go from building six stories to nine stories, it doesn’t make sense to go ahead with six, so you go to nine, but that’s a year and a half in planning wasted,” he said.

 

“It would have been helpful if all these changes were addressed five years ago in one go rather than the drip feed nature of measures which creates uncertainty, and things take a lot longer.”

 

 

While there may be issues around apartment building now, Mr Mitchell said that the standards changes likely will help in future, pointing out that developers applied for permission to build over 3,000 apartments in the third quarter of 2018 compared to less than 1,000 the year before.

 

 

“Fast-forward 24 months, and we will see a significant amount of apartment schemes being delivered. A lot of the schemes being designed are build to rent,” he said.

Mr Mitchell said this is partly because build-to-rent schemes can build even less car parking and add more units, lowering costs.

 

 

“A standard car park can cost €35,000 per space, so you’re saving a significant amount of money per unit,” he said.

 

Investors are clearly interested in the build to rent model, with two international firms, including a Dutch pension fund, announcing within the last few weeks that they are planning significant build-to-rent projects in Ireland involving thousands of homes.

 

But again, the issue of affordability rears its head. In September 2017 Kennedy Wilson launched one of Dublin’s first build to rent schemes at Clancy Quay, located near the Phoenix Park. At launch, the cost of a one-bed apartment was €1,750 a month, while a two-bed apartment ranges between €1,950 and €2,100.

 

 

Again, these are prices which people on average wages would likely find extremely difficult to pay

Mr Mitchell said that while there will be savings for apartments built under the new model, consumers may not see significantly lower prices.

 

 

“[Apartment blocks] have become more viable, but it is still an expensive proposition. Bricks and mortar are only 43 per cent of [total development] costs. Rental is expensive and will suit a certain cohort of people, and there will be a lot of people who won’t be able to afford rental. The answer lies in denser accommodation. Rental will be expensive until supply and demand are more in line.”

 

So as it stands, even with the new regulations, apartments are generally still expensive to build, buy or rent.

 

 

Liam Hetherington, a director at GPD, a relatively small Cork-based builder, said that another issue with apartment building is that it is a big commitment for smaller developers, who make up a significant chunk of the country’s house builders.

Small builders looking to secure funding from banks will often sign contracts with prospective buyers to prove they can sell their development, he said.

 

 

Housing projects can be developed piecemeal – a developer who wants to build 20 houses can first get commitments for 10, get funding for 10 units and build them, and then build the remainder if there is enough demand.

 

But if a developer wants to build a block of 20 apartments, but only gets a commitment from 10 people, the entire project may become unviable as the bank may only advance funding for 10 units.

 

 

“If you’re a small developer, you’ll go for houses (rather than apartments), it’s the safest. You can get planning for 10, sell five in advance, get funding for five and then if you can’t sell the other five, you can just leave it for a while and build again later,” he said.

 

“With apartment blocks you have to complete a whole building in one go, and there are only a handful of larger developers who can afford to do that.”

Mr Mitchell said that there isn’t an issue with developers in Ireland and said that he is seeing plans for “schemes of 500, 800, 1,000 units”.

 

“I don’t think there’s an issue with developer scale of size, because it’s the contractors that build them, developers come up with the idea and get the backing,” he said.

 

 

However, Mr Lyons said that while he was hopeful that the government’s building standards changes will result in a major pick up in apartment supply in the next few years, he is not convinced.

 

“If you got the 10 biggest private developers and five biggest housing bodies in Ireland in a room and said ‘Between the 15 of you, we need to build 30,000 apartments next year, there isn’t a chance they could do it. The country is struggling to build 3,000.

 

“About 8,000 apartments went into planning in the last year or so, which will probably come through in 2020 or 2021. 8,500 is significantly better than the 3,000 or so built in the last year, but it is relatively small compared to the need.”

 

Mr Lyons said that the answer may lie in tempting foreign builders and housing bodies, which have experience building apartments on a grand scale, to Ireland.

 

“Having flexible non-profit housing bodies seems to be by far the most sensible way to go. There are two or three good housing bodies in Ireland, but they are very small, and it couldn’t hurt to bring Danish, or Dutch organisations here. It’s the same in the for-profit sector, we should be making it attractive for Canadian or German builders.

 

Asked what could be done to ensure this happens, Mr Lyons said: “If I was the Housing Minister, that is one of the key questions I should be able to answer. If you say to Canadian developers that we need tens of thousands of apartments and to come over, and they say no, why?

 

 

“It comes back to costs and the planning system. I’m not arguing for some crazy tax break scheme, but there does need to be a review of construction and finance costs as well as profit margins. This is where policy makers need to have the answers.”

 

 

 

Source The Times UK: https://www.thetimes.co.uk/article/how-to-lift-irelands-housing-crisis-aim-high-with-apartments-llmxjf756?_ga=2.136047283.306917620.1547041951-1328306727.1543235726

 

 

 

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