01 July 2016

Irish housing completions remain at critically low levels

house-construction

Latest housing figures from Ireland reveal just 11,000 units will be built in 2016. According to Property Industry Ireland only 2,000 houses commenced in the first quarter of the year, of which 38% were one-offs. Annual housing completions over the past decade as revealed in the Linesight Knowledge Centre show critically low levels of construction since 2010. 

The Economic and Social Research Institute (ESRI) states that Ireland requires 25,000 new housing units each year yet this figure will not be reached for another three years, it says. A new factor threatening a return to sustainable levels is the potential effects of Brexit on the Irish economy. 

The worry for officials is that developers, already hypersensitive about returning to the market, will be scared off causing further rent increases. As Derry Scully, Chairman of Linesight, says:

'Historically residential construction has represented a major component of the overall industry."

This sector of the industry has been slow to recover and there is a very significant pent-up demand building up in the major urban areas which is causing significant increases in rental costs'. Attempts are ongoing by the Irish government to ‘kick-start’ the flagging residential sector, including making a €200m fund available to deliver necessary local infrastructure, which, it is hoped, will unlock building activity. 

A recent Housing & Homelessness Committee suggested lowering the VAT rate on building (from 13.5% to 9%) and introducing a ‘Help to Buy Scheme’. The Government has also promised an ‘Action Plan for Housing’ by the middle of August. 

Even though there is chronic need for new housing, there remains widespread public disenchantment with developers, even though a recent report from the Society of Chartered Surveyors Ireland (SCSI) revealed that actual construction costs accounted for just 45% of the total cost of a house with builders working on a margin of 11%. 

The report entitled ‘The Real Cost of New House Delivery 2016’ found the actual cost of building the house – known as hard costs – came to €150K. Land and acquisition costs of €57,500, (17%) VAT of €39K (12%) and a margin of €38K (11%) make up the main elements of the soft costs which total €180K. 

'The country is experiencing a chronic housing shortage which is contributing significantly to the current homelessness crisis. The findings of this report highlight a number of pressing issues, particularly on the soft cost side. 

We need to kick-start 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,'

 said Michael Mahon from the SCSI. Read more on this in our Knowledge Center.