Government to pay developers €144,000 to build private apartments!

Brendan Burgess

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This was announced last week, but I missed it. I am surprised that there wasn't more discussion about it.


The €450 million Croí Cónaithe cities scheme will subvent the construction of up to 5,000 apartments in Dublin, Cork, Limerick, Galway and Waterford which have planning permission but remain unbuilt because costs outstrip market values.

Developers who have planning permission for large-scale apartment complexes have until June 21st to submit applications to the Housing Agency for the fund, which could see them secure millions of euro in State support.


Surely if it's not financially viable to build apartments, then we should be looking at the reasons why, rather than subsidising them.

Brendan
 

TRS30

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Heard Tom 'poor builders' Parlon on the radio the other day saying that was way too restrictive and no builders would take it up.
 

VonHohenzollern

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Is it that apartments are not financially viable or that the margin of profit is smaller than other builds?

People are willing to live in many different types of accommodation and with demand so high; market forces may be driving the building of the more valuable housing types rather than apartments.
 

Brendan Burgess

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Hi VonH

I don't fully understand it but they are claiming that they are just unprofitable.

I remember a big developer telling me that they wanted to build houses on a huge site along the Luas line but the local authority were insisting that they build apartments. They said that the demand was for houses - Irish people don't want to live in apartments.

Brendan
 

Purple

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Hi VonH

I don't fully understand it but they are claiming that they are just unprofitable.

I remember a big developer telling me that they wanted to build houses on a huge site along the Luas line but the local authority were insisting that they build apartments. They said that the demand was for houses - Irish people don't want to live in apartments.

Brendan
Irish people don't want to live in apartments with high BER ratings but no parking and bad infrastructure. Friends who live on the mainland (Germany and Holland) tell me that their lease covers things like noise pollution and use of common areas and tenants who abuse these things are evicted. It's almost impossible to evict a disruptive tenant in Ireland so shared facilities are less attractive.
 
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PMU

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Surely if it's not financially viable to build apartments, then we should be looking at the reasons why, rather than subsidising them.

Brendan
Correct.

Is this not the state using taxpayers' funds for a builders' bail-out? It doesn't benefit apartment buyers; it benefits builders, who are the ultimate recipient of the subsidy.

According the price comparison web site Numbeo Cost of Living (numbeo.com) the price per square metre of a city centre apartment in Dublin is 7,771 EUR, as opposed to 4,688 in Manchester; 4,115 in Brussels; 5,250 is Strasbourg and 5,308 in Brisbane. If you move outside the city centre the price is still expensive relative to foreign equivalents (e.g. 4,567 Dublin; 2,998 Manchester; 3,333 Brussels; 3,700 Strasburg and 3,526 Brisbane).

And (based on my experience and the comments of other contributers on AAM) foreign apartments typically are better (e.g. bigger windows, dedicated car space; a 'cave' or secure external storage, etc.).

If Irish builders cannot provide decent homes for decent people at a reasonable price (which should be the objective of our housing policy), surely we should be looking at alternatives, rather than using taxpayers' funds to bail-out failure?
 
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Leo

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rather than using taxpayers' funds to bail-out failure?
A bail-out suggests the developers need rescue from some form of financial distress? Here developers are simply choosing not to build because they say it costs them more to build than the market is willing to pay.

There may be an element of some of them milking the current political situation, but they're all in the business to make money. They'll simply focus their efforts on the areas of the market where the most profit is to be made. If there was enough money to be made developing sites for apartments, you can be sure they'd be building and getting a return on their investment rather than sitting on land.
 

Purple

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Correct.

Is this not the state using taxpayers' funds for a builders' bail-out? It doesn't benefit apartment buyers; it benefits builders, who are the ultimate recipient of the subsidy.

According the price comparison web site Numbeo Cost of Living (numbeo.com) the price per square metre of a city centre apartment in Dublin is 7,771 EUR, as opposed to 4,688 in Manchester; 4,115 in Brussels; 5,250 is Strasbourg and 5,308 in Brisbane. If you move outside the city centre the price is still expensive relative to foreign equivalents (e.g. 4,567 Dublin; 2,998 Manchester; 3,333 Brussels; 3,700 Strasburg and 3,526 Brisbane).

And (based on my experience and the comments of other contributers on AAM) foreign apartments typically are better (e.g. bigger windows, dedicated car space; a 'cave' or secure external storage, etc.).

If Irish builders cannot provide decent homes for decent people at a reasonable price (which should be the objective of our housing policy), surely we should be looking at alternatives, rather than using taxpayers' funds to bail-out failure?
We have high taxes on building and we are a small island lacking in economies of scale. I'm certainly not one to defend the construction industry but comparisons like that don't tell us much in relation to the why of the relative costs.
 

Protocol

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ashambles

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Why would someone pay €100k per apartment site value?

Surely this site should have a negative value if they need to be subsidised to build them?

Brendan

The site is as likely to be bought by someone with no intention of building as someone who will. Being able to finance the building of apartments is rare, being able to finance a 3m site purchase and do nothing with it apart from hold it to sell again in several years is less rare.

There's already a building on that site which I assume can be rented out for a warehouse or workshop space - so that would help cover any interest charges and keep away a vacant-site tax.

The subsidy is to try to increase the chances of it being quickly developed rather than being bought to sit idle until the economics change. I'd be doubtful if the subsidy will have the desired effect, it will likely drive up the interest from non-developers who hope to flip the site in a year or two.
 

Brendan Burgess

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Kevin Nowlan who is a good commentator, defends the Croi Chonaithe scheme in today's Irish Times.


He also looks at the alternatives.

A second option would be to lower the cost of construction. This could be achieved by reducing VAT on construction inputs and development levies. It’s an idea that is certainly worth considering given that 35 per cent of the cost of all new homes goes to the exchequer. But for some there are concerns about whether cost reductions would be passed through in full to buyers, and thus far this approach has proved politically unpalatable.

I am not sure that the cost of VAT on construction inputs is relevant as developers reclaim them. It's putting VAT to 0 on the sales price would be what needs to be done.

But the overall point is valid - cutting the cost of building is a good way to fix the problem.

1) Scrap VAT for first time buyers (or refund it as a FTB grant)
2) Zone most sites as for starter apartments only. That will bring down the cost of the land
3) Prioritise them for planning permission - in the planning process and in the courts.
4) Reduce the building standards
5) Scrap the Social Housing requirement
6) Scrap the Development levies.
 

Purple

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In 1996 I bought an apartment in Dublin City Centre for €72k (IR£57). It was small at 52Sq.M but reasonably well built. The builder made a profit so lets say it was a small profit and their cost was €65k. How have costs increased by so much that it now costs €400k, or let's say €350k since it is a small unit, to build the same thing?
That well in excess of a 500% increase in costs.

How much of that is actual construction costs?
My suspicion is that land and financing costs are just as much of an issue. Before we look at reducing the cost of something which is an actual economic activity and creates real wealth why not look at the reducing costs which are based solely on inflated capital prices?
 

lff12

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501
This was announced last week, but I missed it. I am surprised that there wasn't more discussion about it.


The €450 million Croí Cónaithe cities scheme will subvent the construction of up to 5,000 apartments in Dublin, Cork, Limerick, Galway and Waterford which have planning permission but remain unbuilt because costs outstrip market values.

Developers who have planning permission for large-scale apartment complexes have until June 21st to submit applications to the Housing Agency for the fund, which could see them secure millions of euro in State support.


Surely if it's not financially viable to build apartments, then we should be looking at the reasons why, rather than subsidising them.

Brendan
One thing that came up when Alan Kelly reduced minimum size guidelines (which were only set in 2007) was that while overall floor size was reduced the minimum sizes of rooms were not. So minimum size for a bedroom is something like 11.4m/sq and for aggregate kitchen/dining/living room areas its still 23m/sq for a 1 bed unit - but since size was reduced from 55m/sq to 45m/sq some architects say that its no longer possible to fit such room sizes into a unit of that size. There are also requirements on childrens play areas, childcare and storage that were not changed in line with changes in overall floor space. So basically we expect some of the conditions of the 2007 guidelines to continue to be met inside a smaller floorspace - hence the difficulty in building apartments - result being, I've seen units appear on the market that were built between 2008 and 2014 where a 1 bed had 60m/sq, presumably because nothing else could be fitted into that space.
 
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