What can be done to bring down the cost of building homes?

Brendan Burgess

Brendan Burgess

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This seems to be the big problem.

If it costs €500k to provide a house or an apartment in Dublin then people on average salaries or even on good salaries won't be able to buy them. Giving them a reckless loan to pay this price is not a solution.

The best solution is to bring the price down.

It seems more expensive to build apartments, which is the opposite of what I would have thought.

And if the price of land is the issue, then it makes more sense for a builder to build a €1.5m house rather than a starter home.

Then I have heard people say that although there is a shortage of houses in rural areas, it's still cheaper to buy an existing house than to build a new one.

Surely that is the issue we need to address first and foremost.

Arguing about financing houses and allocating 10% to social housing and preventing investors from buying houses is just less relevant.

Brendan
 
Average material costs and labour costs are around the same per square metre so modular designs which use cheaper materials, have less waste and reduce labour input would seem o be the way to go.
 
I've never understood how removing both developers profit margins, and builders profit margins, wasn't the answer (i.e. the State builds housing on land it already owns).

Rather than contract out the work, recruit the skilled workforce needed. Then just move the teams of employees from one project, to the next.

Then there's the cost of materials, couldn't the State absorb the VAT, if building for its own account ?

There's unlikely to be a cost of finance, or if there is, it would be far less than the commercial rates that private contractors are operating off.

Ultimately, either sell the properties at a small margin over cost (strictly to owner occupiers, with conditionality), or hold the properties within the NPRF, with rental income going into it, to help provide for the State's future obligations.
 
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MrEarl said:
I've never understood how removing both developers profit margins, and builders profit margins, wasn't the answer (i.e. the State builds housing on land it already owns).

Rather than contract out the work, recruit the skilled workforce needed. Then just move the teams of employees from one project, to the next.

Then there's the cost of materials, couldn't the State absorb the VAT, if building for its own account ?

Ultimately, either sell the properties at a small margin over cost (strictly to owner occupiers, with conditionality), or hold the properties within the NPRF, with rental income going into it, to help provide for the State's future obligations.
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The fundamental problem relating specifically to build costs is that in real terms they are not open to international competition. If factory built houses could arrive on container ships they would be less than half the cost and of a superior quality because they would be built at high volume to high standards in massive factories on the mainland, USA or the Far East.
That's why cars, TV's and just about every other transportable good is better and cheaper than it was 30 years ago. Construction, as an industry, is not really open to real competition and so is a dinosaur.
Where I work we make things better and cheaper than we did 20 years ago and yet we are more profitable, employ more people and everyone gets paid more. That's what real competition does.
 
MrEarl said:
I've never understood how removing both developers profit margins, and builders profit margins, wasn't the answer (i.e. the State builds housing on land it already owns).
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It's a mixed bag really.

I recalled a posting in a similar debate here a few years ago where state costs per unit exceeded that of private developments.
 
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My figures are from the SCSI 2020 house building cost data: 114 sqm house in Dublin.

Construction cost = 179k, this includes site works and site development
"Soft" costs = 192.5k
Total costs = 371k.

The soft costs include:

Land = 61k
Finance = 16.7k
Profit = 43k
VAT = 44k


Purple knows more about the "hard" building costs, so I will comment on three other costs.
(1) site costs - these need to fall, in my opinion by at least 80%

The land costs for a 114 sqm house in Dublin in 2020 are 60,823.

In my opinion this is way too high, it needs to fall to 10k-20k per house/apt.

(2) finance costs of 16,716.

Given that ECB rates are 0%, these finance costs are way too high.

A friend works in property finance. He tells me senior debt for the first 60% is more expensive than you'd think, like 5-6%. After putting up 20%, the developer must then raise "mezzanine" finance for the final 20%. This can cost 12%-14%.

This is completely insane.


(3) developers 15% profit margin, 42,671 per unit

If we de-risked development, this could be reduced.
 
Leo said:
It's a mixed bag really.

I recalled a posting in a similar debate here a few years ago where state costs per unit exceeded that of private developments.
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But doesnt that defy logic, assuming you've competent people, and a similar level of efficiency to that in the private sector?

Granted, we're talking about getting away from the old image of a half dozen lads leaning on their shovels, drinking tea, and looking into a hole in the ground :)
 
MrEarl said:
But doesnt that defy logic, assuming you've competent people, and a similar level of efficiency to that in the private sector?
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The reality of public procurement processes means it takes longer to get things done and the ability to shop around for the best deal is limited. Look at local authority development sites, how many do you see on site after 5pm, or on weekends? Look at the tipper truck driver parked outside reading the newspaper, that's his job and you'll hear from his union rep if he's asked to do anything else.

I presume the efficiency in the public sector piece was a joke. Efficiency isn't incentivised there.
 
Leo said:
The reality of public procurement processes means it takes longer to get things done and the ability to shop around for the best deal is limted.

I presume the efficiency in the public sector piece was a joke. Efficiency isn't incentivised there.
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Well,

I'm talking about a new approach, where things would be done properly, - create a new entity, hire new employees (incl management from the private sector), new practices etc.

Much as I appreciate where you are coming from, there comes a time where the nonsense has to stop. :)
 
Leo said:
If a site in Dublin costs that, what should one in Leitrim cost?
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Take the RTE site: 8.7 acres, 107.5m, plans for 614 units.

Land cost per unit, before any work done = 175k

This is way too high.

Maybe 100k per unit might be reasonable, or is that still too high?

So 60m for the land, or 7m per acre? Still sounds too high.


Turning to Leitrim, 20,000 per acre is okay.
 
MrEarl said:
But doesnt that defy logic, assuming you've competent people, and a similar level of efficiency to that in the private sector?
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I think it defies logic to assume that you've competent people and a similar level of efficiency in a state run organisation.
 
I have often wondered about Sale & Leaseback. Could the government put out to tender, for example, the building of 500 houses on state owned land with a guarantee to rent them for say 100 years? Developers would bid for the contract and they would probably be able to get funding from pension funds who would value long-term yield. The government doesn't have to put up any capital and can spread the cost over 100 years. The houses would be built quickly and efficiently you can be sure. The government could then give them to whoever it decides needs them most for whatever rent it decides....
 
Protocol said:
Turning to Leitrim, 20,000 per acre is okay.
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But if site costs aren't significantly more than agricultural prices you won't get the supply.

If you knock the south Dublin site costs down then consumer demand will drive prices up anyway so that the developer just makes more profit.
 
MrEarl said:
I'm talking about a new approach, where things would be done properly, - create a new entity, hire new employees (incl management from the private sector), new practices etc.
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I get what you're saying, but that would require a complete overhaul of public services, I'd love to see it but I just can't see it happening.
 
This is my previous proposal on one way to reduce land price - fast point to point transport network to unlock access to cheaper land.
https://www.askaboutmoney.com/threa...or-dublin-housing-supply-a-train-line.215826/

Other ideas to increase supply/reduce cost of land include:
-Higher density, which likely included more height
-More taxes on holding land that could be developed to encourage supply, e.g. sites with planning to be taxed at x percent a year. Sites without but which could be developed taxed at y per year. Tax rate increases each year over the next 40 years at a predetermined rate.
-Using government owned land
-More aggressive planning/rezoning
-more taxes/legislation to discourage land banking.
 
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