Soaring cost of apartments
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 concerning nonetheless. Building a two-bedroom apartment in Dublin costs €470,000 minimum, according to the report — and can cost as much as €580,000. As if that isn’t bad enough, these figures, which are based on actual schemes, exclude VAT, which would add another 13.5pc 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-bed apartment would require a salary of at least €87,000. It’s a sorry state of affairs when only the richest 10pc can afford a minimum-spec two-bedroom apartment.
The report confirms that the lack of apartment building is nothing to do with the crash. Instead, the 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 houses. This misses the point. The reason that almost 90pc of Irish households live in houses 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 one or two persons and almost all growth in new households will be in similarly-sized households. Given long-run demographic trends, we don’t need any more houses for 3-5 people. It needs urban apartments.
The SCSI report is great to have, but 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.
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 have seen, Ireland is more expensive for each of the various headings of hard costs that professionals use. But why? Until we can open up these top-level figures and look inside, it won’t be possible to answer that question.
Secondly, given we are talking about building the minimum-spec apartment, how does that minimum specification compare with other countries? Earlier this week, I visited Boston and took the opportunity to visit some ‘multi-family developments’, as they’re known there. In meeting some of the professionals involved, three facts stood out. The first is that there is no problem building apartments in Boston. 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, the cost of building is well below costs in Dublin. A luxury penthouse might cost $400,000 to build (roughly €350,000). When a luxury apartment overlooking Boston costs less to build than a ground-floor apartment in Beaumont, Dublin, 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 four 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 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.