Houses are still dearer to build than to buy – why the housing crisis just gets worse

Why can’t we get on top of the housing crisis? We’ve had four housing ministers in as many years: Phil Hogan, Alan Kelly, Simon Coveney and now Eoin Murphy. It doesn’t seem to matter how many ministers come and go – none of them seem capable of getting it right.

Nor are they answerable for the grandiose plans launched either by themselves or their predecessors, all of which have failed miserably.

They have all failed to deal with the simple mathematics that homes are more expensive to build than to buy.

This is because we are still living in the shadow of the financial crisis. That was the single most traumatic event in our economic history, and it’s still hanging over us – big time.

Remember the €40bn (net) or so we paid to bail out the banks? Most of that debt is still owed, so we can’t borrow money like we used to (i.e. like there was no tomorrow). Meanwhile, the banks are still lumbered with bad debts and can’t or won’t lend enough money to builders.

But most significantly of all, the 50% fall in house prices suffered in the crash has not gone away. It seems to be cancelled out by the 55% increase in prices over the past five years.

But it’s a bit of a mathematical illusion. If something falls by 50%, it has to rise 100% again to get back to where it was because it’s coming from a low base. Dublin prices remain 29.5% off their 2007 peak and in the rest of the country they are still 35% lower.

House prices are still lower than the cost of building them. An average new build in Dublin now costs €350k to build in Dublin privately.* After five years of rising prices, the average three-bed semi is priced at €290,500 – €60,000 less than that.

So why on earth would builders bother to build homes costing €350,000 (admittedly including profit) if they can only sell them for €290,000?

When prices were high, we made houses much more costly to build by adding on levies and costly new regulations.

Those extra costs were easily absorbed by prices at the height of the boom. Now they weigh heavily on building activity. The high cost of building relative to the price of homes is why average family houses are not being built.

Construction firms prefer to build small pockets of pricey infill developments in upmarket areas rather than the swathes of three-bed semis thrown up in the Seventies and Eightiess across suburban Dublin.

Why the State can’t manage to build social homes is another matter as, unlike builders, it is not lumbered with the costs of finance, land acquisition, or profits, while any VAT would go back to itself.

Local authorities can build new homes for €205,000 in the capital and much more cheaply outside it. Yet, only 650 new social homes were built in the whole country in 2016.

Meanwhile, in another hangover from the property crash, the Central Bank – which did nothing at the time of the crisis – is now highly sensitive to any property market increases and controls it with an iron fist.

Under Central Bank rules, buyers would need an income in excess of €100,000 to borrow €350,000. That’s more than twice the combined starting salaries of a couple working as a nurse or garda.

Those are just some of the bizarre twists thrown up by the distinctly Irish mess that is our housing crisis. Here are a few more: 1 We could build a new home for a homeless family with the money we spent housing each one in hotels for the past three years. It costs €55,000 per year to house a family in a hotel – and that doesn’t count the social and psychological costs to these families. 2 There are still 180,000 vacant homes – 27 for every person in emergency accommodation. This number excludes holiday homes. 3 We could generate tens of thousands of homes by converting unused floors above shops in our towns and cities. But State bureaucracy stands in the way. In the UK, a typical change-of-use for a project costing less than £100,000 is £695 and takes ten days. Here, the costs for building control permission are €7,600 and it takes 98 days. 4 Official figures show 15,000 new homes were built last year. But this is based on ESB connections – and doesn’t take disconnections into account! In reality, the figure is believed to be half that which compares to 225,000 homes built between 2005 and 2011. 5 The house price ‘boom’ is mainly a Dublin problem. In most places houses cost way more to build than they do to buy. In Leitrim, the average three-bed house costs €85,000. Even in Dublin, the €290,000 average price is less than the cost of building there. 6 As the debate rages over whether or not to subsidise housing, the Government actually continues to penalise it. Less than half that €350,000 price tag for a Dublin house is the cost of construction. It also includes €40,000 for VAT and €12,000 for levies to local authorities.

* 2016 figures from the Royal Society of Chartered Surveyors put the Dublin build cost at €330,000. This week, Dublin architect Mel Reynolds unofficially updated that figure for us to €350,000 based on current pricing. The figures on converting overhead premises are also based on figures provided by Mel to the Irish Mail On Sunday this week.