Very few new apartments in Dublin are viable and a multi-faceted approach must be taken by Government to address this.
The escalation of the housing crisis over recent years has fuelled debate and discussion regarding the cost of building apartments in Ireland. Up until now, much of this conversation was based around broad estimates, with little evidence-based analysis carried out to accurately identify the elemental breakdown of apartment delivery. When we speak of the costs involved in building, we must be clear that actual build costs represent less than half of the overall delivery costs of apartments. The recent SCSI ‘The Real Costs of New Apartment Delivery’ report provides an in-depth analysis of affordability and viability in apartment building in Dublin. This independent analysis examines 28 current apartment schemes in Dublin, representing 2,146 apartments. The report findings show that couples would need to earn a combined gross salary of €87,000 to afford the least expensive apartment category (€293,000), which is a two-bedroom apartment in a three-storey complex in the suburbs (Figure 1). This poses a significant concern and challenge for the Government, as recent CSO figures show that only 20% of households are earning over €80,000 per annum.
Similar two-bedroom apartments in suburban and urban medium-rise schemes are substantially more expensive to deliver. By reference to the lowest price range of medium-rise apartments, overall delivery costs range from €400,000 to €470,000, respectively.
FIGURE 1: The viability of different categories of two-bed apartments.
These costs may come as a surprise to many who think that economies of scale would be achieved in high-rise developments.
This, however, is not always the case. The taller buildings become, the less efficient they are. This is due to the increase in circulation areas and resultant decrease in net floor area. The design and build becomes more complex and expensive to cater for wind resistance, sprinkler systems, more expensive façade installations, a greater number of and faster lifts, and more expensive construction logistics.
One might argue that higher build costs should be relative to site costs and one should adjust to the other to make a project viable.
There can be a number of reasons why this is not always a reality and some of this can be a result of high competition in the market for serviced land and revenue inflation expectations. Another possible surprise to many is the actual bricks and mortar costs in apartment building as a percentage of the overall delivery costs. Only 43% are actual hard costs (Figure 2), with the remaining 57% a combination of VAT, land costs, finance costs, levies, professional fees and margin/risk.
FIGURE 2: Breakdown of costs in building apartments.
No easy solution
When our SCSI Working Group analysed the data returns from our members, it was apparent that there is no one solution to address the viability gap in most apartment building projects. While many of us may see apartment construction underway, this can often be a result of more favourable land transactions in previous years, or apartments being developed to achieve density in an overall housing development, or the apartments are being built in areas where it is viable to build with cash buyers.
So what can the Government do to increase the delivery of apartments at affordable levels in areas of demand? Our report includes a selection of “what if” scenarios. The Working Group applied a selection of reductions to see the impact these would have on apartment delivery. As you can see in Figure 3, the Government will most likely require amendments on a number of headings to tackle the large viability gap in affordable apartments. Let’s take the medium-rise suburban development for example, and apply a range of arbitrary reductions in VAT, site costs, construction costs, parking requirements, apartment sizes and finance costs. As shown in Figure 3, a viability gap of €81,938 currently exists for this category of apartment, and the various “what if” scenarios show that quite a number of policy alterations are required to close the gap to make development commercially viable.
In this scenario, almost all of the “what if” reductions are required to achieve viability. This puts into context the scale of the problem – it is so great that political will is required to address it in a meaningful way. It is not an insurmountable challenge, but one that requires a multi-faceted approach. Land is not an infinite resource and if we are to deliver scalability in our housing stock in a way that is sustainable, we must embrace apartment living and create more choice for housing our population. Ireland’s apartment stock is just 12% compared with the EU average of 50%, so much work is needed to change our mindset towards apartment living and away from semi-detached properties in the suburbs. This housing challenge is not just being felt in Dublin but across Ireland, and we hope that this report will assist authorities in implementing workable and measured strategies for a comprehensive solution.
FIGURE 3: How to make a two-bed, medium-rise suburban apartment viable.
Chartered Quantity Surveyor and SCSI Working Group Report lead