The cost of developing apartments in Ireland continues to rise yet further, according to the latest research from the Society of Chartered Surveyors Ireland (SCSI). This is perhaps no surprise given the level of general inflation, but the point is that the increases are taking place from already high levels. Total development costs of around €530,000 for a lower-range apartment mean that when the developer’s margin is added, the price is unaffordable except for those on high incomes.
Many developments are sold for buy-to-rent – which provides a guaranteed purchaser and thus helps financing – but the price paid guarantees high rental levels. Again, only better off people could afford to pay these costs and even for many of them it is a stretch, leaving little spare cash to save for a home deposit.
The State is throwing billions at the issue through a range of schemes to support developers and help buyers – and it is having some impact. The SCSI says that the variety of subsidies to developers and the recent reduction in VAT means many apartments, which previously would not have been built, are now viable. This is helping to attract international investors back to Ireland, though more are needed.
There is also a welcome easing in the cost of the more expensive apartments – and in land prices – but costs incurred on most projects are still rising.
RM Block
The arrival of cost rental projects – where the rent cost is subsidised by the State – is welcome, meanwhile, and does give options for some lower to middle earners, who were previously locked out.
The market is also responding in other ways. There is still a viability problem in suburban areas and for this reason many new developments are duplexes rather than apartments. As these can be designed to give adequate densities, this is positive. All the State investment is, in other words , having an impact, though levels of new supply remain well below what is needed.
However, the key issue of affordability remains. The SCSI calculates that only the top 20 per cent of earners in Ireland can afford to rent an apartment and only the top 40 per cent can afford to buy one – assuming they can find one on the market.
The Government schemes, in other words, are helping to bridge the affordability gap and spur development in some areas, but serious problems remain. Policy needs to continue to search for the best way forward, to seek to reduce costs and do what is reasonable to support private sector investment. Major public sector projects are also part of the picture and the State needs to pull what levers it can here – including building on State land on a much greater scale. Market failure justifies State involvement, even if ensuring effectiveness in this is very challenging.
