The cost of building a mid-range two-bedroom apartment increased by 9.6% or €21,000-25,000, according to a report by consultants Mitchell McDermott.
The hard cost of building a two-bed apartment in a medium-rise suburban development is now over €240,000 following significant annual increases in the cost of mechanical and electrical services (+18%), concrete (+27%), brickwork (+ 39%), and reinforcement steel (+17%).
The €240,000 figure also excludes indirect costs, parking, siteworks, margin and VAT. Excluding those costs, however, the cost of delivering an apartment would rise to €460,000.
General construction inflation increased 12% last year and is expected to moderate to 5-7% this year. Inflation was slower in the cost of building apartments due to the expensive materials (glass, steel and aluminum) used in the construction offices.
“Construction inflation was on the rise in the early months of 2022 but really began to take off following Russia’s invasion of Ukraine, mainly due to the dramatic rise in materials such as steel other energy-intensive materials such as aluminum and brick,” said Paul Mitchellone of the report’s authors.
“Material prices began to encourage moderate in Q3 and plateaued in Q4. For apartment cost inflation the figure for H1 was 6.8%, while in H2 it was 2.8%. So, we are trending in the right direction.”
“Although the number of people employed in construction increased by 25,000 in 2022 to 171,000, we will need another 20-30,000 in the short-term if we are to push inflation lower while increasing apartment output. Given Ireland’s low unemployment rates and the departure of many workers to their home countries post-Covid this will be a real challenge.”
The report shows there was a 79% drop in the number of judicial reviews taken against Strategic Housing Developments — the name given form schemes of 100 apartments or houses approved through a fast-track planning process — despite 2021 seeing the highest number of SHDs Submitted before being phased out in place of a new Large-Scale Residential Development scheme.
Mitchell estimates that On board Pleanála is yet to make a decision on 59% of submissions made to them, equating to 28,786 units, while having granted permission for 26% of applications.
“You would imagine this backlog could easily be addressed by drafting in additional temporary resources from private practice here or from the UK and we believe this should be done straightaway,” he suggested.
“Delays due to judicial reviews, and spiraling construction inflation have all contributed to the dramatic drop off in commencements we are seeing. The fact institutional investors have begun moving away from property investment as interest rates continue to rise has created a very challenging environment and one in which the Government will clearly struggle to hit their Housing for All targets of 33,000 units per annum.”
The report states that the real housing need is, in fact, close to 50,000 units per year, and that rationalizing the planning system is essential to achieving the necessary housing output.
“An average apartment block of 150 units can take four years from site purchase to delivery of the first unit. This excludes JRs and planning delays,” Mitchell said.
“While there was a major fall in the number of JRs last year, our analysis shows a total of 31,125 units in SHDs which received planning permission have been subjected to judicial reviews over the past five years.
“Just 10% or so have gone ahead, 10,727 units were quashed, while 17,805 are still awaiting a decision from the courts – a total of 28,532 units.”
The repot also found that of the 103,057 SHD units which received planning during this period, construction on 28,755 or 28% has not yet commenced due to non-viability rather than land hoarding.
“33% of these developments related to regional apartments which are simply not viable,” Mitchell commented. “Another 17% haven’t proceeded due to viability challenges. In 17% of cases the site was sold while in a further 10% of cases permission had only recently been granted.”
“Affordable finance rates and a guaranteed buyer or buyers are a pre-requisite to any developer starting an apartment development. If these elements are not in place, supply will not be forthcoming.”
“With regard to SHDs, we have a situation where 28,786 units have been stalled because An Bord Pleanála is yet to decide on them, 28,532 units have been subjected to judicial reviews over the last five years and a further 28,755 units with planning permission have not commenced due in the main to viability issues.
“That’s just over 86,000 units in total or nearly three years’ worth of current supply, stalled, under review by the courts or not commencing due to viability challenges. That really underlines the scale of the housing crisis and the urgent need to address shortcomings in our planning system.”
(Picture: Getty Images)