Monday 5 December 2016

Why is housing so expensive?

Published 22/09/2015 | 02:30

While Dublin city’s population has increased by 14pc in the last decade, the provision of new housing has been almost non existent
While Dublin city’s population has increased by 14pc in the last decade, the provision of new housing has been almost non existent

According to the Global Property Guide, an international service set up to aid property investors, Irish home construction costs are the 13th most expensive out of 38 European counties despite experiencing one of the worst ever international property crashes. The high cost of housing in Irish cities particularly is largely explained by:

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1. Simple shortage

While Dublin city's population has increased by 14pc in the last decade, the provision of new housing has been almost non existent for myriad reasons. Shortage causes competition and raises prices - initially we saw it with capital values in cities, now we're seeing it with rents. The story is repeated across most big towns.

2. The cost of finance

Thankfully the days of builders meeting bankers in a pub to sketch finance plans worth tens of millions out on the back of cigarette packets are long gone. But for many years now the opposite has been the case. Banks have not been funding developers who are eager to build homes.

This means they must revert to privately run funds and to moneyed individuals who charge far more for the finance they provide. This ultimately impacts on the end cost of the units.

3. The local authorities

In the absence of domestic rates and proper central funding, local authorities built a funding structure based almost entirely on the taxation of home construction and commercial property development.

This collapsed with the property crash. However the persistence of "boom era" local authority taxations such as the Par V which has sought 20pc of the value of land for social housing (which didn't get built) and development levies has hamstrung construction by increasing the costs.

Many local authorities are insisting on high density schemes such as apartments, which are more expensive to build given underground parking and other needs. There must also be questions over whether some are overtaxing to maintain their own bloated structures and high salaries and why RPT is not being fully handed over.

4. State taxation overall

Between 13.5pc VAT, charges on materials, labour, tax on builder's profits, and the aforementioned local authority charges, it has been estimated by the construction sector that directly or indirectly, the State takes almost 40pc plus of the money paid over for a new home.

5. Central Bank lending

While the price of a more expensive home in Dublin has softened thanks to the Central Bank lending restrictions, many estate agents point to a rise in the price of more affordable homes as families compete frantically to bag homes within the new thresholds for which they can still get a loan.

6. Increased standards

Recently improved building regulation requirements don't come cheap. Neither do stipulations from local authorities for "double aspect" apartments with windows on two sides.

Older buildings have costly and, many would argue, necessary regulatory requirements for preservation, safety and disabled access. But increased regulation on all levels has combined to make the construction of new homes and make refurbishment of older buildings more expensive.

Irish Independent

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