Apartments won't go up until costs come down
The current shortage of homes for the sale and rental markets is not only causing serious hardship to those needing accommodation, it is also putting at risk our economic well-being and competitiveness, including threatening much-needed foreign direct investment. The shortage is far more severe than is generally appreciated and is only going to get worse unless more radical measures are introduced immediately to stimulate supply.
The population of Dublin rose by 72,000 in the past five years. There is a need in Dublin at present for a minimum of 16,000 new homes a year, at least 10,000 private homes and 6,000 social units. In 2016, there were only 1,282 apartments built in Dublin and 2,549 estate houses. While there is a partial increase in the construction of three- and four-bedroom houses this year, the same cannot be said for the apartment market, where there is huge demand from both buyers and renters. Apartments are the preferred choice for the vast majority of renters, thus the pressure on rents and supply for this sector.
Apartments are in strong demand from owner-occupiers. In a recent suburban scheme of 70 apartments that our company sold, there were 90pc owner-occupiers and 10pc investors, with 20pc of the owner-occupiers being residents from the area trading down and most of the balance being first-time buyers.
In two city centre apartment launches we have had recently, 85pc of the purchasers were owner-occupiers and the balance of 15pc were investors. Most of the owner occupiers were people working in local offices and businesses, financial services and technology. First-time buyers like to live close to places of work and leisure so they are very active in the city centre market.
Apartments are not being built in sufficient numbers because the sums don't add up, especially in non-prime locations. It costs at least 40pc more to build apartments than houses. They are weighed down with significant build costs on top of 13.5pc VAT and also local authority levies. There is a strong case to be made for the removal of these impediments, even for a limited period of, say, three years on a targeted basis for properties being offered for rental, or for properties being sold up to a price limit of say €500,000, the same as for the help-to-buy scheme.
The effects of the negative tax treatment on suppliers of residential rental accommodation, ie investors, in recent budgets is now becoming evident. Supply is being depleted; add to that the rent control legislation enacted in December. Supply initiatives and Section 23 type incentives for selected areas are urgently needed.
- Ken MacDonald is managing director of Hooke & MacDonald