Thursday 8 December 2016

Real Deal: Modular housing shows the cost of construction

Philip Farrell

Published 24/04/2016 | 02:30

Those planning modular housing schemes might do well to check out some of the smart
international design solutions. At New Islington in Manchester, for example, 'regeneration
company' Urban Splash teamed up with architects shedkm to produce hoUSe, modular
terraced houses of one- to five-bedrooms built over two or three storeys with bespoke interiors. Constructed off site, the houses are highly energy efficient and come in at under £100 per sq ft, significantly lower than the cost per foot of most UK city centre flats. All 43 of the first launch sold out prior to launch at prices from £200,000 (€254,000) to £350,000 (€444,500). Ian Killick, director at shedkm, said: 'We believe that it is a game-changer to tackle the current housing shortage this country is facing' Photo: Jack Hobhouse/Urban Splash
Those planning modular housing schemes might do well to check out some of the smart international design solutions. At New Islington in Manchester, for example, 'regeneration company' Urban Splash teamed up with architects shedkm to produce hoUSe, modular terraced houses of one- to five-bedrooms built over two or three storeys with bespoke interiors. Constructed off site, the houses are highly energy efficient and come in at under £100 per sq ft, significantly lower than the cost per foot of most UK city centre flats. All 43 of the first launch sold out prior to launch at prices from £200,000 (€254,000) to £350,000 (€444,500). Ian Killick, director at shedkm, said: 'We believe that it is a game-changer to tackle the current housing shortage this country is facing' Photo: Jack Hobhouse/Urban Splash
A view of another modular house Photo: Jack Hobhouse/Urban Splash

The announcement by Environment Minister Alan Kelly last autumn of the construction of 500 modular homes or rapid social housing units for the capital got a warm welcome. What has transpired, though, is nothing short of bizarre.

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The current social housing waiting list stands at 45,000 in Dublin. And the announcement was aimed at addressing the supply shortage in the short term - with the first batch intended for completion by December 2015.

The estimated cost of construction, according to Mr Kelly at the time, was in the region of €100,000 per unit, in comparison to €190,000 for a traditional new build. So far, so good.

Then a few weeks ago came the announcement that the first batch had been delivered and was hailed a success. I beg to differ.

There has been only one significant benefit in carrying out this process. The Government has been able to provide 22 social homes at Poppintree, Ballymun in Dublin about six months more quickly than if it had had to proceed through the normal planning and design process.

At what price though? What has been undertaken makes no economic sense whatsoever.

It appears the final agreed tender price by the local planning authority was €243,000 per unit. Remember, the above figure of €243,000 does not include site costs or levies.

Each unit extends to 91sqm, which works out at €2,660 per square metre (psm). And note that the same developer is selling a newly built four-bedroomed detached family residence extending to 200sqm at Farlough Manor, Dungannon, Co Tyrone for €249,000 (£195,000) - a build that works out at approximately €1,000 (£787) psm, if we allow an estimated €40,000 for site costs. This includes site costs and builder's profit. What does that tell us about the level of construction costs that exist in the Republic?

Currently, up to 35pc of the cost of a house goes back to the Government in various forms.

All the modular homes, which are partially constructed off-site, have a life span of 60 years. If we compare two similarly-sized properties side by side, one modular and one a traditional new build, the traditional home will increase in value in line with property values, while the modular home will depreciate year after year.

In 60 years' time, a traditional home which, if it increases in value by an average of 5pc per annum on a value of €300,000 today, will be worth in the region of €6m. But the modular home will have no value, beyond the €1.2m that the site is worth (if we estimate that to be 20pc of the total value of the property).

The potential loss to the exchequer equates to €1.8m per property - surely not in the taxpayer's best interest?

Virtual sales for property?

As technology continues to accelerate at a frightening pace with the arrival of fin tech, pharma tech and, of course, property tech industries, we are being introduced to new applications every day. Another likely arrival to the Irish property tech scene is a concept which is proving very popular across the water in the US.

It is a new method of selling for property vendors and first into the market is an online company called opendoor.com. It works as simply as this - the vendor enters their property address on the website and within hours opendoor.com reverts with an offer. Not a valuation, an actual offer from Opendoor, who subsequently sell the property on. Nor is the offer subject to finance, instead it is subject to a physical inspection (as you'd expect). The offer is arrived at by means of an algorithm which has been created by opendoor.com and takes into account all the possible variables. If the sale proceeds, it can close within a week, if required.

What's the catch? The only downside I can deduce is that the vendor may end up paying a 2pc-3pc premium for the service and this is where opendoor.com's margin/premium lies.

I can see there being a niche market for this in Ireland, for example, where a vendor needs to sell quickly in order to be able to provide funds to close on another sale. Or where a family are selling a home and proceeds are being divided a number of ways, so the extra costs incurred per beneficiary using this method would be outweighed by the speed of disposal. It could provide certainty and it could provide it quickly.

Sunny days down on the farm

They may sound like science fiction, but solar farms, where landowners erect thousands of solar panels on their land to generate electricity, have arrived in the Irish energy sector, bringing additional income and free electricity. Could this be a profitable revenue stream for farmers hit by poor milk and grain prices? They're commonplace on the Continent.

Amerenco, an Irish company, has announced that it intends to construct 35 such farms throughout Ireland over the next three years. It has already secured planning permission for two farms, one in Waterford and one in Cork. The farms can be built in just four weeks and allow the land to be used for grazing or tillage as 90pc of the sunlight can still reach the soil. Each farm would have approximately 35,000 solar panels and could provide electricity for 1,000 homes.

What's the downside? Well, they're not very visually appealing. But with the demands that are now placed on governments by the EU in relation to the provision of green energy, we may see farmers earning more from harvesting energy than tillage.

New homes at Savills

It's hardly news that there's a shortage of new homes. According to David Browne, director of new homes at Savills, currently there is a requirement for 12,000 new homes in the capital. The supply in 2015 stood at 2,000, well short of this figure.

However, there are positive signs in the market. "We have seen a significant uplift in product," says David, "which is either ready to come to the market this spring or being prepared for launch in the autumn. The majority of new homes we sold last year were traditional houses and we expect a similar trend this year."

Figures released last week by the CSO highlighted the fact that planning permissions in the last quarter of 2015 were up 95pc on the same quarter of 2014. Finally, it would seem that the lag in supply created by the downturn is being eroded and that estimates that demand may satisfy supply by 2017/18 may be accurate.

And to prepare for the increase in supply, Savills are beefing up their new homes department with three new appointments.

Stephanie Patterson re-joins Savills after a five-year stint in the UK; Lyndsey Boland, who joined the organisation in 2012, has recently moved from the lettings department; and Linda Forsyth has also been promoted to head of operations within the division.

Green shoots at last?

Sunday Independent

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