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Urgent action required to reduce unusually high cost of building, says Davy report

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Report author Conall Mac Coille

Report author Conall Mac Coille

Report author Conall Mac Coille

Urgent action is required to tackle the high cost of home building, something which is restricting the supply of new houses.

International comparisons suggest building costs in Ireland are unusually high, but this is not just down to labour costs or raw materials prices, a new report on housing from Davy Stockbrokers concludes.

Report author Conall Mac Coille says: “Irish housing supply looks puzzlingly weak, given current levels of house prices.”

He said the likely reasons for high construction costs here included a lack of investment, innovation and scale in Irish home building, and the need for large upfront development contributions to local authorities and for utility connections.

Another factor is what the economist said were “onerous building standards” and investment in enhanced energy efficiency.

He added: “Substantial infrastructural spending associated with new developments is often skewed to private developers and ultimately falls to home buyers.”

Builders have also been slow to build up equity following the Celtic Tiger-era crash and in some cases are still paying off debts or working though debt resolution mechanisms.

Reduced capacity is a factor also, as many building workers exited the sector after the last crash, and migrant workers returned to home countries.

Mr Mac Coille says that during the Celtic Tiger, the construction sector held close to €1.9bn worth of machinery and equipment. Since then, fresh investment has been insufficient to offset depreciation. The stock is now valued at €884m, its lowest level since 1994.

House prices rose by 2pc last year, but are set to “rise sharply” this year, the economist says.

The Davy report says urgent action is required to mitigate building costs.

This is particularly the case as last year the typical cost of a new home was €336,000, well above the €230,000 for a second-hand home.

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This higher price for newly built homes is a recent phenomenon.

In the 1990s and 2000s, new-build prices were similar to those for the existing stock of homes.

To help builders, there is scope for the State to encourage bulk procurement, standardisation and more modern building methods.

The State should also reconsider up-front costs faced by developers but that are ultimately paid for by homebuyers. An example of this is the cost of utility and grid connections.

Facilitating inward migration of building workers would add capacity and mitigate wage inflation, Mr Mac Coille writes.

The report states that without some policy to encourage “empty nesters” to move to a smaller house or step-down accommodation, an increasing proportion of them will remain in their existing homes.

This will happen as younger generations struggle to find suitable accommodation.

Policy interventions are also needed to address blockages in the fast-track planning process, so-called Strategic Housing Developments.

Mr Mac Coille refers to a report by planning firm Tom Phillips and Associates that found 92pc of judicial reviews into Strategic Housing Developments since 2018 had resulted in plans being quashed.

And the recent referral to the European Court of Justice, on specific planning policies relating to the Strategic Housing Development decision, could lead to delays.

Builders say this could potentially expose up to 64,000 units, proceeding through the fast-track planning process, to legal risk.​​​​​​​

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