Rising construction costs threaten plans for new housing

Builders said there is significant pressure on the development of homes in regional towns.

Cork County Council told the Sunday Independent while it is still financially viable for developers to build new homes in the county following “recent market engagement through tender competitions and direct dealings with development companies” regarding the delivery of social housing, the council “is concerned with ongoing construction inflation, which is driving upward pricing pressure in the local construction market”.

Tipperary County Council recently commissioned an analysis of the housing markets in Clonmel, Nenagh, and Thurles. It said the study and “recently increased ceiling limits of €325k which are now supported under the First Home Scheme (FHS)”, means it is satisfied it is now financially viable to construct new homes “to a certain scale and type”. FHS is a shared equity scheme launched last July to help eligible first-time buyers bridge the gap between their mortgage, deposit and the price of a new home, funding up to 30pc of the market value of the property.

Councils in Tipperary, Kildare, Kilkenny, Waterford and Wexford all said the increased cost of materials last year was a factor in all construction projects, including social and affordable housing.

CSO data shows the cost of construction materials increased 16.2pc last year. Steel prices were up 57pc. Cement rose by almost 29.2 pc in the same period.

A report last week by construction consultants Mitchell McDermott revealed almost 9,700 apartments granted planning permission in regional areas will probably never be built because they are not financially viable.

Kildare County Council also said a lack of greenfield sites “is pressing the development” at brownfield locations “which adds to the challenges in terms of construction costs”. Brownfield development can lead to extra costs associated with work to ready a site for construction.

“The viability or otherwise of housing schemes constructed by developers is highly dependent on a number of factors including location, demand, site conditions/abnormal costs, house/unit type/specification and land cost, among others,” a Kildare spokeswoman added.

​A year ago Leitrim County Council said it was not imposing vacant site levies on idle land because of concerns around the viability of development. However, the council has reconsidered this view.

“Leitrim County Council is of the opinion that the construction of new homes is viable for a limited number of private developers, depending on the fundamentals of their business, along with the nature and the location of potential projects. This view is based on the recent commencement of the first multi-unit development within Co Leitrim for over 10 years, and preliminary discussions around a further limited number of commencements,” a spokesman said.

Most other councils did not comment or said viability of housing was not a matter for them to consider.

Construction Industry Federation (CIF) director of housing and planning Conor O’Connell said cost pressures and challenges are problematic everywhere because the cost of building a home has increased by between 20pc and 30pc since the period before the pandemic. The federation previously called on the Government to reduce the 13.5pc Vat rate to relieve cost pressures.

“Construction costs probably account for 45pc to 50pc of the cost of delivering a unit, so it has a very significant impact,” Mr O’Connell added.

“We see the greatest challenges in rural towns, even those with strong industrial bases. There is not enough development in towns like that.

“Inner city urban locations largely need apartments but delivery of those is becoming extremely challenging because of the rising construction costs and overall delivery costs.”

​