Mitchell McDermott InfoCards 2022 –
Key Insights

The construction costs of a two-bed mid-range apartment has increased by 14% or €27,000 during covid according to a new report.

Our data has found that the hard costs of building a two-bed, standard spec, medium rise suburban apartment is now €219,000.

The main reason for the increase is the dramatic rise in the price of materials which occurred during covid with the cost of timber increasing by 86%, windows by 61%, steel by 52% and sanitary ware by 20%.

The €219K figure excludes indirect costs, parking, siteworks and VAT. If those are included the total cost of delivering the apartment is in the region of €440K. If this apartment was to be viable, the sales price would have to be in excess of €440K.

Our research predicts construction costs will increase by 6 to 7% this year.

Emission restrictions in China has led to a reduction in steel supply while major post-covid building programmes in the US and Europe are driving the demand for timber. One would expect a lot of the cost spikes to correct themselves in the short to medium term once supply chains return to normal. That said the situation in the Ukraine will cause additional supply chain issues for certain materials.

 

Planning

There was a 30% increase in the number of judicial reviews taken against Strategic Housing Developments (SHDs) last year.

This meant that although planning permission was granted for 26,151 residential units under the SHD process, over half of them – 55% or 14,296 units – were prevented from going ahead because of judicial reviews (JRs).

On the one hand while nearly everyone agrees we need more supply, on the other the supply is being choked off by the increasing prevalence of JRs.

While the country aspires to build more houses, the harsh reality on the ground is it’s just not going to happen unless we reform the planning process.  The SHD process has been in place for 4 years and in that time 30% – or some 28,000 units – have been stalled in JRs. People generally have an issue with height or scale and are using the JR process, in some cases to challenge An Bord Pleanála permissions.

A new ‘Large-scale Residential Development’ (LRD) planning system has just been introduced, but JRs will continue to be a feature and at this point there is nothing to suggest anything is going to change. That is a real concern in our opinion.

On top of this a number of Dublin local authorities are now proposing restrictions on Build to Rent (BTR) developments or restrictions on the proportion of units which can be for rent in new developments. These proposals if passed will seriously damage supply. Build to Sell (BTS) apartments don’t stack up in a lot of areas whereas BTR do. Forcing schemes to be 40% BTS will make the overall scheme unviable and further stall supply.

While the cost of imported building materials is outside our control, the way the new planning system operates isn’t and we really need to minimise costly delays and ensure it works effectively and efficiently.

 

Housing

According to our data 20,000 residential units – 5,000 of them apartments – were completed in 2021.

The fact 20,000 units were completed – even with sites closed for 30% of the working year – was a positive.

This implies that the number could have been close to 30,000 units if it wasn’t for the lockdowns and shows what is possible. We believe we’ll produce 25 to 30,000 units this year and looking ahead we’d expect output to reach 35,000 – the figure most commentators believe we need to meet demand – in two to three years. Of course, output may be affected by the unfolding situation in Ukraine.

These figures show what could be achieved, especially when the different elements of the Government’s ‘Housing for All’ kick in. The caveats to that would be that we have a sustained effort with no surprises or changes in regulations. We will also need 10 to 15,000 more construction workers and sourcing those will be a challenge.

 

Inflation

Similar to apartment construction, office construction costs have also risen significantly. Last year construction costs increased by 10.7%, this is over three times the 3.4% rate recorded in 2020.

The main cost drivers have been covid, Brexit and material price increases.

The cost increases are having a negative impact on viability because rents still haven’t recovered to 2019 levels at this point. That said there are still a lot of speculative office projects under construction in Dublin and in some other regional cities. We are predicting costs will rise by between 6 to 7% this year although high energy price inputs may add increased costs in labour and demand. How events in Ukraine unfold will again be critical here.

Covid is clearly having an impact on office design and there is now a focus on reducing people contact via one-way systems, contactless door openings etc. People are now considering mechanical ventilation and increased specification for these kinds of systems. While these changes can lead to increased costs, they remain within the realm of viability.