Mitchell McDermott InfoCards 2024 –
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Mitchell McDermott Annual Construction Sector Report 2024 – The key points;
– New report shows over 20,000 housing units in Strategic Housing Developments are yet to be decided upon due to logjam at An Bord Pleanála
– Another 8,000 units are being held up in Judicial Reviews – combined that’s almost a year’s supply of housing
– Planning decisions on these units were an average of 16 months late at end of 2023
– Estimated financial cost of delays – which is passed onto consumer – €125m
– “These delays are unacceptable- SHDs are just being left to wither on the vine”
– In stark contrast 98% of Large-scale Residential Developments have been decided on in time with no outstanding JRs for them at end of 2023
– Another 31,000 SHD units have planning permission but are yet to start
– Mitchell McDermott says construction costs rose by just 2% in 2023 – the lowest rate of increase since they started tracking them in 2016
– Inflation increase of 2 to 4% is forecast for 2024
– Government supports are playing a key role – last year they ensured the continuation of between 10,000 to 15,000 units
– Consultancy calls for the urgent recruitment of planners, a funding plan to be drafted to plug a pending multi-billion-euro finance gap and 5,000 construction workers to be recruited every year for the next ten years
Thursday 25th January 2024 – Planning decisions on 20,683 residential housing units are up to a year and a half late due to a logjam at An Bord Pleanála while another 8,139 units are being held up in judicial reviews, a new report has found. Combined, the 28,822 units comprise almost a current year’s housing output.
Leading construction consultancy Mitchell McDermott which published the report said decisions on the 20,683 units, which are in Strategic Housing Developments* (SHDs), are now overdue by an average of 16 months.
Paul Mitchell, one of the authors of the report, said it was unacceptable that in the middle of a housing crisis so many SHD developments are being left in limbo.
“We highlighted this issue at An Bord Pleanála (ABP) previously and urged them to take on more planners, but the situation has not been addressed in any meaningful way. We are told increasing the supply of housing is the number one priority but that doesn’t appear to be the case when you see delays of this magnitude in what is supposed to be a fast-track planning system. As well as undermining confidence and creating uncertainty around so many developments, these delays also come with a cost.”
“For example, on a 100-unit scheme, it costs about €2,500 on average per unit to submit a scheme for planning. This means the delays in ABP have cost developers (and ultimately the buyer / renter) €75m on these 20,683 units. If you add the finance holding costs, it increases to €125m. This cost – over €6,000 per unit – is passed onto the consumer and all because ABP doesn’t have enough planners. So, on the one hand unnecessary costs are being generated because of inefficiencies in a state agency while on the other, Government is offering first time buyers financial incentives to help buyers address affordability.”
“While the SHD process has now ceased, existing schemes still in that system, need to be decided upon in an efficient manner. Unlike the costs of imported building materials, planning is within our control. But rather than deal with them effectively they are just being left to wither on the vine.”
While SHDs are being held up in delays and subjected to judicial reviews, in stark contrast 98% of Large-scale Residential Developments (LRDs) have been decided on time and there were no outstanding JRs for them at the end of 2023.
Mr Mitchell said the very different outcomes for LRDs provides some grounds for optimism going forward.
“The LRD process is a mix of the older standard planning application process and the SHD process. We believe some lessons have been learned from the former, while the perceived lack of public participation in the SHD process has been addressed in the LRD process. But it all comes back to resources and ABP needs more planners to clear the SHD backlog and ensure LRD decisions continue to be made on time.”
Elsewhere the report found that 87 SHD schemes comprising almost 31,000 units – or another year’s worth of output – have planning permission but haven’t yet started on site. Some 10% have just received the go ahead but the reasons the vast majority (70%) haven’t progressed are due to them being regional apartment schemes, JR delays, viability issues, and site sales.
Mitchell McDermott said general construction inflation fell to just 2% last year, down from 12% in 2022.
“The stabilisation we are seeing in the prices of building materials is most welcome after a couple of years of dramatic price increases due to Covid and Russia’s invasion of Ukraine.
Notable decreases in timber, steel reinforcement and bricks have been countered by upward pressure on ready mix concrete, blocks, mechanical and electrical, materials and labour.”
“While 2023 saw the completion of some new office builds that were already in the pipeline, there were very few new starts unless pre-let. Many companies are still using flexible working arrangements which impacts decision-making for companies considering expansion. The challenging office and retail markets means there is less new construction work happening, and this is contributing to keener pricing. Some offices may be suitable for conversion to residential units, and this could help increase supply.”
“Two percent is the lowest increase we have seen since we started tracking the inflation figure in 2016. While the geopolitical situation remains fraught and the potential exists for conflicts to impact supply lines, we are guiding a 2% to 4% increase for 2024” Mr Mitchell said.
In this year’s report Mitchell McDermott highlighted the increasingly important role of government supports for the housing sector.
Of the over 20 incentive schemes which are available for homeowners, renters and developers, the report identified Project Tosaigh (LDA), Partnerships and Croí Cónaithe as being most effective in improving supply. On the affordability side, Cost Rental, First Home and Help to Buy were seen as having the biggest impact.
Paul Mitchell said that when foreign investment dried up due to rising interest rates, the Government played a key role in purchasing and now forward-funding thousands of units. However, he warned that this level of supports wasn’t sustainable in the long term.
“Last year we saw lots of projects stall as private foreign investment exited the market. We estimate that between 10,000 to 15,000 units would not have gone ahead if they had not been taken on by the LDA, local authorities and various Approved Housing Bodies.”
“The total government budget for capital expenditure for housing in 2024 is c.€5bn, however some schemes like Croí Cónaithe have only got a funding allocation of €50m this year. If we assume that the total development cost of building around 32,000 units last year was in the region of €12.5bn, it’s clear a plan will need to be put in place for the next two to three years to plug the finance gap left by the international funds which have departed. Without the support of foreign investment funds and pension funds, Ireland will not be able to finance the estimated 50,000 housing units most commentators agree we need to be building every year to service our growing population.”
Mitchell McDermott believes housing output this year will be about 33,000 units but that it will take until the end of the decade before Ireland reaches 50,000 units per annum.
Paul Mitchell believes that after addressing planning logjams and plugging the finance gap, the third element we need to address is the lack of capacity in the market.
“There are currently 168,000 people working in construction. To go from 30,000 residential units to 50,000 pa, we will need 50,000 more workers. We need carpenters, plumbers, electricians, glazing installers and many more. We need to train more people – including young migrants coming into the country and we need to incentivise those with the required skills who are working abroad to return home.”
“Housing them will be an issue and will require imaginative solutions such as an ‘Airbnb for Builders’, construction hubs, the wider promotion of the ‘Rent a Room’ scheme and perhaps even dedicated construction worker hotels or hostels but until we make a start, the problem is only going to get worse. We believe increasing the number of construction workers by 5,000 per annum is a realistic target” Mr Mitchell concluded.
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