Irish Building Costs and The Investment Decision

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There have been many inconsistencies in the building costs for many projects. The figures being reported in relation to public and private approaches to housing delivery do not appear to evidence the type or size of property being built or acquired. It is important to set the record straight for people that are interested in delivering value for money on both sides of the argument. When figures are quoted for homes produced by local authorities or their agents, it is important to know what is included in the costs; This is especially true for lands that are state owned.

It is actually very unlikely that a local authority would apply these costs for their own projects. Time is money in the property development business, and it is very important to establish the timelines that are covered. On average it takes around 1 to 3 years to tender a social housing development. This leaves a gap of up to three years for land and other costs to increase or decrease between tendering and delivery. The listing of figures without any interrogation is misleading, and it happens to mislead on the basis that it suggests that prices paid to developers for homes are far and above the cost of production.

When there is an approved housing body or a local authority purchasing a turnkey home from a developer, all the above costs are included as the cost of designing the scheme. Funding the project and its market risks are also included in the cost of designing the scheme. There is no point in denying that there is an element of profit included in a turnkey home supplied by a developer. The underlying fact is that when developers take a risk on property development, they would like to see a high return in profit.

This is not to undermine the important of the value-for-money, and in particular the value of housing delivered on public land at affordable prices by not-for-profit developers. The cost involved in developing these housing options is very important for investors to take a note of. People would not invest in housing options if they knew they knew they were not able to fully realize profits. This is especially true in Ireland because the housing industry has changed over the past few years. Also, the Covid-19 pandemic has slightly thrown a wrench in housing developments. It will be interesting to see how the market bounces back the next few years.