Apartments can't be left to flatline

Apartments can't be left to flatline

Following of a landmark report on why apartment delivery matter for Irish cities, Cork Chamber CEO Conor Healy extends the debate.

As a Chamber of Commerce representing 1,200 businesses, and 100,000 working people in Cork, we actively support the detail and intent of Ireland 2040.

Setting forth a spatial and economic plan, that is bound to a capital plan, legislated for and overseen by a group made up of the secretaries general of each government department is a move that differentiates Ireland internationally.

The structure is unique, and the intent is visionary and bold.

But, as ever, only delivery can prove the intent.

The place of Cork within that plan, with commitments to be the fastest-growing City Region in Ireland between now and 2040, is a Governmental recognition of everything we know to be true about Cork.

Our city regions have a common purpose that is well set out by City Regions Ireland, a new movement spearheaded by the five-city region Chambers of Commerce.

Four of the eight guiding principles for City Regions Ireland are:

1. Plan for Core Density and Reduce Urban Sprawl

2. Increase housing supply

3. Rejuvenate our city centres

4. Invest in public transport

The aspirations and frustrations of Irish city regions are one and the same.

As a Chamber, we have a clear mandate from our members to advocate for all that is good for the economic resilience of Cork.

At present, the top priorities of our members are the delivery of public transport infrastructure and the delivery of affordable accommodation to meet the needs of an expanding workforce.

Speaking more precisely, the demand is for city living to complement our suburban offering.

To attract talent, we must create a magnetising experience, a vibrant lived-in city, facilitated by the delivery of quality affordable apartments.

On a quick tour of Cork you will see the active development of student accommodation; the mobilising of traditional housing in select suburban areas; the expansion of third-level campuses; warehousing; high-end manufacturing; hotel and leisure facilities and, of course, significant levels of long sought-after city centre office developments.

It is clear the private sector has responded very deliberately and favourably to Ireland 2040.

There will be 10,000 new jobs in the city centre over the next five years.

Yet the question that arises time and time again is “Where are these people going to live?”

Conor Healy. Picture: Dan Linehan
Conor Healy. Picture: Dan Linehan

Quite critical to talent attraction, a question of equal frequency and importance is, “Where do these people want to live?”

The answer today in 2019, is that we are not delivering on those demands.

Apartment-led city living is essential to economic success and if we don’t make progress it will stunt our immediate growth, our attractiveness in terms of place and challenge the fundamental spatial concept set out in Ireland 2040 of delivering density in our cities.

Such density also has a significant impact on the delivery of many of the essential aspects of the Cork Metropolitan Area Transport Strategy (CMATS).

We have multiple consented developments and planning applications for brownfield apartment developments, but the obvious and gaping omission is delivery.

While stating the obvious I believe it is necessary to state the obvious: Planning approvals and actual development are two very different things.

So, in the belief that the construction sector will respond where there is viability we set out, with our colleagues in CIF to commission EY DKM to better understand the key elements surrounding delivery of brownfield apartments.

With the support of local developers, we looked at four real Cork projects, representing 1,000 accommodation units, with detailed breakdown, to understand the costs, the impediments and the areas of opportunity.

We looked at affordability for buyers and renters and we set out the economic value to the state of an enabled apartment construction sector.

Apartments can't be left to flatline

Finally, we set forth recommendations for Government to consider.

Our challenge to Government is clear: remove the barriers to viability and we will fulfil the vision of high density, sustainable city living.

We do not pretend the solution is simple, that it is easy, or that there is a silver bullet, but we must implement change, or we will fail.

The final report was launched on Monday and the following insights will be startling for some, come as no surprise to others but ultimately, we believe the challenge is surmountable.

Cork needs 27,300 new housing units by 2030 to complement workforce growth of 65,000. Currently, 19,000 units could be built on zoned lands across the City.

Based on current costing to deliver the consented schemes that we have examined, the projected sales price of a new two-bed apartment in Cork city ranges from €389,000 to €486,000, meaning that a first-time buyer would need an income of between €100,000 and €125,000 to afford such a home in Cork city, the Docklands or suburbs.

The same buyers would also need a cash deposit of between €39,000 and €49,000 to secure a mortgage.

When looking at the viability of built-to-rent apartments, the report found that the average monthly rent would need to be €2,500 for a two-bedroom apartment in Cork city and €3,000 for a three-bed apartment in order to ensure viability.

For reference, average rent in Cork today is under €1,400.

Apartments can't be left to flatline

It is clear then that hypothetical delivery based on current cost structures could at best deliver for a tiny segment of the market who are willing and able to engage at these price thresholds.

The report found that the physical or ‘hard’ costs of an apartment typically equate to just 48%-56% of the overall construction costs.

Meanwhile, the assessment found that 30% of the total sales price of a new apartment goes directly to the State.

In seeking to enhance viability, it is important to acknowledge that certain Governmental steps have led to improvements. For example, apartment guidelines have already stripped out some hard costs while the Local Infrastructure Housing Activation Fund, although slow and cumbersome at times is bearing fruit.

With sensible intervention in a broken market we can make progress.

Of our 16 recommendations I’ll highlight five:

  • The immediate extension of the Help to Buy scheme from December 2019, which provides a rebate of up to €20,000 for first-time buyers of new properties. The Government should also consider a more targeted scheme, with higher rebates for new apartments delivered in the city centre/docklands and suburbs.

  • Expand the Living City Initiative to provide tax relief for owners and small scale investors, to encourage apartment construction in Cork City.

  • Waive the Section 48 (and S49, where applicable) development levies for city centre designated areas for a short-term period of up to two years to encourage apartment development. This would reduce the cost of the average apartment by around €5,300 in total.

  • Reduce the cost of Irish Water charges for apartment developments, as there is less infrastructure required for apartments than for housing on greenfield sites, yet charges are the same which would amount to €5,089 per unit, for schemes with over 100 units.

  • Reduce VAT from 13.5% to 9% for a short-term period of two years.

    I referenced earlier that 30% goes to the State in one form or other. In a functioning market, that’s fine but with the current market it goes without saying that 30% of nothing is still nothing.

    Through our recommendations, if we stimulated the development of the 1,000 apartments in our report alone the result would be an additional €240m Irish GDP, 3,390 jobs and additional exchequer revenues of up to €137m.

    To be clear: the delivery of apartments is constrained by a lack of viability.

    There is universal support for the principle of high-density city living. It is no longer the urbanists dream; it is the accepted wisdom.

    The private sector will deliver the vision of Ireland 2040, if it is enabled. It is already delivering in every viable facet of the built environment.

    Government and the private sector must continue to work together with Ireland 2040 as our framework.

    It is the only way that we can deliver for Ireland’s city regions.

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