High cost of financing preventing house building

The cost of financing is creating an unviable house building market that is exacerbating the shortage of homes in major urban areas, according to new research.

The Davy Stockbrokers homebuilder survey found the cost of financing is putting developers off building and consequently contributing to the major imbalance between supply and demand that currently exists.

“Some of respondents, to the homebuilder survey, had said that they weren’t participating in the market because if they were to get financing it would cost a double digit percentage per year in terms of borrowing that money to develop,” said Davy analyst Colin Sheridan.

“So from that perspective, when you add that on to the overall profit and loss of your site it would make purchasing land unviable for that person, I would say. It would certainly keep them out of the market.”

A €500m housebuilding joint venture fund launched by the Irish Strategic Investment Fund and US private equity firm KKR in July, intended to kick-start activity in the sector and help alleviate the shortage of homes, has yet to have the desired effect, Mr Sheridan added.

The Government is understood to be considering possible interventions as it comes under pressure to increase the supply of housing.

Rather than introducing tax breaks for developers other measures should be considered in their place, said Mr Sheridan.

“Tax breaks are one potential way of easing that burden,” said Mr Sheridan.

“I’m not sure exactly what might be brought in. I’m sure developers would rather see it come in the form of a relaxation of existing regulations and existing levies than some sort of tax credit but every little would help.”