Study: New lender and Vat cut ‘may boost homes supply’

Setting up a specialist lender for the construction sector, like the original ACC Bank did for farming, and reducing the Vat rate on building homes could help cut costs and ease the housing crisis, according to a major new study.

Chartered Surveyors Ireland says its report called ‘The Real Cost of New House Delivery’ was the first independent survey of the costs of building a house in Dublin and other urban areas.

It found the costs of finance and Vat were significant elements in pushing up the costs of building a new home.

Its main findings are based on an in-depth survey of 10 Dublin sites which it says showed building costs of bringing a standard three-bedroom home to market costs €330,493.

It said that the high costs would likely come as a surprise to many people.

Costs include construction, site development, professional fees, finance, and accounting for a profit margin and paying Vat to the Government.

Micheál Mahon at the chartered surveyors said the costs of building in the capital, at an average €330,493 for each home, raises issues about “the viability” of encouraging the residential property supply to meet the housing needs and the demands of desperate first-time buyers for new homes.

The research throws light on “why builders are not building” despite the huge demand, he said. The surveyors favoured bringing costs down and “not bringing prices up”, he said.

The report, however, found a lack of “hard evidence” that builders and developers were hoarding land on a large scale waiting for home prices to rise to boost margins.

It suggests that ‘land hoarding’ is not as big an issue as some commentators have presented.

For the first time, the survey focuses on other costs, apart from the direct building costs which account for only 45% of overall costs of bringing a home to market.

Nonetheless, building costs are under pressure with inflation and skills shortages driving up the costs of materials and manpower, the surveyors said.

The report found that builders are building three-bedroom homes of 1,214sq feet because they say the market demands that size of home in the Republic.

In the North, three-bedroom homes are usually smaller.

House building costs account for €150,251 of the €330,493 overall costs. Professional fees, levies, land acquisition costs, sales and marketing, finance costs, margin and Vat payments account for the rest.

Among the largest of such other costs include land acquisition costs, at 17% of total costs, Vat at 12% of costs, and finance, which accounts for 6% of overall costs.

Pointing out the Government can currently borrow on debt markets at an annual interest rate of less than 1% for 10 years, Mr Mahon said that there could be scope for a specialist lender for the residential construction sector to be set up, as the original ACC bank was set up to lend to farmers.

The survey found that builders pay a blended annual cost for their borrowings of 10% a year, and that reducing these costs could help boost margins.


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