The construction industry slowdown and falling house prices may not have reduced the cost of home insurance, but at least it is rising at a much slower rate, writes Fiona Reddan
HOMEOWNERS COULD be forgiven for thinking that the current slowdown in Ireland's construction industry along with falling house prices would have led to a decline in their home insurance costs.
However, house rebuilding costs, which determine the cost of home insurance, have actually risen over the past 12 months, according to a new guide.
The one positive thing is that, in general, price increases are actually running a little lower than general inflation. In Dublin, the increases are running at almost half the rates recorded during the period 2006-2007.
The Guide to House Rebuilding Costs, published by Ireland's largest construction and property industry body, the Society of Chartered Surveyors, shows that re-instatement costs have risen across the board in all five major urban areas surveyed, with the highest price increases recorded in Cork.
The survey covers typical estate-type houses (from a two-bed terraced up to a four-bed detached house and bungalows) built in the Dublin, Cork, Galway, Limerick and Waterford areas since the 1960s, and refers to an average fit-out, not including fire alarms, security alarms, any outbuildings, walls, fences or patios.
The surveyors' guide is a useful tool for homeowners who want to figure out the correct re-instatement value of their homes for insurance purposes.
"Homeowners should use the guide to ensure that they are correctly insured, as even minimal home rebuilding cost increases such as those in this year's survey must be taken into account to avoid any difficulties in the unfortunate event of insurance being needed to cover loss," says the society's president, Seán McCormack.
The market value of a property is completely irrelevant to the re-instatement cost, says Mr McCormack. This means that while the price of your house may be dropping, the cost of rebuilding it is actually increasing, as inflation is driving up labour and material costs.
The good news, however, is that the rates of increase have slowed, and are generally running at a lower rate than in the previous 12-month period.
Moreover, the average price increases recorded in Dublin, of 2.48 per cent, were last seen before the housing boom. In 2007, an increase of 4.37 per cent was recorded, while back in 2002, the cost of rebuilding a house in Dublin increased by 7.21 per cent.
Looking ahead, Mr McCormack says that it would be "reasonable to speculate" that prices may level off next year.
The lowest rates of increases in this year's survey were recorded in Dublin. The highest increase recorded in the city over the year was 2.77 per cent for four-bed detached bungalows, significantly lower than equivalent figures in other locations.
Two-bed terraces recorded the lowest increase of 2.31 per cent to €205 per sq ft (€2,211 sq m) but are still the most expensive house type to rebuild in Dublin.
Price increases were most significant in Cork, where, on average, the cost of rebuilding homes increased by 3.84 per cent over the past year.
Owners of detached four-bed bungalows fared the worst, with re-instatement costs up by almost 4 per cent to €139 per sq ft (€1,491 per sq m), while the cost of rebuilding two-bed terraced houses grew by the smallest amount, by 3.73 per cent to €155 per sq ft (€1,668 per sq m).
Two-bed terraces are also the most expensive houses to rebuild in Cork, while four-bed detached and semi-detached houses are the cheapest.
Between Waterford, Limerick and Galway the highest price increases were recorded in Waterford, where prices increased on average by 3.63 per cent on 2007, compared with increases of 3.56 per cent in Limerick and 3.4 per cent in Galway.
Of all house types in Waterford, the cost of rebuilding detached bungalows increased the most, with prices up by 3.73 per cent to €132 per sq ft (€1,420 per sq m).
A three-bed semi-detached home remains the most expensive house type to rebuild in Waterford, at €153 per sq ft (€1,642 per sq m), while a four-bed detached bungalow is the cheapest.
In Limerick, the biggest increase was seen in two-bed terraces, with the cost of rebuilding jumping by 4.32 per cent to €159 per sq ft (€1,715 per sq m). This house type remains the most expensive to rebuild in Limerick, while the cheapest is a four-bed semi-detached, at €137 per sq ft (€1,472 per sq m).
As in most other cities, four-bed detached bungalows recorded the highest price increases in Galway, up by 3.48 per cent to €133 per sq ft (€1,429 per sq m).
Similarly to Limerick, two-bed terraced houses are also the most expensive to rebuild in Galway, at a cost of €155 per sq ft (€1,663 per sq m), indicating an annual increase of 3.29 per cent.
Overall, the most costly home to rebuild is a two-bed terraced house in Dublin again this year at €205 per sq ft (€2,211 per sq m), with Limerick following behind at €159 per sq ft (€1,715 per sq m).
The cheapest house to rebuild is a detached bungalow in Waterford, at €132 per sq ft (€1,420 per sq m).
Dublin homes of all types are still the most costly to rebuild on average, at €194.5 per sq ft (€2,094.66 per sq m) although the gap is now closing a little.
However, in some cases, the differential between Dublin and the four other areas - Cork, Galway, Limerick and Waterford - is significant.
For instance, a four-bed detached house costs €192 per sq ft (€2,071 per sq m) to rebuild in Dublin, compared with just €139 per sq ft (€1,491 per sq m) in Galway, while a two-bed terraced home costs €205 per sq ft (€2,211 per sq m) in Dublin and just €150 per sq ft (€1,618 per sq m) in Waterford. The surveyors' guide also explains that many house insurance policies contain the standard "average clause".
This means that unless the property is insured adequately, the householder may be penalised under their policy by having to pay a certain proportion of the rebuilding costs. "This proportion is based on the percentage by which the house was under-insured and it can be substantial. So it is crucial to have your property sufficiently insured," stresses Mr McCormack, who also recommends that householders ensure that their policies are index-linked as well to avoid any shortfall in insurance payments.
For 2008 cost tables for all featured locations, visit www.scs.ie.
HOME INSURANCE: DON'T BE AT A LOSS
IT IS important to remember that the costs estimated by the Society of Chartered Surveyors represent the minimum value for which homeowners should insure the structure of their homes.
The costs are calculated on a total loss situation, ie the house has been totally destroyed and has to be demolished and rebuilt. So in addition to demolition and reconstruction, the costs also allow for the fees of building surveyors, architects, quantity surveyors, and for value added tax. They do not, however, cover other costs, such as boundary walls, garages and fitted kitchens.
Homeowners should remember that insurance for the structure of a house does not include any allowance for contents such as carpets, curtains, loose furniture and domestic appliances. As such, a separate insurance policy for contents is required. Rebuilding costs will also depend on the type of house - for example, a Georgian home, a modern home, or a home with or without a basement will all have different insurance values.
The Financial Regulator recommends that homeowners make sure their homes are insured for the right amount. If a house is insured for too little, then the policy might not pay out enough for the cost of repairing or rebuilding it if is damaged or destroyed.
If a house is insured for only 75 per cent of the total reinstatement cost, then a homeowner can only expect to receive 75 per cent of the agreed cost of reinstatement, whether the claim is made for partial replacement or total loss. On the other hand, if the house is insured for too much, premiums will be higher than necessary and homeowners will not get any extra benefit if they have to claim as they are only covered for actual loss.
When renewing a home insurance policy, as well as taking into account the increases in reinstatement costs as provided by the society or ensuring that their policy is index-linked, homeowners should also take into account any improvements or extensions they may have made over the past year.
