The Irish Times view on building costs: is the State paying over the odds?

One of the primary reasons why housing is so expensive in this country is because of land. To extract the best price, landowners are incentivised to hold on to it for as long as possible or to drip feed it into the market on a cyclical basis, maximising the return but driving up the cost of housing.

The Government unwittingly took part in this process after the financial crisis. In 2011 the then Fine Gael-Labour government offered prospective investors a capital gains tax (CGT) exemption if they held on to land here for seven years in a bid to whip up activity in the State’s moribund property market.

The measure was later linked to land hoarding, particularly in Dublin, at a time of chronic undersupply. Now we’re trying to reverse out of that policy initiative with a vacant site levy. But what would happen if the land element was removed from the equation and we built en masse on State-owned land via the local authorities? Surely then the cost of housing would come down.

In a report published this week, the Society of Chartered Surveyors Ireland (SCSI), the professional body for the construction industry, said the cost of delivering two-bedroom apartments in Dublin ranged from €359,000 for a low-spec, low-rise unit in the suburbs to an eye-watering €619,000 for a high-spec, high-rise unit in the city centre. And remember, that’s only the cost of delivery. The sale price tends to be 10-15 per cent higher. A breakdown of the costs involved shows the hard construction element alone – the bricks and mortar – for two-bed apartments in urban areas of the city was between €219,000 and €262,000. The calculation was based on data obtained from 49 developments in Dublin last year.

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Are the councils being taken for a ride? Or are they tied into onerous procurement processes that drive up costs and contribute to the accommodation and affordability crisis?

Contrast these figures with those circulated by Dublin City Council (DCC) last month, which show it was charged – by private developers – on average between €303,636 and €372,842 in construction costs across six separate developments on its own land. In other words, the council seems to be paying about €100,000 more for construction than the privater sector is charging itself and in the process losing the saving it should be garnering from building on land it already owns.

Comparing development costs across different projects is a tricky business and open to the accusation of confusing apples with oranges. Maybe so, but the disparity in costs between the two sets of figures warrants investigation. Are the councils being taken for a ride? Or are they tied into onerous procurement processes that drive up costs and contribute to the accommodation and affordability crisis? In a note attached to the council's figures, DCC deputy chief executive Brendan Kenny suggested as much. He said complex public contracts tended to alienate many builders. "This often limits the field where increased competition might provide better prices," Kenny said.