According to a new analysis, despite an increase in the viability of apartment building, affordability remains a major challenge, especially for first-time buyers.
A first-time buyer couple requires a minimum salary of between €108,000 and €146,000, the study said, while listing the sales price of a two-bedroom apartment as being between €480,000 and €650,000.
The paper, The Real Costs of New Apartment Delivery, comes from the Society of Chartered Surveyors Ireland and makes the case that Government interventions have successfully addressed a financial viability gap for the construction of new apartments.
It found that new apartment delivery costs have risen “significantly” since 2021, a development attributed to both higher construction costs (described as ‘hard costs’) and ‘soft costs’ (such as fees, levies, land prices and other non-structural costs).
Total development costs have increased across all apartment categories since 2021, with the lower cost range of Category 2 seeing the largest change over the four year span, rising 32 percent (€411,000 to €541,000).
The report focuses exclusively on medium-rise apartments in suburban and urban locations in Dublin (Category 2, Category 3, and Category 4).
Category 2 is comprised of 3-6 storey blocks, which are typically located in suburban environments. Category 3 features 5-8 storeys, usually in urban settings, while Category 4 is 9-15 storeys, also typically occupying urban settings.
The analysis found that the contribution of hard costs to the overall development costs has also increased, averaging 50 percent of the overall cost.
This is compared to 47 percent in the 2021 report.
Viability for a new two-bedroom apartment was based on a 15 percent gross margin/risk financing hurdle, with projects below this line deemed financially unviable, while those above the line
were deemed financially viable.
Without State intervention, only the lower cost ranges (as opposed to the higher cost ranges) of Category 3 and Category 4 were deemed financially viable, meaning that only two of the six categories of apartment building considered were viable without Government action.
However, following Government intervention, the analysis suggested that the viability of the new
two-bedroom apartments across the cost ranges of the categories saw “significant improvement,” with all bar one category (Category 2 higher range) achieving financial viability.
Made use of in the analysis were Government measures such as reduction in VAT (13.5 percent to 9 percent on sales), as well as the Croí Cónaithe support schemes.
Despite improved financial viability, however, the report found that affordability remains a key challenge, particularly for first time buyers.
Government affordability measures (the Help to Buy scheme and the First Home Scheme), are “constrained” by a €500,000 sales price threshold, the analysis reads, meaning that they are available only to the lower cost range of the Category 2, new two-bedroom units.
“The Help to Buy scheme can be utilised to help first-time buyers save for a deposit and therefore does not change the salary requirements to afford a house. The First Home Scheme, which requires buyers to release equity in their property, reduced the salary requirements by €24,000 (now €84,000),” it said.
Paul Mitchell, chartered quantity surveyor and one of the co-authors of the report, said that the “affordability gap” “prevents most average income earners from accessing apartment supply without significant government supports”.
“Based on CSO figures only the top 20 percent of earners in Ireland can afford to rent an apartment, only the top 40 percent can afford to buy an average apartment, while the cost rental scheme, which has defined parameters, is targeted at couples earning less than €59,000-€66,000 net,” he said.