Rising construction costs have almost wiped out the benefits of a recent budget measure introduced by the Government to boost apartment construction, housing developer Castlethorn has said.
As part of Budget 2026, the VAT rate charged on the sale of newly-built apartments was reduced from 13.5 per cent to 9 per cent until the end of 2030.
The cut to VAT, alongside changes to rent controls and apartment design standards in the past year, was put in place by the Government in a bid to reduce the cost of building apartments.
Last year, Department of Housing research showed the cost to develop an apartment in urban Dublin city increased by 2 per cent to €605,000, while the price of a suburban apartment rose by 2 per cent to €559,000.
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Joe O’Reilly’s development firm Castlethorn, which is currently active on eight sites in the Greater Dublin Area with capacity for 5,700 homes, has said in a statement to the Oireachtas housing committee that although the measures introduced over the past year to address apartment costs have been helpful, construction inflation has almost wiped out the benefit intended as part of the VAT cut.
“Viability in this segment has and remains a significant challenge,” the firm’s submission said.
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“The reduction in VAT has made a positive contribution to apartment viability. However, subsequent increases in construction costs have offset a significant proportion of that benefit.”
Last month, data from the Central Statistics Office showed wholesale prices for construction products rose by 2 per cent in the 12-month period to the end of April 2026. Prices for structural steel and other steel products rose by 5 per cent in that period, while costs of concrete were up 7.3 per cent.
The statement from Castlethorn, which is due to appear before the Oireachtas housing committee on Tuesday, warned expected increases in interest rates in the coming months would compound the issues developers face with apartment building costs.
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“Continuing Government support for apartment delivery is critical – recent inflation and interest rate movements serve as a reminder that continuous evolution is important to enabling viability.
“All current schemes will need to be maintained in full and increased in line with the growth in apartment delivery levels if the targeted growth trajectory under the Government’s action plan on housing is to be maintained.”
In a separate submission to the Oireachtas committee, housebuilder Cairn Homes said it has started to observe some impacts from the Government’s measures introduced in 2025 to boost apartment delivery.
Data provided to the committee by the development firm led by Michael Stanley said apartment completions rose by 39 per cent last year, compared with 2024.
Previous Cairn Homes analysis showed from January 2020 to July 2025, 25 per cent of all new housing commencements were apartments in the east and midland regions
“Having reviewed an extended period to March 2026 this activation level has risen to 30 per cent,” the Cairn Homes submission said.
