Housing policy is not easy – in Ireland or in many other parts of the industrialised world.
The report this week from the Society of Chartered Surveyors Ireland (SCSI) underlines the central dilemmas. Even when vast public subsidies go towards supporting home provision, affordability for those buying or renting is still a real problem.
Nowhere is this clearer than in the area of the market considered by the report – apartments – where the high cost of building can be subsidised in various ways, but this still means only the higher 20 to 30 per cent of earners can afford to buy or rent.
The background
The State is pouring huge resources into a range of subsidies and incentives to encourage apartment supply, with further supports on the demand side for buyers and renters.
RM Block
Among the key incentives are the Croí Cónaithe scheme to encourage buy-to-sell apartments and the Star scheme, aimed at boosting the supply of cost-rental market, where the prices to tenants is at least 25 per cent below market rates. The Land Development Agency is also active in the area.
Developers who started projects up to the end of last year – to be finished by late 2026 – also benefit from a waiver of local authority levies and also those for water connections.
More recently, VAT has been cut on the sale of new apartments from 13.5 per cent to 9 per cent. Meanwhile on the demand side of the market, first-time buyers of new homes can benefit from the Help-to-Buy scheme on new homes costing up to €500,000 and the First Home Scheme, under which the State takes an equity stake.
Why are apartments in Ireland so much more expensive to build than houses?
It is impossible to break out how much of the sum of about €11 billion in State spending on housing for 2026 – of which €9 billion in capital supports is the larger element – will go specifically on apartments. And then there is the cost of the further supports for buyers.
But on the conservative – and rough – assumption that apartments get as much State support as housing (in fact many get more), the total capital investment could be in the €2.5 billion to €3 billion region, with further supports to buyers.
The impact
A key message from the SCSI support was that the range of government assistance programmes was having an impact in terms of making projects viable. The backdrop here is that a sharp rise in costs since 2020 between about 20 per cent and as high as 50 per cent on some project types, according to the SCSI – has changed the market.
In some cases changes in the types of projects being built were partly responsible for these cost rises. The increase in interest rates from summer 2022 to late 2023 also drove out private investors – who demanded higher returns from risky projects as a result.
Looking at a range of development types in urban and suburban location, the analysis looks at the impact of the VAT cut and the Croí Cónaithe scheme. Without these supports only a minority of lower cost schemes were viable, but with them most scheme types were viable.
For example, for buy-to-sell schemes, the supports turned an average loss of €24,000 per unit into a €62,000 gain. For cost-rental projects, the supports were enough to guarantee a break-even. However in many parts of the private rented sector, developers would still face a loss, despite the VAT cut.
For the private rented sector, Dermot O’Leary, chief economist at Goodbody and a member of the Housing Commission, points out that the report assumed an investment yield of just over 5 per cent, but that there was some evidence of deals being done below this level as interest rates eased.
Policy certainty in areas such as rent controls could also help here. O’Leary also points out that the proposed changes in apartment building guidelines -now being redone after a judicial review was issued and possibly subject to further legal challenges – could, if implemented, also help to shift the dial on some projects into territory and attract more private investment funding.
The hope is that these changed viability sums lead to more apartment building. Paul Mitchell, a quantity surveyor and one of the authors of the report, also notes changes in apartment design and delivery since the last report in 2021, including the emergence of a more standardised apartment type typically in larger developments, the arrival of cost-rental projects – which make up half the 10,700 units covered by the study – and a change in suburban settings away from apartments to duplexes, which can also be designed to deliver adequate densities.
He sees these as positive developments for the industry.
The affordability challenge
While government policies may spur building numbers, affordability remains a key challenge. The cost of delivery per unit of many typical projects is in the €520,000-€540,000 range; apartments are particularly expensive to build due to the regulations surrounding their construction, including the need to usually provide underground parking spaces.
In turn these high prices lead to an affordability problem. The apartments are expensive to buy or, in the case of build-to-rent, the investor charges a high rent to get a return. Sales prices for two-bed apartments range from €480,000 for a suburban medium-rise to €650,000 for one in a central urban location. These require household incomes of between €108,000 and €146,000 to buy.
In the minority of cases, where new-build apartments cost less than €500,000, the Help-to-Buy and First Home schemes can reduce the required income for first-time buyers. But in the majority of cases the sums now dictate that the price is over the €500,000 threshold.
This difficult arithmetic leads the SCSI to calculate that only those in the top 20 per cent of income earners can afford to rent an apartment in the open market and only those in the top 40 per cent can afford to buy. Cost rental – with more properties coming on stream – is aimed at those earning less than €66,000 in Dublin and €59,000 elsewhere after income taxes are paid.
Individual circumstances will change tax bills, but generally this means cost rental applies to households with gross income below about €85,000.
As things stand, cost-rental schemes that come on the market are hugely oversubscribed. And tenants need to be able to pay the rent, which, even with a discount of 25 per cent on market levels, may be out of reach for many. Also, there is a group of people in the middle ground who do not qualify for cost rental but still cannot afford to buy or rent in the private market.
The policy problems
The Government is in deep in the apartment market and faces the choice of whether to go in deeper. There have been signs of Department of Finance nervousness of the increasing risks being taken on by bodies such as the Land Development Agency and Approved Housing Bodies and what limited studies there have been show that the cost of delivery under the State schemes is high and variable.
But under political pressure the Coalition is pressing ahead. It seems a good bet that the levy waiver on local authority and water charges will be extended to try to accelerate development.
The SCSI is also calling for more incentives to try to attract more international developers into the private rented sector and to increase development in city centre brownfield sites.
With apartment building seen as vital to increase the numbers living in “denser” city centre developments, the choice for the State is which levers to pull to try to accelerate building. And how to match this with the reality that even if it succeeds, average earners will still need significant supports to buy or rent. Despite the massive State supports, the affordability issue remains a central problem and a big question for policy.
The Coalition will not meet its housing targets without more apartment supply, but is it worth putting in yet more incentives for private developers when most people will not be able to afford what they provide?
