In the 1980s, Aer Lingus would have typically charged you £200 to fly from Dublin to London. In today’s money, allowing for inflation, that’s about €450, a multiple of what you might expect to pay now.
If, back then, you had asked the company why it cost so much for a relatively short, one-hour flight or why air travel in general was so pricey, the company would doubtless have given a well-grounded explanation.
It would have listed the cost inputs that gave rise to the price tag while insisting it was generating only a modest margin on each seat (the company didn’t make big profits back then).
You might have grumbled about Aer Lingus and British Airways having an effective duopoly on the Dublin-London route but it would have been difficult to refute the company’s basic cost premise and you might, quite reasonably, have gone away cowed into thinking that the £200 price was an accurate reflection of costs.
That would have been until the EU liberated the continent’s aviation market in the 1990s and Ryanair came along and proved the same product could be delivered for a fraction of the cost.
A question then arises as to whether we might be living in some sort of pre-Ryanair 1980s phase of housing with the cost of construction irrefutably high and for reasons that no one can quite explain or see a way around.
The industry says it can’t build homes at affordable rates or for people on average incomes and has produced several reports detailing the extraordinarily high cost of development here.
The latest, by construction consultancy Mitchell McDermott, on behalf of the Department of Housing, provides a line-by-line account of the costs involved in delivering four different building types in the Greater Dublin Area (a three-bed semidetached house; a two-bed suburban apartment; a two-bed urban apartment and a purpose-built student accommodation unit).
[ Building a two-bed apartment in Dublin now costs almost €600,000Opens in new window ]
The study used specific “anonymised case study projects” dating from the first quarter of 2024. The eye-catching number was the near €592,000 cost for a two-bed urban apartment.
Apartments are what Ireland’s low-density, undersupplied housing market has been crying out for (we have a disproportionately low stock of apartments compared with our European counterparts) but at these costs, they can only be funded and built by foreign funds and predominantly for affluent city centre rental markets.
The Mitchell McDermott report put the hard construction costs, effectively the bricks and mortar element, (the list included substructure, structure, internal subdivision, external enclosure, finishes and fittings, services and preliminaries) at €266,058, which accounted for 46 per cent of the total development costs. There was an additional €44,465 in hard costs which comprised a car parking space (€34,229) and site development works (€10,236).
The so-called soft construction costs were as follows: section 49 development contributions (€2,000); utility levies (€9,042); professional fees (€27,947); land costs (€70,703); sales, marketing and legals (€8,750); finance costs (€8,750); developer risk/margin (€48,605); VAT (€56,923); development contributions, including finance (€13,133).
All of which gives rise to a total development cost of €591,783.
One industry observer said there was no smoking gun in the figures and that they were a reasonable and fair account of construction costs here. He pinpointed the acceleration in finance costs with the domestic banks effectively not lending to the sector as a key problem area.
Either way, the findings echo previous industry reports. In a 2021 study, the Society of Chartered Surveyors (SCSI) calculated the cost of delivering a two-bed apartment in Dublin city centre in a high-rise unit at €619,000.
The SCSI’s report suggested that the build-to-rent model was more viable than the build-to-sell model in many locations because of high construction costs.
Brian Moran, senior managing director at Hines Ireland, said something similar at the recent Dublin Economics Workshop, suggesting that because of high production costs, particularly for high-density development, it’s only the top three income deciles (those earning above €70,000 a year) who can afford to buy.
Perhaps the aviation analogy is misplaced. Low air fares are a product of two things: deregulation and economies of scale. Construction companies may reasonably complain about the level of regulation imposed on them and the potential time and money-sapping pitfalls involved in planning but there are no monopolies at least none that compare to the ones that existed when so-called flag-carrying airlines dominated aviation.
There are, however, problems with scale. A recent report by Goodbody Stockbrokers found that top 10 builders of homes in Ireland in 2023, a list that comprises traditional home builders and more specialist contractors, accounted for 32 per cent of total commencements, a smaller share than what is seen in other countries.
Outside of Cairn Homes and Glenveagh Properties, the two publicly listed companies, and a few others, the sector comprises a large number of small builders with limited capacity.
Perhaps a no-frills, Ryanair-like housing provider will, one of these days, emerge with a more cost-effective formula but for now we’re stuck with high costs and high-end prices.
