Need Low-Cost Ryanair Housing

In the 1980s, if you wanted to fly from Dublin to London, Aer Lingus would generally have charged you £200 for the journey. Adjusting for inflation, this amount equates to approximately €450 in present-day terms, a figure significantly higher than current prices.

If you had queried the hefty cost for a brief 60-minute flight or why travelling by plane was so expensive, their reasoning would have sounded rational.

They would likely have justified the price with a list of various business expenses on their end and have maintained that they only made a modest profit on each passenger (as big profits weren’t the norm for them at the time).

You might have complained about the near-duopoly that Aer Lingus and British Airways held on the Dublin-London route, but it would have been challenging to dispute their fundamental cost explanation and you might have been pacified into thinking that the £200 fare accurately represented the expenses involved.

However, this perception persistently lingered until the EU liberalised its aviation market in the 1990s, and the emergence of Ryanair demonstrated that the same service could be offered at a significantly reduced cost.

A pressing question now is whether we are currently in a similar situation to the pre-Ryanair era of expensive air travel in the housing sector, where construction costs are undeniably high and the reason remains elusive.

The construction industry has claimed that it is unable to construct affordable housing for those with average incomes and has released numerous reports outlining the steep costs of development in Ireland.

The most recent report, authored by Mitchell McDermott construction consultancy for the Department of Housing, provides a comprehensive breakdown of the expenses involved in the construction of four different building types in the Greater Dublin Area, using anonymised projects from the first quarter of 2024 as specific case studies.

The standout figure in the report was the staggering €592,000 price tag of a two-bedroom urban apartment.

Given the shortage and low density of such spaces in Ireland’s housing market (evidenced by the disproportionately low number of apartments compared to fellow European countries), there has been a significant demand for apartment housing solutions. Unfortunately, due to these high costs, construction of such properties is typically backed by foreign funds and cater mostly for affluent renters in city centres.

The Mitchell McDermott report itemised the tangible elements of construction costs, essentially the bricks and mortar component. This incorporated aspects such as substructure, structure, internal division, external casing, finishes and accessories, services and preliminary plans, accounting for €266,058 – 46% of the comprehensive development expenses. Supplementary ‘hard’ costs of €44,465 covered a car park spot (€34,229) and development works on the site (€10,236).

In terms of ‘soft’ construction costs, they were enumerated as follows: development contributions (€2,000); utility duties (€9,042); professional charges (€27,947); price of land (€70,703); sales, marketing, and legal fees (€8,750); finance charges (€8,750); developer’s risk/margin (€48,605); VAT (€56,923); contributions towards development, inclusive of finance (€13,133). The culmination of these costs gives a total development expenditure of €591,783.

One insider stated that the figures didn’t show any irregularities and provided a just estimate of local construction costs. They drew attention to the growing finance costs due to domestic banks’ reluctance to lend to this industry as a significant issue.

These observations resonate with former industry studies. A 2021 research by the Society of Chartered Surveyors (SCSI) deduced that delivering a two-bedroom apartment in the heart of Dublin within a high-rise building would cost around €619,000.

The SCSI’s findings suggested that high construction costs made the build-to-rent model more feasible than the build-to-sell model in several locations. Brian Moran, the senior managing director at Hines Ireland, echoed this sentiment in a Dublin Economics Workshop, mentioning that only the top three income deciles (those with an annual income exceeding €70,000) can afford to buy due to high manufacturing costs, especially for high-density development.

Perhaps the aviation comparison is inappropriate. Low flight costs are a result of regulation liberalisation and economies of scale. Construction firms could justifiably complain about regulatory burdens and possibly time-consuming and expensive hurdles in planning. Nevertheless, the construction industry, unlike aviation when flag-carrying airlines were prominent, has no monopolistic entities.

However, there are issues related to size. Recent research by Goodbody Stockbrokers has determined that, in 2023, the foremost ten house builders in Ireland, a group that includes both conventional house builders as well as more specialised contractors, were responsible for only 32 per cent of all new starts. This is a smaller proportion than noticed in other nations. Besides Cairn Homes and Glenveagh Properties, the two businesses publicly traded, and few more, the industry predominantly includes a significant number of smaller builders with limited resources. It is feasible that, someday, a budget-friendly, Ryanair-style housing provider will appear, presenting a more financially efficient strategy. Nevertheless, for the time being, we are struck with hefty costs and high-end price tags.

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