THE THREE-SIDED COIN: SOCIAL HOUSING, MORTGAGE

RULES & CONSTRUCTION COSTS

Ronan Lyons, Trinity College Dublin

Housing Ireland’s Recovery

European Commission/ESRI, November 2015

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Short run: construction costs relative to income

• Let’s take a 2+2 family on €45,000 (roughly 60th %ile)• Monthly disp income of ~€3,000 means max on housing ~€1,000

• How many sqm of new construction could they afford?• Take a building of 100 2-bedroom apartments in Dublin• DCC effective min size of 85m2 – also height restrictions, costs

relating to lifts and parking per unit, ceiling heights, orientation…

• At €1,830/m2, hard costs of ~€155,000 per unit• “Soft cost multiplier”: finance, levies, VAT, 12.5% profit, prof’l fees

• Full cost – excl land – of ~€275,000 (~€1,400 a month)• At net yield of 5%, and allowing 20% maintenance costs

• Vs. Prevailing two-bed rents of €1,200 (Dublin), €600 (other cities), €500 (outside cities)

ESRI-EC | November 2015

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Linking construction costs to everyday incomes

Status Quo – 2+2 family

Hard costs / sqm €1,830Min sqm 85Multiplier 1.77Total unit cost (excl land) €275,185Cost/rent ratio 200Break-even monthly rent €1,376Break-even rent / sqm €16Annual gross income €45,000Max monthly housing spend €1,000Max sqm 62Monthly subsidy required €376

ESRI-EC | November 2015

Allowing land costs, only

richest 15% of households

could afford new 2-bed without

subsidy

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Status Quo – 2+2 family

Scenario – 2+2 family

Hard costs / sqm €1,830 €1,500Min sqm 85 60Multiplier 1.77 1.77Total unit cost (excl land) €275,185 €159,300Cost/rent ratio 200 200Break-even monthly rent €1,376 €797Break-even rent / sqm €16 €13Annual gross income €45,000 €45,000Max monthly housing spend €1,000 €1,000Max sqm 62 75Monthly subsidy required €376 -€204

Linking construction costs to everyday incomes

ESRI-EC | November 2015

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Beyond the short term: fixing land use policy from “last use” to “best use”

Dublin Bus coreroutes & depots

ESRI-EC | November 2015

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Incentives & need for joined up taxation

~150 acres

DCU

Phoenix Park

Green space

Terminus ofX-city Luas

Trainstation

O’Connell St(1 km)

ESRI-EC | November 2015

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Lack of supply: causes, not symptoms

ESRI-EC | November 2015

• Firstly, for those on moderate incomes, excessive construction costs• House prices tied to incomes (sensibly) – but costs not• Housing standards as discrimination against low-income families

• Secondly, for those on inadequate incomes, dysfunctional social housing system• Housing subsidies should not be a fixed supplement• They should bridge the gap between inadequate incomes and

construction costs – the bigger the gap, the bigger the aid

• Core Q: what % of households should we subsidise?• Build cost of homes should be benchmarked to that• E.g. if 30%, cost of minimum socially acceptable unit (in monthly

terms) should be one third of disposable income of 30th percentile

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Are we heading in the wrong direction?

• Thank you for your time!

• Looking forward to questions and comments

ESRI-EC | November 2015