Builders blame government 'soft costs' for social housing expense

Critics say local authorities can build social and affordable housing for half of what private developers charge, writes Fearghal O’Connor

Private sector builders say they face costs that State sector does not. Stock image

Fearghal O’Connor

The construction industry has hit back in a new report at claims that the social and affordable houses it builds cost double what they would cost if built by the State.

Critics have argued that affordable and social housing can be built for far less if done directly by local authorities and that this suggests that builders are charging a premium for homes.

But a new report prepared by the Irish Housebuilders Association has said that the apparent cost difference is due to government and other charges that are often not counted towards the price of a local authority house.

The report argued that the viability of housebuilding was the key reason that housing supply had lagged behind demand since 2008.

"In 2019, and a trend continuing in 2020 figures to date, shows private housing supply at levels last seen 50 years ago in the 1970s," it said, highlighting the planning system and infrastructure and water costs as key problems that needed immediate "targeted action".

"The fact is policy-influenced and soft costs account for 50pc-52pc of the cost of any home, " said the report. "A homebuilder building for the State can do so for 50pc cheaper because these additional soft costs are not in play."

It claimed that if there was a "level-playing field" between public housing and private residential housing, then supply issues would not be so acute. It dismissed allegations that the homebuilding sector commands a premium when building private residential.

"The reality is that the cost difference between private and social is largely 'placed' there by the Government and agents of the State, generating billions for the Exchequer," said the report.

Construction Industry Federation director of housing James Benson insisted numerous other reports had also highlighted the impact of 'soft costs' imposed by the State, such as Vat, stamp duty, development levies and connection fees.

"When the industry builds social housing, these costs make up the majority of the cost differential," he said. "It's cheaper for the local authorities to build only because they don't face the same costs as the private sector, net of 'all in costs' referenced for authority builds."

Benson acknowledged there was an ongoing debate around who should build houses, the State or the private sector, with Sinn Féin in particular arguing for a massive affordable housing programme to be delivered by local authorities.

"It suits some commentators to ignore the reason for the cost differential and to ignore the fact that some development costs don't accrue to local authorities' balance sheet in what is classified as 'all in costs'," said Benson.

"If all homebuilding were licensed to the State, it would mean a huge hit in the billions to the exchequer. In addition, these costs would inevitably be borne by the taxpayer as they cover development work, infrastructure development and connections to utilities. Whilst we do need more local authorities building to increase housing supply, the solution is a sustainable balance between State and private sector delivery," he said.

He said it was urgent that the State find a balance to ensure an increase in annual housing output from around 19,000 to 35,000 per year.

"We have long argued that if the soft costs imposed by Government in terms of taxation and levies could be reduced that would bring down costs and enable a higher output of not just homes but affordable homes," he said.

But, he claimed, the cost of construction essentially made it impossible to build homes that the average couple could afford.

Of the 21,000 homes built last year, only 7000 were available to the market: "This gives a sense of the scale of the challenges the Government faces," he said.

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