Press Article, Independent: New rules to prevent repeat of botched buildings

by Bregs Blog admin team

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In the following Independent article from 26th February 2014 Minister Phil Hogan criticised “wild exaggerations” made in relation to the increased costs of building a home which will arise, saying the likely impact on homeowners would be between €1,000 and €3,000 per unit.

Link to article:

http://www.independent.ie/irish-news/new-rules-to-prevent-repeat-of-botched-buildings-30041874.html

Extracts: There are also fears that people who directly employ labour to build a family home may be forced to pay higher costs because experts will have to be employed to sign off on the works.

But there are concerns they will result in higher costs and the exclusion of some people working in the industry who may not have qualifications, despite years of experience.

“Owners and developers will now be required to assign a competent person to inspect and certify the works. This requirement could add between €1,000 to €3,000 per housing unit to the overall building costs, although in reality this actual cost will be decided by market forces.”

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Comment:

It would appear that Minister Hogan is quoting from the only Regulatory Impact Assessment (RIA) done on SI.9 (previously SI.80) completed in 2012. See document here The RIA part (section 4)  is only six pages long and does not appear to be backed up with any research, methodology or explanation as to how these figures were arrived at. The only costs noted are a notional cost per dwelling of between €1000 to €3000. Costs associated with self-builds, non residential capital projects, delays due to industry readiness, other non-residential projects were not listed. The cost of SI.9 to SME’s is not addressed.

In the absence of any detailed government costings for SI.9 here is an extract off a previously tabled industry estimate of the cost of SI.9 on the industry, taxpayer and consumer. Based on these figures the initial cost of SI.9 could be €600m for 2014 with €480m an recurring annual cost based on record 2012 low levels of construction output.

By 2020, in 6 short years, SI.9 may have cost the economy €3bn, or 30,000 jobs.

ESTIMATED ANNUAL COST 2014 FOR BC(A)R SI.9

RESIDENTIAL PROJECTS (€1.476bn qualifying)

1,800 houses not built in 2014                    €325m

Increased costs for self-builders                €103m

Increased professional costs on consumer   €21m

SUBTOTAL RESIDENTIAL                      €449m

CAPITAL PROJECTS (€600m qualifying)

Increased cost for qualifying capital spend €18m

Cost to capital projects due to delays          €69m

SUBTOTAL CAPITAL PROJECTS              €87m

NON RESIDENTIAL-PRIVATE SECTOR (€400m qualifying)

Increased costs for non-residential sector   €12m

Cost to non-residential due to delays          €46m

SUBTOTAL  NON RESIDENTIAL             €58m

TOTAL SI.9 COST (2014)                            €594m

Notes:

RESIDENTIAL PROJECTS: Assume €1.476bn qualifies under SI.9 out of €3.94bn total; this is equivalent to 8,700 house completions with average house cost €180k incl vat. The 1,800 houses not built in 2014 are based on IASOB assessments: self-builds abandoned- recurring loss annually due to 1,800 house starts lost with a value €180k average cost incl vat for each house. The increased costs for self-builders : this is self-builds that assume additional costs and  will be a recurring additional cost for 4,500 self-build houses @€23k per house for additional contractors fees, costs and professional fees. The increased professional costs on consumer are for non-self build residential: these are recurring annual cost for 4,200 houses  for additional professional fees at €5k per typical house (industry sources) including assigned and design certifier, ancillary or other professionals increases in fees.

CAPITAL PROJECTS: assume €600m qualifies under SI.9 out of €3.2bn this year. The increased cost for qualifying capital spend  is tabled at the lower (consevative end) for government projects- recurring cost on €600m capital spend: +3% average on construction cost net vat. The cost to capital projects due to delayed implementations is a 6 week delay; a once-off non-recurring cost (2014 only).

OTHER NON RESIDENTIAL (PRIVATE SECTOR): assume €400m qualifies under SI.9 out of €673m total. The increased costs for qualifying non-residential private sector  will be a recurring cost of conservatively +3% on construction cost. The table excludes all agricultural construction output. The cost to private sector non-residential due to delays  is again a 6 week delay once-off cost non-recurring (2014 only).

The above costs exclude all agricultural projects, infrastructure and domestic qualifying extensions/ refurbishments. Once-off delay to industry assumed lower end of current industry estimates at 6 weeks in 2014. Delay in completion or validation period assumed part of this figure. 3% extra cost for non residential projects at conservative end of current industry estimates for all certifier roles, ancillary certifiers and sub-contractors etc. As such we suggest the above table of costs is at the lower end of the predicted cost range for SI.9. Figures based on 2012 construction outputs from Forfas report (table 2.12 (p16) Value and volume of construction output, 2012-2012E; Source: DKM Economic Consultants analysis for Forfás, 2012). As the current construction levels are assumed to be at the bottom of the current cycle these increased costs should pro-rata upwards as construction output recovers in coming years.

Link to Forfas report:

http://www.forfas.ie/media/19072013-Irelands_Construction_Sector-Publication.pdf

Extract off Forfas report table 2.12 p 16

forfas report table 2.12 p16

 

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