Fact check - can a house be constructed for €250k?

​In a March opinion piece in the Irish Times  Dermot Desmond set a stretch target of €250k for the Property Industry in Ireland to deliver an affordable home. The homes would be constructed on State owned lands with a payment of €50k being made to the land owner. This implied the high level cost breakdown in Figure 1.

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Figure 1 - Cost Breakdown

Mr Desmond then proposed, to assist affordability, that the state would provide a second interest free mortgage of between €10k and €50k per household depending on their income and occupation. The second mortgage would be repayable on the sale of the house. The funding approach is illustrated in Figure 2.

Figure 2 - Funding Approach

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​Estimates from benchmarked construction projects indicate that the buildup of the base construction cost of a 1,000 sf ft house would be as indicated in Figure 3 - 1,000 sq ft House Construction Cost Buildup.

Analysis shows that with free land a reduced size affordable house of 1,000 sq ft could be developed for sale at €210k. (€266.8k incl. land). This assumes that serviced land is available at zero cost on which to build these homes. Including the land cost the outturn cost is €16.8k over the €250k target that had been set. From experience it it probable that site development costs would be higher than the noted €18.6k on account of the unserviced nature of such sites and the requirement to bring services to the sites - this would increase the excess over the target further.

​At a sale price of €267k, a proposed government interest free mortgage of €50k could be added to personal funds of €217k to buy such a house. This could be raised by a standard mortgage with a gross household income of €61.9k given the Central Bank LYI multiplier of 3.5x.

Figure 3 - Construction Cost Breakdown, 1,000 sq ft house

Government receipts are still significant at this sale price (estimated at €66.9k). Given the market failure to service this sector of the housing market these are houses that otherwise would not be constructed (on account of viability issues) and thus, the additionality may be near to 100% with increased government receipts being able to cover the cost of funding a €50k interest free loan.

Conclusion
Delivering a house at a price target of €250k is risky and challenging and involves a number of assumptions around procurement costs and overheads being equivalent to the private sector, the specification (smaller) of the home and the cost of site development. Further reductions could be achieved through reducing development contributions payable to local authorities. There are a number of community schemes in the market built on a not for profit basis on public land that appear to achieve this cost target, however, significant subsidy has been given to facilitate construction at this price point. 

The exchequer receipts generated by constructing such houses are significant and could possible go towards funding of a scheme (using a government loan) given the likelihood of such homes not being provided on a for profit basis given private sector viability issues at this price level.

​Full report can be downloaded here