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Government steps in to help build apartments as big funds run out

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The halting of construction work on the high-profile Dublin Docklands site of 700 high-end apartments, where groundwork was underway, is seen as the most public example of the collapse of the apartment building sector in Ireland.

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they insisted on the developer of that site Sunday Independent The work will resume after some changes in the design. But apartment building has stalled across the sector – and according to multiple sources, the institutional funding that should have driven the growth of the private rental scheme is no longer available.

This means that the government’s insistence that it can achieve its target of 29,000 housing units in 2023 looks almost impossible, according to several sources in the construction sector.

‘The apartments are dead to the ground. Money’s leave town

Construction industry sources say the only way to save those targets is for the state to step in, one way or another — and start funding some of the tens of thousands of apartment units.

And with bad news fast coming for workers in the tech sector, state-supported social and affordable housing – despite planning complications – may be the most viable route for developers who are wondering what to do with sites earmarked for apartments. Is.

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“The apartments are definitely dead in the ground,” said a construction industry source. “There is not a PRS (private rental scheme) person left in Dublin.

“I am not aware of anyone in the industry at this point in time who is talking to anyone from PRS about funding or developing an apartment complex for them.

“Funds have left town – due to increased costs from rising interest rates and, more importantly, increased cost of construction. They only deal in a fixed price and that is impossible in the current environment.

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“It has been the perfect storm for that model. The cost of your manufacturing has spiraled out of control over the last 12 months. And then the cost of funds in the international money market has also gone up.

“The developers or the main contractor were not going to lock in a fixed price for an apartment block when it was going to take them 24 to 36 months to hand it over and receive the payment,” said the source.

For its part, the Housing Department told Sunday Independent that “reported decreased activity in the build-to-rent sector presents us with some near-term opportunities”.

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A department spokesman said: “The landscape has changed extraordinarily since Housing for All was published and we have to intervene.

“Construction price inflation, delays in supply chains and large increases in energy costs have delayed projects – and in some cases stalled. Given the prevailing interest rate environment, rising energy costs and the ongoing war in Ukraine, these Challenges will remain.

The spokesman said the Land Development Agency (LDA) is being mandated to work with major urban local authorities to activate stalled build-to-rent planning permissions for cost renting, affordable buying and social housing Could

“The Department and the LDA shall establish a process of engagement with relevant developers to identify projects that may be suitable for cost rental, affordable housing or social housing. Through open-book valuation, the capital cost of construction of a unit To subsidize a portion of this would require a new viability and affordability measure.

But in a week when the government has already committed to signing checks of up to €2.5 billion to fix the sector’s shoddy construction practices during the Celtic Tiger, some industry sources acknowledge that the relationship between the state and former developers Such opportunities for collaboration with high-rise apartment buildings will need to be handled very carefully – if it is not to be perceived by voters as just another bailout.

The most controversial of the government’s approach is the €450m Croí Conaithe (City) scheme, launched to support the construction of apartments for sale to owner-occupiers by bridging the ‘viability gap’ between the cost of building apartments in the budget went. market selling price.

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Taoiseach Leo Varadkar has been puzzling over why the 70,000 apartments that have received planning permission have yet to be built. Photo: Collins

The scheme is primarily aimed at activating the thousands of planning permissions that already exist for such homes with a target of 5,000 units by 2025.

When asked for details on how many expressions of interest were made under the scheme, a department spokesman said: “The Croy Connacht (city) scheme is currently under competition in relation to state aid to the EU DG The subject of an application. A decision is due soon.

“Until the live process is concluded, and due to ongoing commercial sensitivities surrounding the live evaluation process, it is not possible to comment further on specific details.”

At a housing summit earlier this month, Taoiseach Leo Varadkar was pushing to answer questions about why the 70,000 apartments that have received planning permission have yet to be built. He said at the summit that the “advance purchase” of apartments would be investigated.

“But no one is going to start an apartment block on spec, and no bank or funder will pay for it,” said a construction source.

“It costs a lot more to build an apartment block than a three-bed house, and you have to build the whole complex before you can sell a unit. Without some kind of pre-buying, those blocks can’t be started. Used to be.”

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‘There are rumors that it is about completing projects rather than breaking new ground’

A further complication is that planning laws were changed to emphasize higher residential densities in provincial cities.

This means that many apartment builders with planning permission in those cities were involved in large housing developments as a way of meeting these new density requirements.

A construction industry source said, “Builders are building houses but holding out on apartments – sometimes in the hope that eventually the local authority or an approved housing body will step in and buy the apartment block.”

“If the state does not intervene, who is going to pay for them? We wouldn’t mind selling a two bed apartment in Clonmel for €480,000 when you can buy a house around the corner for €310,000.

Others in the wider field are more optimistic.

“Business has been pretty good so far in January in terms of the level of activity,” said Michael O’Donoghue, country director of Wavin Ireland.

“Whether that will continue to be seen remains to be seen – as there are a variety of anecdotes and rumors around – that it is about completing projects rather than breaking new ground,” he added.

He is optimistic about the long-term growth trends in the overall construction sector, and expects that – after a decline in the first half of the year – there should be a return to growth and strong activity in the second half of the year.

O’Donoghue said, “Everyone is talking themselves into recession or recession, when now is the time we need to increase production – that’s what the market needs.”

“There is strong underlying demand for social and affordable housing, and I have no doubt that there is still equal demand in the private sector. One just has to have the confidence to build it.

“If developers are building where people want to live, homes will sell – and there is no evidence that they are not,” he said.

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