There are 40,000 apartments with planning permission - but not much building is expected soon

CONSTRUCTION INDUSTRY FIGURES have sounded the alarm for ambitions surrounding the building of tens thousands of new apartments.

The industry estimate is that there are ‘dormant’ planning permissions for around 40,000 apartments around the country.

A 2024 falloff in apartment planning applications was one of the factors that prompted the government to change standards for new apartments in one of the most sweeping reforms to the rental sector in a decade.

By making apartments smaller and requiring fewer windows and balconies, the plan was to shave around €50,000 to €100,000 off the cost of construction for each unit.

It’s part of a drive by Housing Minister James Browne to deliver 300,000 new homes over the lifetime of this government.

Similarly, the drive to change the country’s private rental legislation was designed to entice investors into funding these types of properties, with stronger protections around security of tenure for tenants also brought in to balance the new system.

Those changes kicked in at the start of March. 

Despite this, some developers have said the buildings are often still not viable.

‘Serious viability’ problem

Developer Michael O’Flynn, whose O’Flynn Group operates in Dublin and Cork, told The Journal that there is a “serious viability issue” facing projects.

O’Flynn credited the government for “doing a lot” with incentives to developers, but he warned that Ireland is “really behind where we need to be” to meet its housing targets.

A key issue, O’Flynn added, is how much projects continue to cost due to inflation – which has only intensified since the outbreak of the war in Iran – posing a risk in the “short and medium term” to the supply housing.

A recent construction summit focused on the topic of how to make apartments viable for builders.

Michael Broderick, who heads the government’s First Home Scheme, which provides affordable housing to eligible applicants, told the summit that the state, through different housing bodies, had provided a “really important outlet” in getting developments off the ground.

However, Broderick warned that “urban development, particularly apartment development, is a materially higher risk” than other types of housing.

This is partly because developers must have an entire apartment block complete before being able to sell it, unlike in a housing estate where homes can be completed and sold in phases. A key factor for the developer is that each completed phase in a housing estate can help with financing for the rest of the project.

Last year’s recovery in building means that apartments now account for one-third of all new homes completed, up from just over 16% in 2019.

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But their centrality to the government’s housing plan is risky because of the nature of the projects, according to several industry figures.

Construction Industry Federation (CIF) director Conor O’Connell outlined to The Journal that apartment building means a developer needs to be “all in” on a project, which can be off-putting for builders.

“You can’t sell your first unit until your last unit is built,” O’Connell said.

“That can make it a difficult investment.”

O’Connell added that many apartments that were completed last year would have been “completely unviable” without state support through agencies helping to deliver the properties.

The previous dramatic falloff in apartments, O’Connell said, was due to the retrenchment of the private rental sector – but he warned “apartments will always be difficult” to fund and build.

The war in Iran has only intensified the uncertainty, with some fears over the impact it will have not just on building materials, but also investor sentiment.

Citing poorer figures for involvement of investors in apartments in the regions, away from the main urban centres, the Cork-based developer said “drastic” tax cuts could be a way of incentivising development.

Criticism of government strategy

Assistant Professor and architect Orla Hegarty of University College Dublin (UCD) argued that the government’s attempts to incentivise development by changing standards or offering tax incentives can be counterintuitive.

Efforts to nudge the viability of some developments, such as with VAT cuts and reductions in standards, can inflate land values across all residential development land, impacting affordability across the sector well into the future, Hegarty told The Journal.

Additionally, Hegarty criticised the government’s focus on increasing subsidies and reducing basic living standards for new apartments, arguing as the architect argued that these measures have not addressed the root causes of land speculation and dysfunction in the market which she said lead to the affordability crisis, a lack of real competition and boom-bust cycles in construction.

“If you’re inflating land values then those cost increases are now baked in for the next round of housing, but fewer and fewer people can afford to be in the market. It makes it harder for developers to even sell these properties,” Hegarty said.

“Unless you understand the entire complexity of the process, piecemeal and sometimes naive interventions can cause more problems than they solve,” Hegarty said.

“Land is valued on the residual by taking the eventual sales price less costs, so reducing costs doesn’t reduce the market price it increases the land value, adding to the price of housing for the next decade. As prices and rents increase, fewer and fewer people can afford to be in the market or to access the housing that meets their needs.”

This meant, Hegarty added, that housing affordability and capacity building are the “real challenges”, not supply targets and viability.

O’Flynn, the Cork developer, he pointed to grim projections in the Department of Finance’s Future Forty report last year which said Ireland would not meet the demand for housing until 2040 at the earliest.

“That’s 15 years to catch up with the deficit. We’re failing a generation of people and that’s an economic disaster for the country,” O’Flynn said.

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