The state agency tasked with providing affordable housing said it will not be able to solve the housing crisis unless it gets more money from the government, as inflation is driving up construction costs.
The Land Development Agency (LDA) was given a five-year budget of €3.5 billion under the state’s Housing for All plan in September, but its chief executive already believes high inflation means the money won’t last as long.
“Nobody is suggesting that we would lower our targets, but it will cost more to reach them,” said LDA executive director John Coleman. “We may need to return to government sooner to seek more capital.”
Such a move would put the government in a difficult position as it would effectively have to spend more money or accept the housing crisis that cannot be resolved in the promised time frame.
The LDA plans to deliver 8,000 affordable homes by 2026 and will break ground on two developments in Dublin and Cork this year.
However, the LDA has already had to adjust contract terms with builders to account for more expensive materials and introduce a variable component that is likely to increase the cost of projects just underway.
“Under these circumstances, it’s very difficult for contractors to commit to a fixed price for two or three years, which is what we’re asking them to do,” said Mr. Coleman. “The government is looking at ways to introduce more flexibility to accommodate them in a fair and reasonable way when dealing with the risks and costs.”
The Society of Chartered Surveyors in Ireland (SCSI) said the annual rate of construction price inflation reached 13 per cent in 2021 and was likely to worsen later this year due to the global impact of the war in Ukraine.
Their most recent Tender Price Index showed high price volatility across a range of building materials, as well as labor shortages due to extremely high demand for projects
after the Covid-19
“Risk management has now become a key concern for companies to ensure that construction competitions that are awarded are appropriately structured to protect against inflationary pressures in the marketplace,” said Kevin James, vice president of SCSI.
“From a public sector perspective, additional measures need to be put in place by the government to ensure that existing projects are granted a reasonable level of price volatility. This allows contractors to respond to the material price increases that are common in the market today and ensure more balanced risk pricing.”
In response to these problems, the LDA is now exploring legal avenues to negotiate “hot tariffs” with contractors for areas of massive inflation, such as the United States. steel reinforcement and concrete, which would tie part of the cost of projects to market prices to make them profitable.
“Like everyone else, we face inflationary pressures, so this is worrying,” Mr Coleman said. “Delivery costs will increase, but we still need to be affordable.”
He said the agency would simply have to incur more expenses to cover their housing
The LDA is about a month away from announcing its first forward purchase agreements with defaulting developers who lack the financing to complete their construction projects.
The underutilized development initiative, dubbed Project Tosaigh, has the potential to create an additional 5,000 affordable homes, the agency said.
The LDA is negotiating terms as a backstop buyer for the homes with several potential partners, which would allow the developers to secure the private sector financing needed to build the homes.
The agency is initially focused on guaranteeing developments that can groundbreaking this year as the “easiest, least risky” approach, but will ultimately seek multi-year agreements for large sites, Mr Coleman said.
The LDA has submitted building permit applications for housing projects totaling nearly 2,400 houses in Dundrum, Balbriggan and Skerries – all in Dublin – and in Naas, Co Kildare.
Mr. Coleman would not commit to a timeline for delivery as the planning and procurement processes could take years.
However, the agency is beginning construction on developments in Shanganagh, Co Dublin and St Kevin’s in Cork, which will deliver nearly 900 new homes from 2024 in the state’s largest affordable housing projects in decades.
Mr Coleman said he was encouraged by a survey last year that found two-thirds of renters would be interested in affordable rental accommodation.
He said the LDA is well positioned to take the lead in developing affordable rental units and is open to partnering with licensed housing associations or private operators.
On the subject of rising construction costs, a spokesman for the Housing Ministry said: “Housing for All is committed that the Government and relevant state agencies will advance methods to reduce housing costs, particularly housing costs, by focusing on existing and planned construction-related initiatives in the housing sector and by ensuring a coordinated, whole-of-government approach to housing.”
The spokesman said the department is also preparing a study to conduct analysis for each component of construction costs in order to reduce costs and increase standardization
https://www.independent.ie/news/agency-tasked-with-building-affordable-housing-says-it-will-need-more-money-41576550.html The agency tasked with building affordable housing says it will need more money