AIB report highlights viability issues for apartment developments

/ 23rd December 2022 /

A new research report from AIB says that the viability of apartment developments is likely to deteriorate further over the coming year.

The paper evaluates the current housing environment and proposes a number of actions that could support the building of additional housing units. These would include:
• Creating more effective and viable density solutions while including shared community/social amenities
• Reducing the cost of apartment development
• Making more realistic demographic assumptions to underpin the planning framework as some local authorities underestimate future population growth
• Delivering a more transparent and efficient planning system.

Pat O’Sullivan, the bank’s head of real estate research, said challenges on the demand side of the housing market have been largely addressed by the authorities.

“It is past time to address the supply side,” he added. “This can be done by including more realistic demographic assumptions underpinning the planning framework, creating more effective and viable density solutions, reducing the cost of apartment development, and delivering a more transparent and efficient planning system.”

The paper references a greater emphasis on alternative design standards, such as a recent proposal by Glenveagh Properties for more compact design standards while maintaining sufficient outdoors amenities.

“This could have a material and near immediate impact on supply and viability,” said O’Sullivan. “Such a proposal could provide real viability at scale for First Time Buyers and ensure that the interventions by the authorities on the demand side of the market would be fully realised.”

The paper contends that a recalibration of the planning system is also required, in particular the underlying demographic assumptions and estimated housing requirements used by local authorities.

Apartment Development — The paper references a greater emphasis on alternative design standards, such as a recent proposal by Glenveagh Properties for more compact design standards - pictured the proposed Glenveagh Properties Oscar Traynor Road development. (Pic: Glenveagh Homes)

The AIB view is that these assumptions are leading to a significant under-estimation of housing requirements, particularly in the Greater Dublin Area and surrounding counties.

AIB says it is the largest senior debt funder in the residential market and is currently supporting the supply of 10,000 units.

Donall O’Shea, head of real estate finance, commented: “In order to maximise the benefits of the First Home Scheme and the increase in the FTB loan to income limit, the market needs to see an increased supply of residential units, and particularly of First Time Buyer scheme/multi-development houses.

“Unfortunately, notwithstanding the supports for households put in place by the authorities, the viability of apartment construction remains a huge challenge and a very expensive option for FTBs.”