(1) Why are construction costs in the Republic of Ireland twice those in Northern Ireland?
(2) Why are prime rents in Belfast one half of those in prime Dublin?
(3) Why has residential property dropped by more from peak values in Northern Ireland than in the Republic?
If Irelandis serious about regaining its competitive edge, perhaps one of the first steps needed is to make the National Competitiveness Council (NCC) more competitive. On Thursday (June 23rd, 2011), it produced its annual “Cost of Doing Business in Ireland” 2011 competitiveness survey using figures, mostly from….. 2009. So if you want to read an historical text, you might get some satisfaction from the NCC’s annual report. If you want to know about what has been generally happening in the past 18 months, look elsewhere. This entry examines what the report had to say about property.
But first, turning to the three questions at the opening. The Society of Chartered Surveyors in Ireland annually publishes rebuilding costs in the Republic, their latest survey is analysed here. In Northern Ireland the Association of British Insurers (ABI) /RICS Building Cost Information Service has a calculator (free registration required) which calculates rebuilding costs. In the Republic rebuilding costs this year vary between €119-169 psf; in Northern Ireland, as of this morning the standard cost of rebuilding a 1,000 sq ft 3-bed semi-detached house is GBP 69,000, that is GBP 69 psf or at current exchange rates of GBP 1 = €1.1252, €77.64 psf. So why does construction cost one price in Dundalk in the Republic, yet in Newry, 23kms away it costs 50% less? Wages, and in particular the wages set out in the Registered Employment Agreements (REAs) might be partly to blame but if you’re a building company in the Republic you pay 12.5% corporation tax and 26% in the North, so should high wages and low corporation tax not cancel each other?
Secondly, according to its most recent annual outlook, property powerhouse CB Richard Ellis reports that prime office space rents for €15 psf inBelfast and €30 psf inDublin. Okay Belfast is still by some standards a regional backwater without the financial services or technology hubs that exist in Dublin, scenes of savagery in the Short Strand this week will not help the city’s image and the corporate tax rate in the UK is still 26% and the betting on here is that Northern Ireland will find it difficult to financially justify lowering that rate on a regional basis because of the accompanying cut in Westminster funding that under the EU Azores principle must accompany the setting of regional differential tax rates. Northern Ireland is also in the sterling area and international companies prefer the stability (!, yes even after this week’s events in Greece) and lower currency risks of being in the bigger currency. But still, that our costs are twice those of Belfast?
As regards the third point we have really beaten ourselves up in the Republic over the collapse in the property market. We lost the run of ourselves, we had easy money stuffed down our throats to buy houses, planning authorities were greedy and incompetent, the financial regulatory system let us down, government was venal and hubristic, the media changed perceptions with the sexy portrayal of property, prices spiraled out of control ending up costing more than eight times the average wage, we were building half the number of houses each year of the UK which has 15 times the population, ghost estates in the middle of no-where, the ECB taking its eye off the ball….. Right, so why is it that property prices in Northern Ireland are down 44% from peak whilst in the Republic they’re down by just 40.8%?
In truth the report by the NCC does tangentially address some of the above issues, but what it fails to do is to explicitly expose the extent of the anti-competitive practices in the Republic. It does refer, softly, to the following:
(1) The creation of residential and commercial property registers to foster price discovery which may lead to a better functioning marketplace
(2) The abolition of upward only rent review clauses which mean that for some commercial tenants in Ireland, they are paying rents appropriate to the boom.
(3) The examination of Joint Labour Committee agreements (JLCs) and REAs to foster a better functioning labour market
(4) Reform of personal bankruptcy arrangements
Property costs are dealt with from page 42 of the NCC’s report. It might be of interest that there is a suggestion that the normal vacancy rate in Dublin is now 15%, up from 7% previously and that there is an imminent shortage of large-scale prime property.