THE REAL COSTS OF RENOVATION

A new report highlights the financial and regulatory barriers preventing the renovation of vacant and derelict buildings

A new study has highlighted the many financial and regulatory barriers people face when purchasing and renovating vacant or derelict building in Ireland, with less than a third of 20 case studies from all over the country being financially viable for restoration to habitable use.

The first ‘Real Costs of Renovation’ report published by the Society of Chartered Surveyors Ireland indicates that just five of 20 vacant or derelict buildings are viable for renovation without the application of grants. When the relevant grants for owner occupier type residences under Croí Conaithe and the SEAI are factored in, just one additional property becomes financially viable. However, in a scenario where the current maximum Croí Conaithe grant is increased from €50,000 to €100,000, three more of the case studies become viable while two additional properties come within just €4,000 to €5,000 of becoming viable. Financial viability – where the market value of the property is greater than the starting market value plus the renovation costs – is key for homeowners/investors seeking to renovate a property with mortgage funds.

The report includes 20 case studies made up of 13 residential/owner occupier type properties and seven investor type, similar to the categories used in the Government’s ‘Bringing Back Homes Manual’. While the costs of renovating a property are highly dependent on its type, size, condition and location – properties in more affluent areas support a greater degree of renovation – the study found that the costs of renovating a residential owner occupier type property range from €161,000 in Askeaton Co Limerick, €377,000 to a property in Dublin city to €605,000 to a property in West Cork. Among the investor type properties in the case studies, the costs ranged from €354,000 in Co Limerick to €862,000 in Grafton Street in Dublin to €1.1 million in Co Kerry.

According to the study, hard costs such as structure, plumbing, heating, extensions and doors/windows, account for 87% of renovation costs. Soft costs such as professional fees, utility connection charges and planning fees, account for just 13% excluding VAT. This contrasts with previous SCSI reports on the delivery costs of new houses and apartments which found a fairly even split between hard and soft costs.

One of the key findings of a survey carried out as part of the report was that eight out of 10 chartered surveyors believe it’s more difficult for borrowers to access funding for a renovation project when compared to new or second-hand homes due to their potentially higher risk profile and challenges accessing fixed funding upfront for a project. Chartered Planning and Development Surveyor, Lisa Rocca, one of the authors of the report, said the findings highlighted key challenges which people undertaking renovations projects face around costs and accessing finance. “It’s clear current incentives and supports in place are not at a satisfactory level to make a meaningful difference to the current levels of vacant stock. “We have 13 residential type properties among our case studies and in a scenario where the Croí Cónaithe grant is increased to €100,000, the number which becomes viable doubles to eight, while two more are on the cusp of becoming viable, so it’s clear increasing the grants would have a major impact with regard to financial viability.

“Rather than applying increased grants on a universal basis, the SCSI is recommending a tailored approach with a feasibility grant included under Croí Cónaithe – as is the case in Scotland – to help prospective purchasers assess the viability of a project. So, while additional grant bands should be established the level of grant funding for a project would be informed by the findings of the feasibility study.

“The lending process for those taking on renovation projects needs to be improved. This could be done by lenders establishing a clear set of lending policies and guidance for prospective renovators. The SCSI is also recommending the establishment of a specialist-lender type initiative whereby funds are directed through lending partner agencies at preferential rates to support renovation projects.

“Linked to this is the issue of ‘green financing’ whereby lower interest rates are available to buyers of new energy efficient homes. Although people looking to restore residential properties are reusing or recycling an existing building, they are currently excluded from these preferential rates. These are the types of measures we need to introduce to make renovating a property more attractive and to bring back more vacant and derelict properties to use.”

Building regulations acting as a barrier
Another key finding which emerged from a survey of chartered surveyors carried out as part of the report was that over half believe that some building regulations are acting as significant barriers to renovation projects coming on the market. Chartered Quantity Surveyor, Nick Taaffe, whose own renovation project is included among the 20 case studies, said planning regulations for older buildings are viewed as too restrictive by 54% of respondents in the survey.
He said that according to members, the regulations which are providing the top three greatest challenges for renovation projects are ‘Part B: Fire Safety’, ‘Part M: Access and Use’, and ‘Part A: Structure’. “Whilst there is universal acceptance of the need for appropriate fire safety standards and disability access, there is also a high level of concern expressed that the regulations are too restrictive to renovate property for habitable use. A review of the regulations and how they are applied to renovation projects is urgently required.

“One of the case study properties in the report is located on Grafton Street and provides a good example of the way regulations are acting as a barrier to renovation. This is a Type 4 property – 3 storey building or higher with over-the-shop-accommodation – and although it is financially viable for residential renovation, the requirement of a secondary means of fire escape and the unavailability of an option to make this happen, means that the project is unlikely to be renovated. As a result, this superbly located property is unlikely to be renovated for much needed residential use and will instead remain as storage for the foreseeable future.

“We asked chartered surveyors for suggestions on how to improve schemes aimed at increasing the reuse of existing buildings. While 41% opted for increased financial supports, the second most prominent answer on 26% was less red tape and a simplification of the regulations.

Other countries have come up with imaginative solutions to similar type planning issues and ways to address some of the frustrations which can arise in over the shop living such as the lack of bin collections for buildings on pedestrianised streets etc. We need an urgent review of the relevant regulations, but we also need to adopt an imaginative, cross departmental problem-solving approach to barriers to renovation.”

Call for establishment of a vacant home register and greater use of CPOs
The report noted that there are several data sources which seek to account for the current level of property vacancies across the country. However, after reviewing these sources, including local property tax returns, Census results and GeoDirectory, the report concluded that due to varying methodologies used to define vacancy, significant variances in actual vacancy levels are recorded. The President of the SCSI, Kevin James, said that given the importance of addressing the vacancy/dereliction issue, it was vital that the Government and key stakeholders were making decisions based on accurate information.

“Vacant and derelict buildings which lie vacant for extended periods can create a negative perception of a place which in turn can be off putting to potential new residents and investors. On the other hand the repurposing and subsequent occupation of these buildings can revitalise a town centre or main street as well as supplying much needed accommodation.

“Before we address a problem, we have to understand its scale and to that end it is essential that the Government establishes a national register of vacant and derelict units with clear and appropriate definitions of same. Local authorities need to be allocated more than the current funding of €150 million to purchase and renovate vacant buildings. For their part, local authorities need to adopt a much more proactive approach to implementing their CPO powers, especially for urban properties lying vacant for a long time.”

For more information on the Real Costs of Renovation Report, go to www.scsi.ie/renovations/

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Michael McDonnell Managing Editor of Irish Construction Industry Magazine & Plan Magazine

Email: michael@irishconstruction.com      WWW.MCDMEDIA.IE