Red tape, better homes, and issues around risk all play into why Dublin City Council seems to be paying more for housing than the private sector, an official told councillors last week.
Red tape puts builders off applying for contracts to build homes for Dublin City Council, said council Chief Quantity Surveyor Mark Bourke at the housing committee meeting on 10 February.
That leads to a lack of competition, which drives up the price that the council pays for housing, he said.
The council also builds to higher specs than many private developers and designs new developments from scratch, he said. “We need to stop designing snowflakes so everything is not individual.”
Councillors have been eager to work out why the council is paying so much.
Not least because they’re trying to come up with a plan for cost-rental homes – where rents are set based on how much it costs to build and manage the homes – that are truly affordable for council land at Oscar Traynor Road.
“The cost of construction is central to the debate,” said Sinn Féin Councillor Daithí Doolan, at the meeting.
Labour Councillor Alison Gilliland welcomed the investment in good quality homes.
The council is responsible for maintenance so “if we are building to a higher spec while it might have a short-term cost it will have a long-term benefit for us”, she said.
The Story so Far
Councillors trying to understand the nitty-gritty of the complex deals put forward by council officials to develop some of the big swathes of land in the city have often stumbled over build costs.
In November 2019, in a debate around the proposal to work with a private developer to build homes on land at O’Devaney Gardens, independent Councillor Nial Ring asked for a full breakdown of the costs per square metre.
“It would occur to me that if you own the land you should be able to build a house for under €300,000,” he said at the time.
In September 2020, at a meeting about plans for another big council site, this time near Oscar Traynor Road in the north of the city, the Director of Housing Delivery Dave Dinnigan said it costs the council around €450,000 to build a two-bedroom apartment on land it owns.
Councillors again said they were surprised and asked for a further breakdown.
In late 2020, the Dublin City Council housing manager Brendan Kenny said that the average cost of construction across six council developments approved since the beginning of 2019 was roughly €383,600.
That didn’t include VAT though, so the all-in cost was around €435,400 per home, he said.
A Society of Chartered Surveyors report published in January found that the cost of building homes in Dublin was much lower than that across a range of private-sector apartment types.
The council sometimes pays €100,000 more per home than private companies do, the report found.
Positive Reasons
The Society of Chartered Surveyors report used a much bigger sample size than the Dublin City Council report, said Bourke at the council housing committee meeting on 10 February.
Looking at some more tenders that Dublin City Council has agreed recently, the cost of construction is less than €383,609, he says.
So the gap may not be as wide as has been reported. But the council definitely pays more for construction than private developers, he says.
There are some “very positive reasons” for that, he says. The council builds homes to a higher specification than many private developments.
Dublin City Council spends more on insulation and aims to build all homes to an A2 BER rating, which is above minimum requirements, he says.
That means tenants don’t suffer from fuel poverty, he says.
Some private developers don’t provide as much open space and community space as the council, he says. “We go over and above.”
Those building apartments have to make sure a certain number of the homes are “dual aspect”, meaning they have windows on more than one wall.
Dublin City Council makes more that are dual-aspect than legally required, says Bourke. They put fewer apartments on a landing, he says. “We are building little communities.”
Building high-quality homes is good for tenants and cuts the council’s maintenance costs, he says.
Bourke is currently carrying out extensive research into costs, he says. He wants to provide councillors with more “real hard data on what unit costs look like”, he says.
At the moment, council policy is to design each housing development from scratch, he says. But that is under review.
The city architects are pinning down what they all want for buildings, and that can then be replicated across schemes. “If we can get a consensus we can start to get scale,” he says.
That doesn’t mean all developments will look the same, he says. The facades and outer look can be varied.
In time, that should lead to efficiencies as the market gets to know what the council needs, he says.
Procurement and Risk
Public-sector procurement for large schemes, like Oscar Traynor Road, is set up in such a way that only a handful of large developers can apply, says Sinn Féin Councillor Daithí Doolan at the meeting.
The lack of competition results in little difference between tenders and “creates a false economy”, he says.
Doolan asked Bourke: “Would you agree that the current procurement process leads to an inflated cost for Dublin City Council?”
Bourke said that there is so much red tape involved in applying for and working on public sector contracts now that most builders just don’t want to get involved.
“There is easier money to be made in some private schemes,” he said. The procurement process is lengthy and complicated “leading to inflated costs”.
The builder has to apply to a framework first before they can even compete for the work, he says. (Framework agreements set out the terms of contracts.)
If they do get picked, they need to do way more paperwork, which means having more administrative staff.
“Reporting, checking all of that leads to head office costs being increased,” he says. “That is one of the main reasons why they are not tendering for public works.”
Naturally the builders who do apply then transfer all those extra costs to the council, he says.
At the moment Dublin City Council tenders for one project at a time, he says. But private developers often offer more continuity of work to builders and to professional contractors and might get better prices as a result, he said.
Bourke said he is currently assessing all aspects of public procurement to try to work out if the council can streamline things to encourage more competition for its building contracts.
“We do need to increase the competition and the numbers tendering for projects,” says Bourke.
There is always a risk that something unforeseen can happen, which would drive up costs. The council needs price certainty at the start of the job so they pay more to the builder if he takes on the risk, he said.
“The contract is set up so that we are paying a premium for risk transfer and that cost certainty,” said Bourke.
That aspect of public procurement is currently under review by the Office of Public Procurement, he says.
Splitting up Sites
Independent Councillor John Lyons said that not being able to negotiate on price, because of the risk transfer is a big problem. “I don’t think that is a situation that can continue as is,” he says.
Lyons asked what would happen if the city council split a large development, like on Oscar Traynor Road, into smaller parcels. Would that attract more competitive tenders?
Splitting big jobs into smaller lots is an option that should be investigated to see if it would lead to better prices, says Bourke. “To encourage the medium-sized enterprises to come in and create competition.”
If the council was to do that, for example, at Oscar Traynor Road, the most important thing would be to have all of the funding agreed at the start, he says. “What would definitely help is a consistent funding stream.”