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If on the other hand, as the economist Richard Douthwaite explained in Construct Ireland Issue 12 Volume 2, a local authority such as Fingal County Council raises the bar regarding sustainable building standards, when developers are bidding for the land they will work out how much extra they think they need to spend to meet those standards, and subtract it from what they’re prepared to pay for the land. The developer who bids highest for the land is the developer who works out the cheapest way to meet those standards, as before. The onus is on the local authority to ensure they don’t cut corners—a problem that is not helped by our building culture of self-certification.
As Douthwaite pointed out—and every developer I have discussed this principle with agrees that this is correct—if there is a mandatory higher standard that everyone must meet in a given area, it won’t cost the developer any more, once land purchase and construction costs are added up. Instead it takes some of the sting out of grossly inflated land prices, and allows developers to spend more on build costs, which ultimately benefits the buyer in terms of comfort, lower running costs and quality of life. The point essentially here is that the total cost—the combination of land and construction costs—does not change, but rather the ratio between the two shifts so that land costs decrease and construction costs increase. The only loser is the landowner, who has probably been doing too well in any event.
There is no comparison between the costs for a developer voluntarily building to the standard that Fingal have put forward and the costs for a developer having to build to these standards as a planning requirement. In the former case, the developer can be undercut by other developers prepared to spend less on construction. In the latter case, the developer who has worked out how to get to the standard most cost-effectively can bid more, and therefore build. It follows that, by introducing higher standards, the local authority is actually helping to make sustainable building more and more cost-effective, by getting developers on board, with the developers’ skill at lowering costs combined with economies of scale, bringing the cost of sustainable building down. In Fingal alone, the volume of building expected to be built in the seven areas where mandatory sustainable building requirements exist, is roughly between 11,400 -12,400 units. Even at these sorts of volumes, it makes sense for manufacturers to develop products tailor-made to meet this standard. I urge any local authority with concerns about setting similar standards because of the extra effort for the construction industry to learn how to meet the standards in the short term, to compare the length of time it takes to design and construct a building with the length of time that building will be in use—perhaps for 100-150 years. The hassle and extra expense of living in a thermally inefficient building as energy prices rise, and the extra cost and hassle of trying to upgrade the building’s energy performance later on make any short-term construction industry hassle seen utterly insignificant in comparison.
Not only will setting high sustainable building standards not cost the developer more, it follows that it will not add to the price of property for buyers—unless the market is prepared to pay for it. In an address to an All Party Oireachtas Committee on Private Property in 2004, Thomas Dunne, Head of the School of Real Estate and Construction Economics at DIT explained how this works:
In any given period, the addition of new buildings to the housing stock will be very small in proportion to that stock. The value of new buildings will therefore be influenced to a substantial degree by the stock of existing buildings. Prices will be set primarily by demand for the existing stock and not by the flow of new buildings. In the housing market, builders are price-takers and will sell their product at a price determined by the market and not by the value of the land and the cost of construction.
The Society of Chartered Surveyors in its submission to the Committee stated that:
House prices are fundamentally a function of the balance between supply and demand and the economic capacity of purchasers, coupled with market expectations on interest rate predictions.
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