AVS. Arkitektúr verktækni skipulag - 01.09.2004, Qupperneq 40

The cost of housing and
building control
Stefán Ingólfsson, Engineer and Lecturer at the Technical University of lceland
Property prices increase for a
number of reasons. This article
deals with the effect of public action
and methods on property prices.
Public bodies can, if they want to,
use different methods to lower prop-
erty prices. Lack of building sites,
increased requirements to buildings
and a slow building control process
have on the other hand resulted in
higher property prices.
In this article it will be shown how
this has happened. To start with,
let's look at two basic aspects of
property price; the material value
of buildings and the price of build-
ing sites. Together they constitute
market price. The part of the site
varies considerably. In expensive
shopping space the part of the site
can amount to up to 50% but less
in the case of less expensive prop-
erties like housing. In 2000 the site
accounted for 11 % of market price
for an average flat in a block of flats
in Reykjavík. The physical value of
the flat was according to this 89%
of the total price.
Shortage of building
sites increases prop-
erty prices
The price of building sites contin-
ues to rise. The author has studied
the development of land prices in
the Capital area from 1975 - 2000.
During this quarter of a century the
price of land rose about 65% in real
terms, that is 2% a year. In 1975
the price of a site was 7% of the
market price of an average flat but
had increased to 11 % in 2000. The
rise in site price resulted in a 4%
rise in the price of housing during
this period. The rise of site price
came about for several reasons.
The price of land has gone up in
real terms during the last decades.
The increase in price is most obvi-
ous in the capital area and within its
sphere of influence líke the southern
and western part of the country.
Accessible building areas have been
used up in the capital area and the
supply of building land has not met
demand in at least two decades.
The demand for new housing has
therefore not been met for a long
time. There is a yearly need for new
housing which equals the increase
in the number of households. The
number of households increases at
a faster rate than poulation increase.
More and more individuals form
households so that the demand for
housing grows grows more than
twice as fast as population increase.
Planning authorities in the Capital
area do not realise this and are
therefore unprepared. To the natural
increase in the population of this
area is added the number of peo-
ple moving from other parts of the
country and from abroad. To meet
the demand for new construction it
would have been necessary to build
1.300 flats a year during the last
15-20 years instead of 1.100 as has
been the case. The results are an
accumulated demand and increased
site price.
Material value
Material value of housing is build-
ing cost minus amortization totalling
89% of the price of housing. During
a long period the cost of building is
the most important factor in the cre-
ation of the price of housing. It has
during the last decades increased
every year 1 % more than general
price increase. Building consts can
be divided into two. Around 3/4 of
it are so-called direct costs related
to the purchase of building materi-
als and labour directly connected
to specific parts of the building.
Approx. 1/4 is conected with the
building as a whole and is termed
indirect cost. Public bodies play a
decisive role in influencing both of
these costs. Let¥s look at the direct
cost. Te cost of building materials is
to a large extent decided by official
decrees. The quantity of building
matterials like concrete and steel is
dictated by the building regulations.
The stricter the rules the higher the
material cost. The same applies to
the labour of the building trades.
Official bodies have fbeen increasing
demands for decades. Many spe-
cialists are now of the opinion that
buildings have become unneces-
sarily material intensive and expen-
sive. The director of building at the
University of lceland has stated that
by revising the building regulations it
would be possible to reduce build-
ing cost by 15% and a professor
at he Department of Engineering at
the same university told the author
of this article that lcelandic build-
ings possibly used up to 20% more
materials thatn necessary. These
demands are however still being
increased and the cost of building
increases. Denmark has seen similar
development but The Danes have
now come to their senses and are
revising building standards with the
goal of reducing building costs.
Indirect costs
Indirect costs are e.g. design,
supervision, management of build-
ing work and building compa-
nies. These costs have been on
a constant rise because building
authorities are constantly demand-
ing more work by designers and
building contractors. Indirect costs
anr now considerably higher than
they were 25 years ago. The work
of architects, engineers and other
technicians takes up more and
more time. The same applies to the
management of building contrac-
tors and on site management. This
40 avs