Good morning, ladies and gentlemen. Welcome to the Cairn Homes full year 2022 preliminary results analyst and investor call, which will be hosted by Michael Stanley, Chief Executive Officer, Shane Doherty, Chief Financial Officer, and Tara Grimley, Company Secretary and Head of Sustainability. Afterwards, there'll be a moderated Q&A session where we will welcome questions from anybody on the line. If you'd like to ask a question today, please press star followed by one on your telephone keypad. I will now hand you over to Cairn CEO, Michael Stanley.
Good morning, everyone, and thank you for joining us on our analyst and investor call as we review 2022 and look forward to 2023. Adam mentioned, I'm joined by Shane, Tara, Declan, and Ian here this morning. And you'll hear from some of my colleagues later. It's no exaggeration to say that 2022 was a milestone year for Cairn.
It was our first full year out of COVID-19, and we certainly put the foot to the floor in terms of delivery. We have scaled our delivery platform and closed 1,526 new homes in 2022, 1/3 of which were social affordable and affordable. Cairn is certainly playing an increasing influential role in tackling Ireland's housing crisis for first-time buyers, for people looking to trade up and trade down, institutional buyers and for the state.
The delivery trajectory accelerated in the second half of 2022, and I'm pleased to say that this momentum has carried through into this year. Delivery of this scale and nature is enabled by huge investment in our work in progress. In 2022, our financial commitment to work in progress was EUR 470 million. That commitment will be even greater this year.
This, in turn, is enabled by operating profit, which has grown to over EUR 100 million in 2022. Before I bring you through the presentation, I'd like to sincerely thank all of my colleagues throughout the business in Cairn and also across our subcontractors and suppliers who continue to work hard to deliver high-quality homes for people in Ireland. Now to the key financial highlights, if you want to turn to slide three.
As I mentioned in my intro, the company closed 1,526 new homes in 2022, a very significant increase of 36% on the previous year, and 495 of these were delivered to our state partners. With a 46% increase in revenue to EUR 670 million, we delivered an operating profit of EUR 103 million. Almost entirely delivered from our core house building activity.
This does represent a 76% increase in 2021. Our higher gross margin of 21.7% was supported by many factors, not least that Cairn is generating appropriately higher profit margins from our more capital-intensive apartment projects. Our operating margin has therefore increased by nearly 3% in the year from 13.8% to twenty-one to 16.7%.
During a challenging year and to underpin 2023, our net investment in construction work in progress is EUR 71 million. Our total investment in our business today, as you can see from the slide, is just shy of EUR 1 billion between our land bank and work in progress on our active sites. We are particularly pleased to be making progress towards our 15% ROE target with 11% outturn in 2022, a significant jump from the 6% delivered in 2021.
On shareholder returns, ordinary dividends were declared at EUR 42 million, which brought our total shareholder returns to EUR 117 million for the year. Today we are announcing a EUR 40 million buyback, which Shane will cover in more detail in his finance section later. On to slide four, operational highlights.
We'll speak later about the current market conditions and how we are looking ahead, but it is very encouraging that at this early stage in the year, the company has a current closed and forward sales pipeline of over 1,500 new homes and in excess of half a billion euro in revenue. Included in our forward sales pipeline are 300 units, which will be delivered next year in 2024. As this year progresses, we will look to continue to grow this longer-term sales pipeline. We are extremely confident in the opportunity that lies ahead for Cairn.
We have backed this up by increasing our workforce in 2022 by 30%, increasing our new homes commencements by 30%, increasing our work in progress spend, as I already mentioned, to EUR 469 million, and also by strategically investing in planning consented lands in early 2022. All of which in part will support our ambitious and predictable growth trajectory this year and future years.
This investment is not only important for our shareholders, but is critical for how our subcontractors plan and scale their businesses in support of ours. They need to know and trust that Cairn will deliver on the growth plans that we have committed to them, and that we will support the 3,500 that are employed full-time across our active sites.
Later in the presentation, Tara Grimley will bring you through some real progress in our sustainability strategy and execution. I'm particularly proud that the company has set our Scope one, two, and three carbon reduction targets, and we are moving closer to the top of the class on our CDP score, having been awarded an A-minus grade in our 2022 CDP submission, up from a B in 2021. I'm not used to looking at A's on report cards, Tara. I can take no credit for this one, but it's a great achievement by the team to have achieved an A-minus grade in 2022. Slide 5. Sales pricing in 2022.
You can see across our various customers, sales prices increased with a pretty consistent average of about 6% across the business. Our average starter home price is EUR 366,000 during the year. At this price point, we continue to see significant realizable demand from first-time buyers. They are also now much better supported by government, with the recently introduced First Home Scheme added to help to buy support and a slight improvement in the macro-residential lending rules.
The combined effects of this is allowing more people to realize their dream of owning their first home. Scaling these effective measures is our only call out for policymakers and government this morning. Build cost inflation during the year was substantial, We managed to leverage our scale and track record to limit its impact to EUR 20,000 per new home completed.
Moving on to slide 6, the analysis of our sales. Looking at our buyer profile of our sales last year, our market was roughly split into four quarters between institutional sales, including successful completions and handover of apartment schemes like Griffith Wood and Shackleton Park. First time buyer homes sold across 10 different developments. Trade up, trade down homes sold across five different developments. As I mentioned earlier, an increase in the number of homes that we delivered for state partners. In terms of sales rates, the company achieved an average in excess of four new homes sold per week per active selling site, and quarter one has seen us maintaining that impressive sales rate. Moving on to slide seven. As many of you know on the call, homeownership can transform people's lives, both in terms of their family well-being and also financially.
It is appropriate, we feel now, to also think about monthly energy costs when one compares the cost of owning or renting a home, given the significant cost savings associated with a new A2-rated starter home. Assuming that a customer qualifies for full state support, the total monthly cost of energy and mortgage repayments combined is more than 50% lower than the high rents and higher energy bills those people would face for a standard rental home in the market. Even in a rising interest rate environment, this gap is very likely to remain very significant. Slide eight. Some commentary around our supply chain collaboration and build cost inflation. I mentioned earlier that in 2022, each home cost us EUR 20,000 more to build, and I'm pleased to say that the expected build cost inflation for this year will fall significantly to approximately EUR 10,000 per unit.
Our scale, our longer-term committed pipeline of orders, and subcontractor packages is a great benefit to us. Broader industry new site commencements actually fell by 12% in 2022 in comparison to our 30% increase in new starts. Our central procurement function is leading to greater penetration of manufacturers at source to provide not just better pricing, but better product quality, control, and consistency. Today, we are circa 78% procured on our active sites for 2023, and 54% procured for 2024, reflecting the strength and trust developed between Cairn and our supply chain. I'm gonna pass you over to Shane to bring you through our 2022 financial performance and 2023 guidance. I'll talk to you in a minute.
Thank you, Michael. Good morning, everyone. I'm delighted to present a record set of financial results for Cairn to you this morning, as well as reiterating the very strong outlook for our business that Michael gave you just now. Over the next few minutes, I will walk you through our 2022 financial results, as well as our forward-looking guidance. Starting with slide 10, you'll see that we made substantial financial progress in 2022. Continued profit generation up 87% in 2022 has enhanced return on equity growth and shareholder returns, with the balance sheet size reduced by 4% as a result of returns to shareholders.
With some key call-outs this morning, revenue of more than EUR 617 million from 1,526 unit sales closed in the year, further strengthening of gross margin up to 21.7% in 2022. OpEx investment has remained broadly in line with the H1 run rate that we reported in September. That critically enables innovation and evolution across a number of key disciplines, including construction, IT, and health and safety. We anticipate the top-line growth combined with well-considered investments in OpEx will continue to drive operating leverage expansion into 2023. Delivering EUR 103 million of operating profit, equating to operating margin of in excess of 16.7%, demonstrates the robust fundamentals of our business.
We also returned more than EUR 115 million to our shareholders in that period by way of dividends of more than EUR 40 million and EUR 75 million of share buybacks. Today, as Michael has outlined, we've announced a final dividend for 2022 of EUR 0.031 per share. A net asset value of EUR 1.10 per share at the end of 2022 demonstrates the strength of our balance sheet. That includes our wholly owned land bank of almost EUR 630 million, most of which was acquired at very competitive prices. A forward order book of more than 1,500 units and EUR 500 million in value, as well as our proven and ever-increasing operating platform, all of which makes for a very compelling valuation thesis for our business.
Turning to slide 11. This demonstrates the strength of our forward order book. As of today, we have forward sold in excess of 1,500 units with a net sales value of more than EUR 534 million. More than 1,200 of those units are expected to complete in 2023. This represents more than two-thirds of our sales target for the year forward sold. The growth in both units and value of our forward order book compared to previous years is supported by increased investment in WIP. In terms of the value of these forward sales, we are approximately 1.6x covered on our closing WIP balance at the end of 2022. Turning to slide pardon me, to slide 12.
Our balance sheet position continues to be supported by land at historic low cost and the WIP investment backed by our forward order book of more than 1,500 units. At EUR 339 million, our WIP supports an order book with a value of EUR 534 million, and represents an increased net investment of more than EUR 70 million compared to a year earlier. When you consider that we also increased shareholder returns by more than EUR 77 million compared to the previous year, our net debt grew by just less than EUR 40 million. At the end of last year, we still had available liquidity of almost EUR 200 million after all those returns on increased investment. Our net asset position of approximately EUR 750 million is after shareholder returns of more than EUR 200 million.
At just 17%, our debt-to-GAV ratio leaves us very well capitalized to leverage the continued strong demand for our products. We have outlined the cash flow movements during 2022, turning to slide 13. We maintained an available liquidity position of EUR 200 million through strong sustained cash generation as we continue to scale and make significant shareholder returns. Our net debt position increased by less than EUR 40 million despite the returns to shareholders in that period of EUR 117 million and significant WIP investments in unit growth delivery. To contextualize that a bit further, this investment in WIP of EUR 470 million will enable us to increase our unit output again in 2023 by between 15% and 18% following volume growth of 36% in 2022. Turning to slide 14.
We outlined the value that we have and will continue to create for our shareholders. The growth opportunity for us is very significant. The continued monetization of our land bank as we build and sell more units will allow us to generate operating cash of over more than 50% than the net profits generated into the medium term. Having returned EUR 40 million to shareholders during 2021 and a further EUR 117 million in 2022, we have today announced continued progression in our ordinary dividend payments as well as a further EUR 40 million share buyback. Moving to slide 15. Our capital allocation strategy over the last 3 years have seen us continue to invest substantially in our WIP profile, as well as make well-considered ROE-enhancing investments in land that will deliver units for us in the near term.
Increased profitability coupled with shareholder returns of EUR 157 million since 2021 have seen us increase our ROE from just 2% in 2020 to 11% last year. Looking forward, our journey to a 15% ROE will represent more than 36% growth compared to 2022. This will be delivered through continued P&L progress and balance sheet efficiency. This is also underpinned by a net asset value that is already 13% higher than last night's closing share price. We will continue to distribute excess capital through our progressive dividend policy as well as other distributions, as evidenced by today's dividend and share buyback announcement. Finally, to recap on guidance on slide 16. The company continues to make progress towards our 15% ROE target.
Our close and forward sales order book, along with a proven track record of delivery, allows us to deliver strong 2023 guidance. We are therefore confidently guiding in excess of EUR 650 million of revenue from 1,750-1,800 unit sales closings, gross margin of 21% for the year, continued growth in operating profit, as well as declaring a final 2022 dividend of EUR 0.031 per share today. We expect to distribute 40%-50% of profit after tax by way of ordinary dividends in 2023. Our EUR 40 million share buyback announced today will form another part of our 2023 capital return. Thank you for your time this morning. I'll now hand you back to Michael. Or sorry.
Pardon me, to Tara, should I actually say.
Thanks, Shane, good morning, everyone. We're just on slide 18 of the deck here now. Here we detail some of our environmental highlights and in particular, the progress we've made in setting our ambitious decarbonization targets. We submitted our greenhouse gas reduction targets covering Scope one, two, and three for verification to the Science Based Targets initiative, which is aligned to a 1.5 degree trajectory, and we are in the process of further developing our climate transition plan. As part of our Scope three measurements of energy and use, we've completed life cycle assessments on all of our house types, including our duplex and apartment specifications.
We've added technological and material solutions for achieving Scope three reductions in our new homes, including air source heat pumps, light PHD, and timber frame solutions. Undertaking these LCAs allows our in-house pre-construction design and technical teams to understand the embodied carbon in our home and determine the best ways to reduce it at the earliest stages of our design process. In relation to Scope one and two emissions, you can see on the slide there that we have made incremental progress from 2019 in reducing our Scope one and two GHG emissions. In 2022, we partnered with a third party to supply hydrotreated vegetable oil for use in all plants and machinery across all of our active sites in Ireland, meaning diesel is no longer purchased, which will substantially reduce our Scope one emissions in the coming years.
As Michael mentioned earlier in his presentation, in recognition of all of our carbon reduction achievements and ambitions, we were delighted to be awarded an A-minus rating from the Carbon Disclosure Project, an improved score from our initial B rating received in 2021 following our first full submission. During 2022, we also implemented the Home Performance Index certification for all of our new development schemes. The HPI is a green building certification specifically designed for the Irish market. It's verified by the Irish Green Building Council and is seen as best in class for sustainability design and build residential developments in Ireland. Biodiversity remains a key focus for us, having integrated it into our executive remuneration strategy in early 2021.
We continue to realize our Biodiversity Net Gain ambitions, with 100% of our new sites commencing to have a biodiversity baseline assessment completed and an associated Net Gain strategy developed at the planning and design phase. Turning to the next slide. One of our major achievements under our social pillar in 2022 was that Cairn retained its Great Place to Work certification for a 2nd consecutive year and was recognized as one of Ireland's best workplaces, ranking in the top 20 best places to work in the large company category. Some of the proof points that contributed to that certification being retained include having received silver-level accreditation from the Irish Centre for Diversity and the ongoing work of our Equality, Diversity and Inclusion Forum.
Establishing a mental health awareness partnership with the Lighthouse Club charity, the publication of our second gender pay gap report, noting progress made in 2022 and how we intend to further close that gap. On the right-hand side of the slide there under governance, you can see that investment in sustainability facilitated through our sustainability-linked loan facility is fully aligned with our decarbonization and social strategies, more specifically, greenhouse gas emission reductions, Biodiversity Net Gain targets, and people-related targets. We continue to improve on our sustainability reporting, further details of each of the items I've touched on this morning will be included in our second annual sustainability report, which will be published in the coming weeks with our 2022 annual report.
Turning to my final slide and focusing on health and safety, which is our number one priority here in Cairn and a key element of our social pillar. We have maintained our Grade A for a second consecutive year under the Safe-T-Cert program, with three new training programs also delivered during 2022. We launched our internal health and safety rewards initiative, which is a weekly reward scheme recognizing excellence in health, safety, and environmental practices. As you can see there at the bottom of the slide, we have also invested in training an additional 17 mental health first aiders during 2022, taking our total to 31, with plans to extend these services further in 2023. Thanks all. Michael, I'll hand back to you.
Thank you, Tara. Appreciate that. I'm gonna move you on to slide 22, and I'll talk a little bit about the macro environment and how we are looking ahead with optimism. There are some very positive indicators that are worth highlighting here. Firstly, Ireland's population is growing. Our population has grown by over 360,000 in the last six years. Quite incredibly, in that period, our working population has actually grown by 490,000 people. Exchequer returns are exceptionally strong and look like they will remain so into 2023. Household balance sheets are amongst the healthiest in Europe, and Ireland's economy continues to be a top performer. Importantly, we have a supportive and functioning mortgage market, which grew significantly last year. Housing output, a fundamental requirement for our functioning economy and society, remains Ireland's biggest challenge.
Both government policies and initiatives are increasing. We are seeing clear evidence that they are starting to have the impact. First-time buyers are better supported. Affordable rental homes through initiatives like Cost Rental are being prioritized. Potential homeowners in apartments are now being financially supported for the first time through the Croí Cónaithe initiative, which we welcome. The government has also set a target of delivering 144,000 new social and affordable homes through various state entities by 2030. Cairn today is a strategically important credible partner for the state in helping to achieve this objective. We will continue to strive to offer competitively priced homes for all of our private customers and deliver value for the state allied with timely delivery.
Particularly our market lead position in apartment delivery will allow us to offer scaled solutions in this regard. Moving forward to slide 23. 23 is a summary of our forward-looking strategy. It calls out some of the ingredients of our scaled operating platform, our quality low-cost land bank, and the planning successes that we've achieved. We outline our diverse range of customers for whom we continue to provide high quality and well-located homes. We also show how we create value for our important stakeholders, including our shareholders, our direct and indirect workforce, and broader society. As we grow, we continue to reinvest in our business and housing output, ultimately creating value for all of these stakeholders. Moving on to slide 25. I thought it would be appropriate to bring you up to date on how we are progressing with Ireland's largest new suburb.
I'm pleased to report that we've made great progress at Clonburris in recent months, not only with the level of infrastructure works well underway, but most importantly, that we will complete and occupy our first family homes in this new community in the current year. Clonburris represents an incredibly exciting opportunity for us. Its scale, low cost land bank, location, and supporting state grants funding all mean that we will be able to deliver thousands of new homes at accessible price points close to Dublin City for many years to come. Moving on to slide 25. As we look ahead to this year, we are again looking to grow our volume by 20%, delivering between 1,750 and 1,800 new homes following consistent year-on-year growth in previous periods.
You can see from slide 25 what that growth trajectory looks like, and on the lower half of the page, the 1,500 new homes that we have forward sold. This is a clear indication of the demand backdrop and more specifically for the quality new homes that we at Cairn build. To wrap up today's presentation on slide 26, the Irish economy looks to be in robust health. The supply-demand imbalance continues to worsen. The government is responding with decisive policies. Our business will continue to succeed. We will grow our volumes, our revenue, and our profitability. We do hope that we will not be an outlier in that regard, as Ireland desperately needs a broad, sustainable, and much wider house building sector.
We will continue to apply a strategic approach to capital allocation, where our significant cash generation in the years ahead will allow us to distribute surplus capital to our shareholders while importantly achieving our targeted 15% ROE. Thank you all for your continued support of our business and importantly, your time this morning on a very busy day. I will now hand you back to Adam, who will manage our Q&A. Thank you.
Thank you. As a reminder, if you'd like to ask a question today, please press star followed by one on your telephone keypad now. When preparing to ask your question, please ensure your headset is fully plugged in and unmuted locally. That's star one to ask a question. The first question today comes from Shane Carberry from Goodbody. Shane, your line is open. Please go ahead.
Thank you. Thank you, guys, and well done on what was a really solid 2022. 3 from me if I may. Firstly, on the order book the significant tick-up that we've seen in the order book, particularly between now and year-end. Could you give me a little bit more color on kind of what you're seeing there in the background? Michael, you talked about kind of some of the demand side stimulus, so just how much is kind of shared equity helping? Have you seen any impact yet from kind of the mortgage lending rules moving from 3.5 to 4? Any color there would be helpful. Secondly, just on the build cost inflation side of things.
I think, you know, kind of build cost inflation of circa 4% is a pretty reasonable place to be. I know you've talked in the past about, you know, kind of collaboration with kind of the supply chain, et cetera. Are you starting to really see the benefits now? Just a little bit more color in terms of that 4% would be helpful. Lastly, just on the capital allocation side of things, you know, I mean, significant WIP investment through 2022, I think, was net EUR 70 million. How should we be thinking about kind of capital allocation priorities through 2023 and into 2024 as well? I know you've announced the buyback this morning, kind of beyond that, given the significant amounts of free cash flow that you're set to generate.
Sure, Shane. Thank you. Look, thankfully, Shane, across on the order book, across all sectors, we're seeing a really star-strong start to the year. Shared equity at this stage, I think we have had 6 different schemes that have qualified, where customers have bought homes, benefiting from shared equity. It's probably too early for us to call it genuinely, whether the impact of the mortgage rules, or whether we have specific examples that we could call out there. We all know the environment we're in with rising interest rates, and with build cost inflation. We absolutely welcome that kind of prudent, what appears to be quite a prudent change to the lending rules.
The growth of our order book is also important, and I referenced the fact that we are now looking to extend and continue to extend the length of our order book and not just its scale. That's important as we scale our apartment schemes. They are capital intensive, and we need to commit to that volume. It's important for us to grow not just the short-term order book, which tends to be our starter homes, but also the longer term, which is probably more biased towards the apartment schemes. On build costs. Yeah, look, I think it's quite possible, Shane, that the broader market did have to suffer a bit more than the EUR 20,000 per unit that we managed to hold our build costs last year.
Sadly, we're past the first year anniversary of a war in Europe. None of us really knew how that would have impacted our business. Indeed, it's had a much bigger impact than that on many people's lives. I suppose we just continue to be prudent around how we call the impact of the macro environments, the cost of living crisis, the inflationary environment, and some uncertainty. I would probably suggest if Shane would agree that 10,000 number is a reasonably prudent number for us to call for this year.
Yeah.
I think it's the right way for us to think about it. On the side itself, which I didn't have a lot of time to go into, we talk about some of the things that we can do to mitigate and obviously scale is one. Also, you know, we're now into sixth, seventh, eighth year of our relationships with many of the big subcontractors we do business with and indeed the supply chain. Led by our commercial director, Fergus, we are and continuing to develop more central procurement initiatives. I talked a little bit about how that allows us to go more directly to source. That just gives us more meaningful conversations with the main manufacturers of a lot of the materials we use in our homes.
Not just from a pricing perspective, as I said, but to absolutely guarantee quality and product consistency. We've probably come out the other side of a standardization journey that's taken us three or four years as well. We build, as many of you know, very standardized homes, not just on housing but also on our apartment schemes. It doesn't mean that we don't change elevations, and we have, like, different landscaping treatments, et cetera, et cetera. Fundamentally, the vast majority of Cairn Homes that are built are standardized. That just allows us to sort of leverage the value chain right through planning, design, pre-con, and construction. There are some of the factors that have probably helped us manage that build cost inflation as well as many other initiatives.
On your third question, I'll hand over to Shane. I think it's the capital allocation one, Shane.
Yeah. Thanks, and good morning to you, Shane. Yeah, look, on capital allocation, we feel we're in a really strong position. I think one of the things we want to emphasize this morning is it's not just talking about what we're going to do, but it has to be underpinned by what we've done. I think, reflecting on that ROE journey from 2% to 11% is in such a short period of time, kind of shows what we've done. I think that should give everyone on this call confidence around what we're going to do. We're in the very strong position that we've got a really good land bank, competitively acquired, as we said on the call. We've got a lot of it through planning, and we've got a lot of cash resources as well.
We're keen to emphasize this morning is that we're absolutely committed to driving the ROE as high as we can, as quickly as we can. That will be done through a combination. Well, first and foremost through profit generation, which leads to cash generation. As I said on the call, like our cash generation, certainly for the foreseeable future, will be at least 50% higher than the profits that we throw off. That gives us a lot of fuel to return capital to shareholders. We think we've pointed that out again this morning, the fact we're doing another EUR 40 million buyback. I think more interesting as well for our shareholders is that we're investing in width, you know, where we see the opportunity.
I think that's particularly important when you see the issues around broader supply and the demand supply and balance in Ireland. We are very confident that we can continue to return significant amounts of capital to shareholders, and we can continue to invest in our business, which we think is a really good sweet spot for our business. I think to have that underpinned by a dividend is really important as well, 'cause that makes us very accountable to grow our profits every year, which we're confident that we'll do as things stand.
There's good cash here coming off that for our shareholders, which will be supported by share buybacks, which frankly, as we all know on the call, it's a bit of a no-brainer where the share price is, where it is at the moment, where it's trading so significantly lower than its net asset value. When you look at our track record, particularly over the last couple of years, the compounded growth of ROE, we would be very confident that we will get to that 50% ROE target. We will throw off a lot of cash this year. It does tend to be back-ended.
We're very comfortable with the EUR 40 million buyback, and there will absolutely be more returns to shareholders over time, which will be appropriately weighed up against all of the commercial opportunities that we see in the business.
Thanks, Shane.
Yeah. Thanks, Michael. Thanks, Shane.
The next question is from Jonny Coubrough from Numis. Jonny, please go ahead. Your line is open.
Good morning. Thanks very much for taking my questions. The first one would be on the work you're doing selling to the state now. Clearly it's a big feature of the Irish market. You've been clear that all of that work that you're doing is gonna be on Ken's own land. I'd be grateful for your thoughts on what the difference is in economics between, you know, building for the state on Ken's own land relative to what it would look like if you're doing that on state or public land.
Yes. Yeah, perhaps, yeah, I suppose, just to, I suppose put a bit of a backdrop on this and why outside of just the housing crisis is the, this government appropriately looking to increase its proportion of ownership, particularly to try and help the affordable rental crisis. We all know the situation with rental values and rental-rates and costs in Ireland. We step back a little bit and look internationally. In order for the Irish government to own the number of homes, state-owned homes that would just put it in the average of all of the EU 27, it needs to increase state ownership by about 60,000-70,000 homes today. To get the kind of upper quartile to the better performance, you'd be double that.
The state should own another 120,000 or 130,000 homes. Unfortunately, even the existing stock, even from an energy perspective is we know the state's direct ownership has been declining since the 1960s and 1970s. It's an absolute imperative that the government increases its ownership. Therefore, the government's fundamental question is, how do we achieve value? How do we do this quickly? How do we do it at scale? It's up to us to absolutely illustrate to the government that while they will absolutely and should deliver as many homes as they can on their own land, that Cairn can deliver comparative value, speed, scale, quality, solutions quickly on our land. The evidence, and I don't really want to get into specifics, but we can deliver, and I think we have illustrated this.
Completed homes, including our land cost and all other costs which are not actually comparable ones when the state builds directly, including development levies, Part V contribution, et cetera, et cetera. We are still delivering homes cheaper than direct state builds on state land, including all of those costs and our land costs and our development margin. I think that makes us a compelling partner. It doesn't mean that we want to discourage the state in any way from adding value to state-owned land, because bluntly, it is much more valuable when it has homes on it. We think we're in a good position, but we have a responsibility as a business, as does our industry, to ensure that we can bring value to the state and help them increase the volume of state-owned housing, particularly for affordable rent.
That's very helpful. Thanks, Michael. My next question would be on the planning system and where you reapply for planning on sites such as Montrose. What opportunities do you have to improve the development potential of those sites by taking them back through planning?
I think you've certainly seen some evidence of that in 2022. We talked a little bit about some of the margin benefits of the planning gains that we got, particularly on the apartment schemes. You know, we acquired Griffith Wood, for example, with planning permission for, if I remember right, about 160 units. We completed the development of 387 units. That obviously improves our margin, even with allowing for the very significant increase in cost over that period of delivering those homes. Mix is important to us. We certainly feel that there are opportunities there in planning. However, we do already have a substantial portion of our landbank through the planning system.
We are probably now more fundamentally focused on putting our foot to the floor and increasing our volume and output, as evidenced by the target for this year. While we're not in a position, we don't believe it's prudent to talk about future years. I think it's pretty clear from our presentation where our ambitions lie, as a business.
Thanks. My last question, perhaps for Tara Grimley, is on your Scope three emissions targets, and clearly for the construction sector, you know, a large chunk of emissions are in the supply chain. Do you find that suppliers are willing to take action on this and help you work towards that target?
Absolutely. It's a, it's a really good question actually, because we've been through 2022 having workshops with many of our tier one, tier two, and tier three suppliers to understand where they're at on their sustainability ESG journey and their understanding of it. It is a mixed bag, you know, we have some larger suppliers that would be very advanced in their carbon reduction strategies and transition plans purely because of the nature of the industry that they're in and the materials that they're supplying.
Then we would have smaller contractors who this world would be quite new to them, and they would like us to help them with their carbon reduction story and partner with them to achieve this because it's something that will help them with their marketing of their services to other companies as well. I'd say it's a mixed bag, but I'd say there's a real appetite from all of our suppliers to get on the journey with us and to support us in what we need, and for us to then in turn support them in their requirements as well.
Yeah, I'd add to that if I could remind the people I support, remind them that, you know, it's up to us to support our supply chain in this. If I reflect back on COVID-19, Shane told us he had EUR 200 million of undrawn funds that he managed to negotiate for us previously, and we were able to draw that down, Shane, and support our subcontractors and, in fact, forward pay many of those suppliers to try and support them through that period. I think that brought us and then further enhanced our relationships. It means when we engage on things like our sustainability plans where we have a captive audience there.
Equally, it's up to us to support them, to try and get them, on the journey with us.
Great. That's all really clear. Thanks very much.
Thanks, Jonny. Thanks, Jonny.
The next question is from Colin Sheridan, from Davy. Colin, please go ahead. Your line is open.
Thanks, morning, guys, and congrats on a great set of results in 2022. A few from me, if I may. The first one just following up on Shane's points on build costs. Mind if you could maybe just give a little bit more color on what you're seeing differing trends on the labor versus material side and the makeup of those, that build cost inflation you're talking about. I wouldn't usually push for this this time of the year, but since you're so far forward procured into 2024, how that 4% is likely to trend into 2024 with % of the build costs already secured. Second one is just on social and affordable. A bit of a follow on from Jonny's comments.
I just wonder, you know, excluding Part V, which we all sort of know how it works, when you're dealing with other government agencies, whether it's LDA or housing associations. How should we think about the economics relative to the private market? I mean, they're still buying at market value effectively, you know, is it the same margin we should be thinking about when you're doing social sales to those types of bodies versus being able to sell them yourself into the private market? Finally, I guess just on land market and around Shane's comments on capital allocation. Feels like an environment, I mean, you made the comment, Michael, about, you know, build costs likely being worse in amongst the smaller players than in the rest of the sector.
Feels like you might be operating on tight margins and there's vacant site levies coming in and things like that. Does it feel like an environment where opportunities are coming down the line on the land market to maybe buy a little bit more as the year goes on, or have you seen any of those opportunities already? Thanks very much.
Thanks a million, Colin. I'll start with the last one. I think the time for us to be decisive, and it wasn't a massive investment for us, Colin, but, you know, we all know the challenges that the planning system has brought for our sector. We're not immune to that. I suppose we were fortunate that having bought our land bank in 2017, 2015 and 2016, that we had managed to successfully work a very large portion of that through the planning system before some of the most recent, court-based challenges became more prevalent. That was good for us. It still doesn't mean that as a business, that we should not be opportunistic.
I think we made some smart decisions in late 2021 and early 2022 to actually buy some land on the stock market with planning permission that would actually deliver units, a small number in 2022. Those sites we actually acquired will deliver close to 400 units, I think, Declan, in this current year. We're absolutely alive to that. As we look through the next two or three years, the number of schemes that we have and we have coming through the system, including recent successes, would probably mean that Cairn's land buying activity will be quite limited for the years ahead. We have a substantial land bank. It doesn't mean we won't be opportunistic.
Possibly, you know, strategic land, long-term strategic land might be of interest, but maybe that might be more U.K. style acquisition of option purchasing, etcetera, which really isn't prevalent in the land market in Ireland today. That would be attractive. More broadly, the land market remains fairly benign. It has been for a number of years, and we haven't really seen. I actually believe most of the land inflation we saw in Ireland was probably between 2016, 15, where it hit the floor and probably quite quickly by 17 or 18. It's remained pretty benign for the past three or four years in my view. It'll be interesting to see how the vacant site levy, what impact that will have, Colin.
I think once it's targeted towards land that is serviced as infrastructure is truly ready to build on and all of it, well, maybe it will be an effective measure. We are in a housing crisis. Working backwards, your second question on the kind of economics around social and affordable housing. I think we need to think less about whether the margin we generate there is better or lower, higher or lower, than whether we would sell those homes privately. I think what we are doing is we are targeting the portion of our land bank that offers value to the State. It is generally at lower margins 'cause we've got to drive efficiencies for the State there.
It also tends to be, in certain cases, at a slightly different specification. It's important that we value engineer the projects. The fundamental difference between our model, to try and explain how we achieve that, and let's say the more traditional route of direct procurements on state grant is on the direct procurement route, Colin, as you probably know, the main contractor enters the fray at a very late stage in the value proposition. They are basically presented with a finished design, fully planned, fully consented. They're offering a contract situation for the state where often the entry contract price differs greatly from the exit price that the state paid. That causes serious challenges. Our approach is very different. We have to absolutely value engineer every aspect of the delivery process.
We have to ensure that we target some of these units on our lower cost land bank. We have to absolutely ensure we're designing the right sort of products. We have to ensure the specification's appropriate, and we have to make sure that our scale gives us efficiencies. I don't really think about margin. I think about to trying to bring value to the state because that's our responsibility. If we do that, and we can illustrate that, then it represents a long-term sustainable business for Cairn and not just an opportunistic business for us, if that answers that question.
Yep.
Labor and materials markets. I suppose it's probably reflects back on the previous point when I said with labor that we felt it was important for us to meet the volume commitments we made to our supply chain. That's particularly relevant to labor because the way to control labor costs in a construction company is to ensure that the vast majority of people working on your sites are employed full-time. If they're on a salary, then the conversation that you have with those or your subcontractors have with those employees is an annual conversation, and it tends to be a more controlled and more long-term relationship between the employee and their employer. You can only do that if you're offering consistency and real look-through on your pipeline, and you're meeting those commitments.
If, in my view, your volumes are moving up or down dramatically, that makes it really hard to keep your labor costs under control. What it means is you've got to go back into the market and price individual work from subcontractors that probably might have worked for you a year or two years before, but that you had to stand down. As a result, we think that the labor cost of our build is gonna be very stable for the next 12 to 18 months. We are conscious of cost of living crisis. We're trying to support our people, and if our subcontractors need to continue to support theirs, we will have to, and we'll shift guide towards that.
I suppose most importantly, in commodities, which is where we see most of the risk, we're seeing some dramatic shifts down in certain commodities, and we're still seeing tightness in other areas. On an overall expose, I think I referenced it earlier, I think Shane would probably agree with me. I think the 10,000 number that we've talked about is the 4% that you referenced feels like a proved number for us, where we feel that and we feel it's the right environment to be proved around where build cost inflation would be. I certainly wouldn't be expecting any surprises outside of the things that we can control, the broader macro environment, which probably does need us to just be a bit more prudent at the moment.
I think that's right, Michael. I mean, I think one thing to reflect on is there have been significant compounding increases in build cost inflation over the last number of years. They're pretty much embedded now in the cost stack. I think that kind of gives additional context to what Michael just said. It is absolutely proved, we think, to put it in, you know, what we've said, like cents paid per unit. More fundamentally, you know, there have been significant increases in build cost inflation in the last number of years. I think that's a testament to our operating model that you've still seen significant gross margin correction in our business in that context.
Understood. Thanks for that, guys.
Okay, Colin. Yes, thank you.
The next question is from Lucia Agarwal from Bank of America. Luca, your line is open. Please go ahead.
Hello. Two quick questions from my side. One is on your sales and reservation rates going for this year. I can see that currently based on the forward sales of March this year is around two-thirds. Do you have any guidance on how you expect that to change over the years over this year? Also your ASP for this year, any guidance on that since some competitors kind of lowering their ASP? Yeah, any guidance on that as well? Thanks.
Hiya, Luca. When you say competitors lowering ASP, is that U.K.-based house builders, or where would that come from?
Yeah, U.K.
Yeah. Yeah. Look, I suppose, it is a very different market here, Luca. It doesn't mean that it doesn't have its challenges, but I think we did cover a lot of that. I think, it is important for us to kind of point out some of those differences. It doesn't mean that we as a business, and we never have, guided on house price inflation. I think we kind of leave that to you guys. We can only talk about our more microenvironment and how we see the business and how we see demand. What we're seeing is really strong demand. That's across the spectrum.
The reason why we will grow our forward pipeline and has grown so much is that we believe that as we continue to scale, and particularly as I said earlier, as we are building more and more apartments. It is important for us, and indeed our customers want to be able to forward commitment to that pipeline, particularly whether it's state or institutional buyers. They need return planning, and whether it's on a forward commitment or a forward funding, it tends to be contracted at a very early stage in construction. That's important for us as we try and manage our sustainable growth level in the years ahead. That's the main reason, as I said earlier, you know, current year is very well covered, absolutely, as you said, at roughly two-thirds.
we've already booked 300 units for next year. I think when we come out and report again in June and September, I would be hopeful that kind of longer-term pipeline should continue to grow in our favor, Luke. Okay, thank you. Did I answer both your questions? I apologize if I didn't. Yes, yeah. There just was another. Cool, thanks.
The next question is from Andy Murphy from Edison Research. Andy, please go ahead. Your line is open.
Thank you. Good morning, Andy Murphy from Edison. I'm gonna break the mold and only ask for two, if I may. You talked in the statement about sort of the lack of delivery of apartments across the piece. I was wondering whether that implies that you'll be changing or replanning some of your sites to perhaps move from traditional housing to apartments? If so, does that imply additional costs or delays, or indeed a change of sort of future land purchasing in terms of the emphasis of the types of land? Secondly, it's a question for Tara about sustainability targets on greenhouse and biodiversity. I was wondering if you could talk me through a little bit about whether that implies any additional costs to the business overall.
Secondly, allied to that, you mentioned earlier on about pressure being applied to suppliers. I was wondering if there's any examples where pressure from your side has encouraged a building material supplier to up their game in terms of greenhouse gas emissions, or indeed whether you've actually switched suppliers because you weren't satisfied with an answer from a particular supplier. Thank you.
Okay. On the apartment side, Andy, I suppose I'll just try and paint a picture. I mentioned earlier that the really low level of state-owned housing in Ireland, the challenges that any economy faces, particularly an economy that's absolutely trucking and has this widening gap or widening cohort of, you know, what we might refer to as that kind of stuck middle. They require support and they require affordable renting particularly. Therefore, you know, one of the ways of addressing that is not to only be dependent on the private rental sector, but for the state to have a much bigger ownership and play a bigger part. We believe it's absolutely obvious that apartments must play a role in that.
Doesn't mean they're the only answer. Just to give you some comparisons, in the UK, Andy, I think about 20% of people live in apartments. In the EU 27, around 50% of people live in apartments, and in Ireland, less than 10% of people live in apartments. We have been allergic to heights. We've seen urban sprawl for decades. Unfortunately, and this is according to Eurostat research, it's very, very good research on the Eurostat website. It points out that not only is our housing stock wrong, but to maybe even nod to some of Tara's answers here, the energy efficiency of our housing stock is appalling, amongst the worst performers in Europe. What a problem for Ireland is that we have a massive stock of large three- and four-bed houses. Many of them are under-occupied.
In fact, the Eurostat research actually calls out the under-occupation of Ireland's housing stock. What it kind of means is, which is pretty tragic, is that we have enough bedrooms to house our population, but we don't have enough individual units, and that's the reason. The reason for that is there's not enough of our one- and two-bed units. We're in a strong position as a result of all of that. It doesn't mean we need to buy any more land. We already have a very significant land bank that allows us to build lower density, mixed tenure developments, but also to build apartments. We believe that we were right to bring ourselves through that learning journey of improving our apartment output.
It's been a steep, steeper learning curve, but it's started to pay, it's started to reward us, in our performance as a business. It sets us up well.
Thanks, Michael. Andy, just in relation to your two questions on the ESG space. Taking the first one around additional costs. To the extent that we have introduced initiatives that are carbon reducing, so for example, say our Scope one on our switch to HVO fuels, there's a very marginal change in the cost at present of that due to increased costs of diesel and fuel, as you know, in the macro climate at the moment. I'd say for that one, that's quite marginal.
If anything, supply of the product is gonna be more of a challenge of us there on a consistent ongoing basis as opposed to the cost. In terms of Scope three, some of the items that we've already introduced there, like, that I referred to in my presentation around heat pumps and timber frame. You know, we've been building A-rated energy efficient homes since, you know, 2019.
They're in that compliance, so a lot of those costs are already absorbed as our business as usual as such. We do have to complete life cycle assessments to understand the embodied carbon in our product, and those are expensive, and there's no doubt about that. There are efficiencies that can be gained through what Michael talked about in terms of standardization of product, and we do manage those as much as we can.
I suppose, looking forward in terms of other things that we might do to reduce our carbon footprint and in particular in Scope three, the only real game-changing item for us is probably to look at something like Passivhaus standards. If you know the five key principles of that, you know you're looking at things from airtightness to high-performance window glazing.
Again, you know, looking at that, we're going through feasibility studies on that now to consider everything from program impacts, costs, product availability, et cetera. You know, all of that will be scoped out. There may be additional costs there, but, you know, we're looking at it early enough. As you know yourself, it's much better to have...
It's much better to build them in at the design phase than have to retrofit these buildings to be green certified buildings. I would say we're managing that quite well. In terms of the upping of the game and of those suppliers that you mentioned or changing suppliers, again, it's not gonna be a case of changing supplier because of just a cost. It'll be, you know, if we change our products, then it's a change in supplier for that reason.
Initiative style.
New initiative. Exactly. Someone else offered it. That's the only reason I can see that we would change supplier. It wouldn't just be a cost consideration as such. That's fair.
Yeah. A good example, Tara, of that is, so if you take, We piloted soil stabilisation around, I don't want to bore you too much with this.
Yeah.
If you take soil stabilisation, what that really means is that thousands of truckloads of inert material need to move on and off our sites. Soil stabilisation allows us to actually compress and keep the soil on-site to avoid all of those truck movements. That's now, soil stabilisation is across five of our sites now in the current portfolio, having just piloted that last year. That's one example of how a new technology just changed behavior rather than necessarily changing the supplier.
Exactly. Yeah. I'd say there's enthusiasm among our supply team to look at this with us. You know, there's always opportunities for the sector to be more innovative, and the more they're part of that journey with us and getting credit for some of those innovations and improvements in product to then sell on to other customers, you know, we're seeing a lot of good traction in that space.
Right. Thank you. Thank you very much.
We have no further questions, so I'll hand back to the management team for any concluding remarks.
Nothing else from us, but just to thank you. I know it's a really busy day, and we're only one of many PLCs reporting today. Thank you very much for your time, your continued support, and we look forward to seeing many of you individually over the coming days. Thank you again.
Thank you.
This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.