Surging construction inflation is slowing the rate at which the Republic is building new homes, a leading industry figure warned on Thursday.
In an interview after builder Cairn Homes reported that profit quadrupled to €31.8 million in the six months to June 30th, its chief executive, Michael Stanley, said there was a fall in the number of new houses under construction.
The number of new homes on which builders began work fell to 28,450 in July from 34,846 in March, according to figures produced by his company.
Mr Stanley singled out rising material and labour costs as the most “significant challenges” that housebuilders face.
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For example, over the last two years, insulation prices rose 138 per cent and rebar steel, particularly important for apartment building, rose 127 per cent. At the same time, transport and shipping costs rose 300 per cent, Mr Stanley noted.
“I think commencements this year will be pretty good, we could breach 25,000 or 26,000,” he predicted. However, the builder added that new housing starts would “flatline at best” in 2023.
The Republic needs to build around 30,000 new homes a year to meet its needs, according to most estimates. Consequently Cairn does not believe demand will slow, despite the rising cost of living and borrowing.
Mr Stanley argued that the resulting cost of new homes meant that Government aid such as the first home shared equity scheme were badly needed.
Rising prices add to the difficulties some builders face in raising cash for projects, which Mr Stanley singled out as another factor in the slowdown, along with planning delays.
Cairn is a listed company, so does not have funding difficulties. It is now building on 22 sites, mostly in the Greater Dublin Area, but it has recently begun work in Cork, Kilkenny and Limerick, while it intends begin a project in Galway early next year.
The company said on Thursday that revenue grew 84 per cent to €240.4 million in the first half of the year from €130.6 million during the same period in 2021.
Cairn closed 547 new home sales, split 50/50 between houses and apartments, hitting a record €36.2 million first-half operating profit.
Profit before tax rose more than 300 per cent to €31.8 million in the first half from €7.6 million during the opening six months of last year.
The company’s shares rose 1.21 per cent to €1 on the Irish Stock Exchange following the news on Thursday morning.
Cairn pledged to boost its interim dividend to 3 cent a share from the 2.66 cent paid to shareholders for the first half of 2021.
Buyers paid an average of €330,000 for houses during the period, slightly up on the €327,000 the company earned for an average sale last year.
“Significant efficiency” allowed the business to maintain what it called a competitive price for its properties.
Cairn said it remained on track to close the sale of 1,500 homes this year, earning €100 million profit from its operations and generating revenue of more than €600 million.
Mr Stanley confirmed in a statement that the first half of 2022 had been the company’s best ever. He noted that social and affordable homes represented a much bigger share of Cairn’s business than previously.
“This year we will deliver over 500 new homes for or through State agencies,” he said. “Recent sales also include homes across five of our developments to first-time buyers who have been able to avail of the Government’s new first home Shared Equity Scheme,” Mr Stanley added.
“This and other supports are absolutely crucial, particularly at a time when building costs continue to increase and mortgage costs are rising.”
