The Government’s landmark plan to address the housing crisis could be derailed by a marked slowdown in building activity, experts believe. Concerns are focusing particularly on the construction of apartments from next year onwards.
Figures published by the Central Statistics Office (CSO) on Thursday point to a major fall-off in residential construction in the third quarter, which experts have linked to the spiralling cost of building materials.
The latest data indicates that construction activity as a whole fell by 2.7 per cent between July and September this year as the price of energy and other key components surged. The decline was most pronounced in the residential sector, with house-building falling by 16.2 per cent.
The building and construction index figures come amid warnings from the industry that housing projects are being cancelled and builders are turning down work in the face of rapid and unpredictable levels of inflation. The slowdown poses a major risk to the Government’s Housing for All strategy, which aims to deliver an additional 300,000 housing units – or approximately 33,000 a year – by 2030.
“In real time early-stage residential construction activity appears to be tapering off,” said John McCartney, head of research at BNP Paribas Real Estate Ireland.
“Commencement notices have pulled back, the residential element of BNP’s construction purchasing managers’ index (PMI) has been weaker, and production in the CSO’s building and construction index, which measures the value of building and construction work done in a quarter, is well down in Q3,” Mr McCartney said.
“This reflects rising materials and labour costs, and of course increased finance costs. Because these are rising faster than property values development margins are being squeezed and some projects are becoming unviable.
“This is a particular challenge for apartments which are harder to roll out gradually and where peak debt levels and build costs tend to be higher,” Mr McCartney added. “This clearly has potential to drag on completions levels in due course.”
Based on units that are already in the pipeline, Mr McCartney said he still expected 2022 to be very strong for new dwelling completions with approximately 28,000 units delivered in the calendar year. “There is also a considerable pipeline of work-in-progress to be delivered in 2023, and while deliveries might not maintain 2022 levels they should be there-or-thereabouts. So the concern is really that completions could fall away after 2023.”
Goodbody Stockbrokers warned last week that the construction of new homes may stall “well short” of the Government’s target. Rising interest rates are also expected to dampen investment.
Construction companies have been affected particularly badly by the recent inflationary surge. Not only are essential materials and skilled labour significantly more expensive, but supply chain pressures and shortages have made it harder to secure materials.
Building materials giant CRH recently warned that the industry faces a “second wave” of inflation as spiralling energy prices drive up the cost of everything from wages to logistics. The London and Dublin-listed group, which works on big construction projects across Europe and the US, was hit by a 50 per cent increase in energy costs in the first half of the year.
The CSO’s figures indicate that output in the non-residential building sector fell by 2.8 per cent in the third quarter, while output in the civil engineering sector rose by 10.3 per cent.
“With regards to pre-pandemic levels, there was a reduction of 12.3 per cent in construction activity from quarter three 2019 to quarter three 2022,” the CSO’s Shane O’Sullivan said. During the same period the value of construction increased by 6.1 per cent.