Housebuilding slowed last month as inflation threatened the viability of projects, figures published on Monday show.
Building declined overall for the second month running in November, according to the BNP Paribas Real Estate Ireland Construction purchasing managers’ index (PMI). The main index slipped to 46.8 in November from 47.4 the previous month, according to figures released on Monday.
Any figure above the 50 benchmark would mean that activity in the sector had expanded on the previous month, while any number below that shows that it shrank.
Housebuilding declined more sharply last month than previously, says BNP, which blames rising inflation and a slowdown in the rate at which property prices are increasing for the slip.
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John McCartney, director and head of research at BNP Paribas Real Estate Ireland, says a “re-acceleration” in inflation and slower house price growth challenged viability last month. “This contributed to a sharp contraction in residential activity.
“The short-term outlook for housing completions remains positive. Our 28,000 forecast for 2022 should be attained, comprehensively surpassing Government targets.”
Mr McCartney adds that figures indicated that housebuilding will be strong next year, but cautions that new projects tapered off in November, raising concerns for the longer term just at a time when the Government will be heading into an election.
“Given the time it has taken for residential completions to reach current levels, any prospect of backsliding is concerning,” he argues.
“But several factors may help ease viability challenges in the longer run. Two new Government initiatives – the first-home scheme, which was introduced in July, and the relaxation of mortgage rules from January – should facilitate builders to sell homes at higher prices.”
Agents are reporting that site values are beginning to fall, positive news for anyone planning to build new homes, as the cost of buying the land in the first place has been high.
Within the overall construction PMI, housebuilding slipped to 41.6 last month, well below the 50 benchmark.
Civil engineering, which includes big Government-funded projects such as roads, schools and infrastructure, fell also, recording a result of 39.1.
The commercial sector – offices, warehousing and the like – fared best with a reading of 49.5.
Costs continued rising sharply in November, with almost half of all respondents saying they increased through the month. Similarly, disruption to raw materials supplies continued last month.
The slowdown hit hiring, with employment unchanged in November, following three months of growth. This coincided with falling confidence about the industry’s prospects next year. Fears of a general recession and its impact on future workloads left sentiment at a three-month low.
New business decreased for the eighth month running, and at the fastest pace since August. However, Mr McCartney notes that the “number of building firms expecting to be busier in year’s time still exceeds the number expecting to be quieter”.
