House-building picks up again but costs rise as pace speeds up

Prices for materials including timber, concrete and insulation are all up. Photo: Getty

Donal O'Donovan

House-building activity grew at a faster pace in May, cementing evidence the sector is powering ahead at a significant level even as the wider construction market cooled.

A tight jobs market and a squeeze on local supply chains suggest residential building is starting to hit capacity constraints, at least in the short term.

The latest BNP Paribas Real Estate Ireland Construction index for last month shows total construction activity down amid a fall in commercial work but housing activity expanded amid rising new orders.

Residential activity increased for the fourth consecutive month, and at a solid pace that was slightly faster than that seen in May.

BNP Paribas chief economist John McCartney said the Government’s stated intention to revise house-building targets to around 50,000 units per annum has underpinned residential builders’ confidence.

However, as activity has picked up, input cost inflation hit a 14-month high last month and is above pre-Covid levels.

Prices for a range of materials including timber, concrete and insulation are all up.

That has a likely knock-on to the price of new homes, including for the State which has emerged a major buyer of homes through funding of housing agencies and subsidies for individual buyers.

Unchecked higher build costs would also further stretch the viability of schemes, especially capital intensive apartment blocks already priced beyond the reach of most first-time buyers and many investors.

The latest monthly data shows staffing levels in Irish construction have now risen in each of the past seven months, although the pace of job creation softened last month even as activity rose amid evidence of shortages of availability of a raft of building trades and construction professionals.

The headline seasonally adjusted BNP Paribas Real Estate Ireland Construction Total Activity Index remained below the 50.0 no-change mark in June, and fell to 47.5 from 49.8 in May.

The housing sub-index clocked up a score of 52.4, however, indicating robust growth.

While BNP Paribas’s latest data suggests the house-building sector is expanding, it has not shifted its forecast for completions this year since indicating output is likely to be flat versus last year – a tally of around 32,000.