Higher interest rates trigger falloff in planning permissions for apartments

The impact of higher interest rates on homebuilding here is difficult to pinpoint precisely, not least because there are a number of factors affecting cost and viability, but we got a strong signal on Friday with planning permissions for 2022 down sharply on the previous year. Central Statistics Office (CSO) data shows the total number of dwelling units granted permission in 2022 fell by 20.5 per cent to 34,177 units, down from 42,991 in 2021.

While the number of houses granted planning permission in 2022 rose by 4.4 per cent to 17,454, apartment permissions fell by 36 per cent to 16,723 units.

In the final quarter of last year, which coincided with the steepest interest rate hikes to date by the European Central Bank, planning permissions contracted by 44 per cent to 7,597 units compared with 13,450 units in the same quarter in the previous year.

During the three-month period planning permissions for apartments fell by 54 per cent while permissions for houses declined by 28 per cent.

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Most of the apartment projects in Dublin in recent times have been funded by institutions, which have until recently been able to borrow at very low interest rates.

“There is no doubt that rising interest rates are having an impact on what investors can pay for apartments,” says John McCartney, director and head of research with BNP Paribas Real Estate. “And at the same time construction inflation and higher financing costs are impacting the cost of delivery.”

McCartney points to a “viability challenge”, but says the continued rise in rents, even though the rate is moderating, is helping to offset this somewhat.

On the upside McCartney notes that recent data published by the Dublin Housing Supply Coordination Task Force indicated that, as of the third quarter of 2022, there were 48,401 dwellings in Dublin alone with planning permission already in place that had not yet been commenced. This equates to nearly five years of supply at 2022 build rates, he says.