Getting an accurate snapshot of what’s going on under the bonnet of the construction industry here has never been straightforward.
For several years – up to 2018 – the official home completion figures supplied by the Department of Housing were based on electricity connections, which exaggerated building rates. Between 2011 and 2017, the department overstated the number of new homes built in the State by more than 53,000 units or 60 per cent.
Even now, the official data, compiled by the Central Statictics Office (CSO), is disputed. The CSO says there were just under 30,000 new homes constructed last year but Construction Information Services says it was more like 23,000.
Putting all that noise to one side, the basic and most accepted way of predicting future housing supply is via commencement notices or housing starts. Given that they fell last year, to about 27,000, most agencies here – the Central Bank of Ireland, the Economic and Social Research Institute and Banking and Payments Federation Ireland – are predicting completion numbers to follow suit and fall this year.
They also cite rising construction costs as a potential impediment. The latest construction purchasing managers’ index, published by BNP Paribas Real Estate Ireland, which points to a marked slowdown in construction activity in March, seems to underscore the predictions.
However, according to John McCartney, author of BNP Paribas’s report, the simple lagged relationship between commencements and completions is complicated by two factors.
First, there is a swollen pipeline of residential construction held over from the pandemic. “The relaxation of Covid restrictions unleashed a surge of commencements between April and October in 2021. Some of these were completed in 2022, propelling new dwelling completions for the year to 29,851, some 21.3 per cent above the Housing for All target of 24,600,” he says.
“Critically, however, many of them have not yet washed through as completions. This has left a significant pipeline for delivery this year, despite the fact that starts slowed again in 2022,” he says.
“Compounding this, the apartment share of housing output has risen from 9 per cent in 2012 to 31 per cent in 2022,” McCartney says. “The fact that apartments take longer to build is also contributing to a bigger stock of work in progress at the current snapshot in time,” he says. On that basis, McCartney forecasts that house completions will be in the region of 29,000 units this year, in line with the Government’s Housing for All target.
We’ll have a better idea if he’s right when the first-quarter completion numbers come out later this month.
What happens after 2023 is more difficult to forecast. But there are two big forces threatening the viability of housing projects and by extension the Government’s future housing targets, which rise to 33,450 for 2024 and 34,600 in 2025, namely higher input costs and higher borrowing costs. Apartment viability is now severely stretched in many locations because of these issues.
McCartney points out that the Government’s multiple schemes to help people purchase a home, combined with the loosening of Central Bank mortgage rules, work in the opposite direction, encouraging further development as more people will be able to buy. The industry is already responding positively to these interventions with order books, input purchases and hiring all increasing, he says.
There is, however, no way of saying from this vantage, which of these forces will win out or which way activity is poised to turn after 2023.
