Higher cost of building materials could ‘lock out’ more home-buyers

Increases in the cost of building materials is putting further pressure on the supply of new homes, with house-builders warning that it will “lock out” more people from the market.

Industry group the Irish Home Builders Association (IHBA) said in a survey that record timber prices, Covid-related stoppages, depleted inventories, delays in shipping and Brexit-related transport issues have increased the cost of building materials required for the construction of new homes.

Where the increased costs, ranging from €12,000 to €15,000 on top of the purchase price of €325,000 to €350,000 on new homes, are not added to the price of the home, profit margins would be halved, preventing builders from qualifying for financing to fund further houses or projects.

Adding these costs to house prices could in turn limit a borrower’s ability to secure a mortgage, and “those currently ‘locked out’ of the market will be further restricted”, the IHBA said.

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"Costs of €5,000 to €10,000 can swing the difference between building a house and not building a house – the margins are that fine," said IHBA chairman Sean O'Neill, who is managing director of Park Developments, one of the country's largest house-builders.

The construction representative group said the Government’s shared equity scheme will help middle-income earners buy homes. It has called for an extension of the Help to Buy scheme that offers tax relief to help first-time buyers secure a mortgage and to buy or build a house.

More affordable

To help make mortgages more affordable, the builders’ group said that discretion lending exemptions should be considered to allow first-time buyers borrow more of the value of the property or more than the 3½ times the current annual income limit.

Mr O’Neill said that while calling for a relaxation of lending rules, house-builders did not want “massive highs and massive lows” of fluctuating house prices seen over the past 15 years.

“We don’t want massive price inflation because that’s not helpful either to our business. We just want sustainable house prices that people can afford.”

The IHBA said in its production inflation tracker and cost impact assessment that increased global demand, especially in the US and China, which is partly driven by home upgrades and increased disposable income during lockdowns, has contributed to the rising cost of materials.

Further cost increases are expected due to supply shortages in the second half of the year.

Mr O’Neill said materials were costing more and becoming “harder to source”, and as a result builders would find it difficult to source funding for further housing developments or further phases of home-building projects if they have to absorb these higher costs.

IHBA director James Benson said these shortages would delay building projects that had not secured existing supplies.

Prices and rents

Ronan Lyons, economics professor at Trinity College Dublin, said constructions costs were "the single most important determinant" of housing supply, which set purchases prices and rents, and that higher costs would affect Ireland more as it was already one of the most expensive places for house-building.

“This is going to hurt us more than it will hurt other places. Every time you push up the cost you are going further and further up the income distribution in terms of who is viable to build for, and we are already higher up than where we want to be.”