Construction slowdown may boost house prices
THE sharpest construction slowdown in more than four years could see house prices return to growth by summer 2008, according to a leading economist.
Ulster Bank's Pat McArdle said he now expects just 60,000 houses to be built next year, after new research from his bank showed September experienced the sharpest fall-off in construction since June 2003.
That 60,000 is almost 20,000 behind the house-building peak of 2006 when 88,000 new homes were built.
"House prices are a simple function of supply and demand," said Mr McArdle.
"When demand is reduced builders have two choices, they can keep on building and watch prices fall or they can cut back in production and keep prices constant. They've gone for the second one here." Mr McArdle said it would take about nine months for the fall-off in construction to translate to a fall off in housing demand.
"I wouldn't be surprised to see house prices rising slightly in the second half of 2008," he said, adding that the decline in house prices was already slowing, with the 0.8pc slump reported in April/May reducing to a 0.3pc fall in August.
The PMI uses 50 as the deciding point between growth and decline; in September housing activity returned a 29.5 result, down from 31.4 in August.
And future falls in activity look likely, as the latest index shows new order volumes fell at the sharpest rate for four years.
"Everyone expected the decline to come, but nobody expected it to come this quickly," said Mr McArdle.
Across the board, 27pc of companies said that employee numbers had fallen, while the use of subcontractors fell for the first time in four years.
"When building expanded an awful lot of subcontractors were hired," said Mr McArdle, "now activity is going down it's no surprise that there are less subcontractors now."
Despite the clouds gathering on the housing market in particular, however, the index shows that confidence amongst construction firms is holding up. "The question is, 'in a year's time will you be doing more or less?'," said Mr McArdle.
"The majority of them are saying they'll be doing more. This means that it's probably a conscious strategy that they are pursuing: they're slashing output now so that in a year's time they will be able to expand again," adds Mr McArdle.
