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Surge in building costs to keep house prices at boom levels

  • Inflation is likely to dash any immediate hopes that potential first-time buyers have of getting onto the property ladder
  • Increased housing supply in danger of being offset by spiking material costs

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Brian Hayes, CEO of the BPFI, said cost hikes in construction should be scrutinised. Photo: Paul Sherwood

Brian Hayes, CEO of the BPFI, said cost hikes in construction should be scrutinised. Photo: Paul Sherwood

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The surging cost of building materials is set to keep house prices close to Celtic Tiger levels despite more properties being constructed at last.

Inflation is likely to dash any immediate hopes that potential first-time buyers have of getting onto the property ladder. With home construction finally getting up to speed, there was an expectation that prices would start to ease as more properties come to the market.

But rampant inflation, which has been a feature of the construction market since last year, is now coming to a head. Developers are reportedly suspending some projects until the prices of building materials fall.

A report this morning from the Banking & Payments Federation Ireland (BPFI) says that while increased housing supply may be helping to ease property prices, any benefit is in danger of being outweighed by spiking material costs.

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“Leading indicators show pressures building up in relation to input prices, which could have a knock-on effect on housing prices,” the report notes.

Annual inflation for building and construction materials was 18.2pc in April.

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For some materials, including metal and wood, the rate of inflation was much higher, at between 50pc and 60pc.

Data from the Central Statistics Office (CSO) shows that labour costs rose almost 9pc year-on-year in the construction sector in the first quarter of 2021, comparable to the increase seen across the private sector. However, within the construction sector, labour costs were virtually unchanged between the first quarter of 2021 and the first three months of 2022.

Brian Hayes, the CEO of the BPFI, said it was important to scrutinise the cost increases in the construction sector and, where possible, to minimise the impact of building-cost inflation on home prices.

“This could help to provide better affordability for potential home buyers given that average home prices are increasing faster than the incomes of potential home buyers,” he said.

But the BPFI remains hopeful that increasing supply could still ease prices.

“While house prices are continuing to rise, the rate of that increase may now be easing as housing supply also increases,” Mr Hayes added.

Home prices jumped 15.2pc in the 12 months to March, according to figures the CSO released last month. However, the monthly pace of increases slowed, slipping to 0.6pc in March, compared to 0.7pc in February and almost 1pc in January. The price of homes in Dublin climbed 12.7pc in the 12-month period, while prices outside the capital rose 17.3pc.

The median price of a dwelling in Ireland during the 12 months to March was €285,000. The lowest median price was in Longford, at €136,000. The highest was in the Dún Laoghaire-Rathdown region of Dublin, at €601,000.

“Notwithstanding the fact that apartments account for an increasing share of housing output and these take longer than houses to complete, we should see a significant increase in the number of units completed in the second quarter of 2022,” Mr Hayes said. “This increase in supply should help to alleviate some of the pressure on average prices.”



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