Surge in new housing cannot outrun structural issues in sector

Jon Ihle

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Stock image. Photo: Chris Ratcliffe/Bloomberg

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July 29 2022 02:30 AM

The very strong increase in new dwelling completions reported yesterday is undoubtedly positive news for a housing market crying out for greater supply.

But the surge in new housing coming on stream now disguises deeper issues that point to another pullback in homebuilding in the months to come.

New housing completions in the second quarter were up more than 50pc on the same period last year and even further ahead of pre-pandemic 2019 figures, according to new data from the Central Statistics Office.

More than 7,600 new homes were finished in April, May and June – an annualised run-rate of more than 30,000 houses. In the first half of the year more than 13,300 new dwellings were completed. The industry is undoubtedly revving up and delivering.

Unfortunately, this could be the high-water mark for a construction sector struggling with soaring costs and a labour shortage – just like everyone else – at precisely the moment when even more new homes are desperately needed.

The cost of raw materials has risen significantly, impacting the viability of future delivery

David Duffy, the director of Ibec’s Property Industry Ireland, summed it up like this: “The new home delivery environment is becoming more challenging. The cost of raw materials has risen significantly, impacting the viability of future delivery.”

That view is supported by official sources and independent research.

The cost inflation is already having an impact on housing starts. Recent data on new housing starts – you can’t have completions without them – fell by 43pc in the second quarter. So as the industry was finishing thousands of houses, it wasn’t starting as many new ones.

The embedded higher prices of building materials and labour, which is in short supply, is squeezing margins, making new projects less attractive. Recent research commissioned by Autodesk found that more than 80pc of building firms had delayed projects recently because the numbers didn’t add up.

Goodbody has warned that these factors mean there is a real risk that housing output will stall below the Government’s target of 33,000 new homes a year – a figure that real estate sources say already falls short of the supply required to tame house prices.

While the global supply crunch is easing for some commodities, the precarious energy situation does not bode well for cost reduction in the short term. Meanwhile, consumer price inflation is beginning to have an effect on wage demands, too, which will only push costs higher.