Further growth in house building

House building in September grew at its fastest pace since Ulster Bank first began its Construction Index 14 years ago.

The index reached 61.5 in September which is up marginally from the 61.4 recorded in August — the 13th straight month of growth.

House building was the best performing component of the index. It surged from 63.7 in August to 68.4 in September. However, civil engineering activity continues to struggle and dropped from 48.2 to 45.1 over the same timeframe.

“Of particular note in the latest results is the fastest rise in housing activity in the survey’s 14-year history — an encouraging sign that sustained, and badly-needed, increases in residential activity are now taking hold. The latest results also point to further sizeable advances in commercial activity, albeit that the pace of increase eased a touch for the second month running,” said Ulster Bank chief economist, Simon Barry.

“Further very solid gains in overall activity seem likely in the months ahead judging by another very strong reading in the new orders index, with almost half of respondents reporting that new business levels rose last month. And with activity and new orders both maintaining favourable trajectories, survey participants are responding by adding further to their staffing levels. The employment index recorded a 13th consecutive month of expansion last month, with the rate of job creation picking up to its fastest since April. Sentiment among firms about the sector’s prospects over the coming 12 months remains very upbeat with confidence remaining at near-record levels in September.”

It is expected that the Government will unveil a series of initiatives in tomorrow’s budget aimed at increasing the supply of houses. Double digit house price increases over the past 12 months have been attributed to demand outstripping supply.

However, the Central Bank announced last week that it plans to introduce caps to mortgage lending effective from the beginning of next year. The majority of mortgage applicants in the future will be restricted to 80% loan-to-value ratios and will also be restricted to 3.5 times annual income.

The deputy governor of the Central Bank, Stefan Gerlach, said the measures are not aimed directly at cooling house price increases, although he expects the pace of increase to moderate when they come into effect.