Further drop in building activity threatens housing targets

November records sees second consecutive month of building contraction

Building companies also showed a reluctance to take on additional staff, according to BNP Paribas Real Estate Ireland PMI. File Picture: Denis Minihane.

The pace of the slowdown in Ireland’s construction sector accelerated in November, adding to fears about meeting targets in the years ahead as the number of new housing projects commencing work tapers off.

The latest Construction Purchasing Managers’ Index shows activity in the sector fell for the second month running.

It adds to a growing list of data pointing to a slowdown as inflation and a drop in new orders continue to impact construction.

On Friday, the Central Statistics Office (CSO) reported a 41% drop in the number of housing units granted planning permission in the third quarter.

The Construction PMI, published this morning, fell to 46.8 in November from 47.4 in October, posting below the 50.0 no-change mark for the second month running to signal back-to-back declines in total construction activity. The latest fall was solid, and the fastest since July.

The pace of decline in housing activity accelerated sharply, with the category joining civil engineering in seeing a rapid reduction over the course of the month.

Anecdotal evidence suggested that a drop in new orders and a market slowdown were behind the fall in activity.

Lower demand and price pressures

The BNP Paribas Real Estate Ireland PMI surveys 150 construction firms each month. More than 47% of respondents said the rate of inflation quickened in November. Across the board, inflation was reported by a number of firms, while others pinpointed rises in energy and fuel prices as having a particular impact on their cost burdens.

A combination of lower demand and price pressures also led construction firms to make efforts to reduce stock holdings.

As a result, firms reduced their purchasing activity sharply, and to the greatest extent in three months.

Companies also showed a reluctance to take on additional staff. Employment was broadly unchanged in November following three months of expansion.

Short-term outlook

BNP Paribas Real Estate Ireland head of research John McCartney said the short-term outlook for housing completions remains positive, saying their forecast of 28,000 units this year should be attained with pipeline figures suggesting that 2023 will see continued strong completions.

“However, the November PMI data indicate that the flow of new projects has tapered off,” he said.

The reduction in early-stage building work is dragging on overall activity, and threatens to impact on housing completions later in the cycle.

“Given the time it has taken for residential completions to reach current levels, any prospect of back-sliding is concerning.” 

The CSO figures show the number of houses granted planning permission fell slightly by 0.1% in the third quarter to 4,396 housing units, compared to the same period in 2021.

However, there was a large decline of almost 67% in apartment approvals, to 2,347 units.

Last month, a report from Goodbody’s showed a 31% drop in the number of new homes that began construction, with the overall number of construction starts continuing to fall further behind Government targets.

The Government has introduced the First Home Scheme, providing shared equity for potential homeowners, while the Central Bank had relaxed mortgage rules that will take effect from January, two measures Mr McCartney said should facilitate builders to sell homes at higher prices.

He also said that agents have reported that site values are beginning to adjust downwards.

“Perhaps reflecting these positives, the number of building firms expecting to be busier in a year’s time still exceeds the number expecting to be quieter,” he said.