Housebuilding activity contracts sharply for third month running

Construction is in contraction territory due to challenging economic conditions which have hit market demand

The survey recorded a drop in activity across the three monitored categories of construction which are housing, commercial and civil engineering.

Housebuilding activity contracted sharply in December amid an escalating housing crisis, according to a new report.

The latest BNP Paribas Real Estate Ireland Construction Purchasing Managers’ Index (PMI) showed housing activity decreased for the third month running.

“2022 was a year of two halves for construction,” said BNP Paribas Real Estate Ireland director and head of research, John McCartney.

“Strong expansion between January and May gave way to slowing activity from June, and the year petered out with a further pronounced slowdown in December,” he said.

The construction sector is in contraction territory due to “challenging economic conditions” which have hit market demand. The headwinds facing the industry include, supply chain delays, and high input prices.

The fall in construction activity coincided with a reduction in new orders. New business decreased for the ninth consecutive month, and to the greatest extent since last August. 

This falling workload led firms to reduce staffing levels.  Mr McCartney said: 

They initially took a wait-and-see approach to shrinking order books, maintaining their staff headcounts and continuing to purchase materials. 

“But after nine months of new business contraction, panelists have now begun running down stocks and not replacing employees who leave.”

The survey recorded a drop in activity across the three construction categories, housing, commercial, and civil engineering.

The softest fall in activity was seen on commercial projects, despite the rate of decline quickening from November.

Some construction firms remain optimistic and have predicted a rise in development activity for 2023 as many expect the current economic environment to become less volatile. Mr McCartney said: 

Ireland’s construction firms retain a positive medium-term outlook, with a solid majority expecting to be busier this time next year. 

“This may reflect recent developments which should assist with current viability challenges.

“Input price inflation has moderated to its slowest rate for 21 months,” he said.

Mr McCartney also said the State’s Croí Cónaithe scheme will also help increase building activity as it is being implemented to subsidise apartment developments that would otherwise not be profitable to build.

However, he said further government action is required if construction activity is to increase.

“Relaxing mortgage restrictions and raising the shared equity scheme price ceilings, may also underpin builders’ confidence that they will be able to sell properties at prices that make development viable,” Mr McCartney said.