Drop in construction softens in January as demand for new homes continues

Construction employment increased for the second month in a row, and at a solid pace that was the fastest in almost a year

The January contraction in construction activity recorded in the BNP Paribas Real Estate Ireland Construction Index is the smallest fall since October. Stock picture: Gareth Fuller/PA

New home building continues to outperform other sectors as the latest construction industry survey shows another contraction in the industry.

The BNP Paribas Real Estate Ireland Construction Index for January recorded the seventh consecutive monthly fall in construction activity, but January saw the softest contraction since October.

The index rose to 45.9 in January from 45.1 in December, with anything below a 50.0 showing a contraction. The slowdown in the overall pace of decline was in large part reflective of a much weaker reduction in housing activity in January. Activity on residential projects decreased slightly, and to the least extent since last September.

Commercial activity also fell at a softer pace.

BNP Paribas Real Estate Ireland director John McCartney: '[I]t will be interesting to see whether the strong momentum in residential commencements during 2023 will continue over the coming months.' 

Despite the overall contraction, the sector is expected to grow this year. The survey shows improvements in new business are expected in the months ahead, supporting optimism in the 12-month outlook for construction activity. Expected improvements in workloads encouraged construction firms to take on additional staff in January.

Employment increased for the second month in a row, and at a solid pace that was the fastest in almost a year.

Input costs continued to rise sharply in January, but the rate of inflation eased to a three-month low. Panellists reported general inflationary pressures, while there were also some indications of higher shipping costs.

BNP Paribas Real Estate Ireland director and head of research John McCartney said: 

The relative outperformance of residential reflects the strength of the new homes market where consumers benefit from substantial State subsidies and where average prices are rising by more than 10% per annum.

“With the temporary waiver of development contributions due to expire in April, it will be interesting to see whether the strong momentum in residential commencements during 2023 will continue over the coming months, leading to resumed expansion in the housing PMI.”

The construction index is derived from a survey of a panel of 150 construction companies.

A separate analysis by Aecom found office vacancy rates in Irish cities have risen to as much as 18% as the slimming of jobs in the tech industry, new supply, and staff working from home combine to depress demand for commercial property. Their annual review also predicts tender price inflation of 4% this year, as labour costs continue to weigh despite sharp price falls in many building products, including steel, but the Gaza war has raised new challenges.

It highlights the continued outperformance of the residential sector. House completions are expected to reach 35,000 this year — the highest number since before the banking and property crash more than 15 years ago — as residential building activity picks up despite high borrowing costs.

Analysis by Goodbody estimates that almost 32,100 houses were built last year and come despite concerns that the building of new apartments and so-called scheme housing would fall off after the European Central Bank (ECB) rapidly hiked interest rates last year.

Among the top four locations for housebuilding, the Dublin region accounted for 42% of all commencements in the year to date, the Mid-East for 17%, the South-West for 12%, and the South-East for 8%, according to Goodbody estimates.

GeoDirectory data showed 28,000 residential buildings were under construction at the end of 2023, a 3.5% increase year on year, as supply ramps up to meet demand amid a housing shortage.