Homebuilding activity falls to weakest level since June

Developers claim reported decision-making among customers amid sensitivity around costs

Of the three construction sub-sectors, residential activity saw the fastest rate of contraction when compared to commercial construction activity and civil engineering. File photo

The residential construction sector saw an accelerated rate of contraction during October recording the “weakest level” of activity since June extending its period of decline for the sixth month straight, the latest AIB Purchasing Managers Index (PMI) shows.

For last month, the construction sector's PMI recorded a reading of 48.1 — up from the 43.7 recording in September but still well below the break-even level of 50. This shows that while there was a decline across the entire sector, the rate of decline eased markedly month-on-month amid a near-stabilisation of new orders.

The PMI found that output in the sector has now decreased in each of the past six months with those surveyed reporting delayed decision-making among customers amid sensitivity around costs.

“Underlying data suggested that the overall reduction in construction activity reflected falls in both housing and civil engineering,” the PMI said.

Senior economist at AIB, John Fahey, said while the PMI indicated a further contraction in building activity levels during October “the pace of decline eased”.

“The index has now been below the key break-even level of 50 for six consecutive months, although the October reading implies the mildest pace of decline in construction activity since June,” he said.

The construction sector is divided up into three areas — commercial construction activity, civil engineering, and residential construction.

Commercial activity outperformed both the residential and civil engineering categories by increasing activity for the first time in three months. “Civil engineering continued to post declining activity levels, but at a less severe rate compared to September,” Mr Fahey said.

Residential sector

However, the PMI said that activity on residential projects “decreased sharply” and at the fastest pace in two and a half years.

“Residential activity saw an acceleration in the pace of contraction, falling to its weakest level since June and extending its period of decline to six months,” Mr Fahey said.

According to the latest data, in September construction work began on 1,653 new homes of which 261 units were started in Co Cork with 141 in Cork City. From January to September this year, there were 10,193 total commencement notices received.

The PMI said with workloads easing, companies again scaled back their staffing levels and purchasing activity.

“Firms posted the first back-to-back reductions in employment since the end of 2022, while input buying decreased for the fourth successive month,” the PMI said.

What's your view on this issue?

You can tell us here

“Constructors also reduced their usage of sub-contractors for the fourth month running, but the pace of decline was only marginal and the weakest in this sequence. Sub-contractor availability, meanwhile, decreased at the softest pace for a year.” 

Input costs for firms continued to rise sharply with the pace of inflation ticking higher and coming in broadly in line with the series average.

Firms reported higher fuel and raw material costs while the rate of increase in sub-contractor rates also ticked higher at the start of the final quarter of the year.

In terms of outlook for the year ahead, firms expect improvements in new orders as optimism went up to a four-month high, with 29% of respondents predicting an increase in output.