House building predicted to slow due to rising costs

The number of homes to be completed next year are expected to drop as increasing costs prompt developers to delay schemes, according to latest forecasts from Davy Stockbrokers.

In its latest quarterly outlook, the firm said it had revised down its forecast for how much gross domestic product (GDP) would grow by to 3.5 per cent in 2023 from nearly 6 per cent previously.

The construction outlook for 2024 may be even worse if the supply of apartments, which take longer to build, goes into decline.

The European Central Bank interest rates hike will also make it less attractive for pension funds to invest in apartment developments. 

Conall Mac Coille, Davy’s chief economist,  has forecast a relatively small decline in new home completions from the expected expected 28,000 in 2022 to 27,000 next year.

“Cost inflation is the obvious factor which is feeding into a slowdown this year in site commencements and therefore house completions in 2023,” Mr Mac Coille said.

"Unfortunately housing has started to come back in the past few months," he told RTÉ's Morning Ireland. 

"Input costs are going up. That's hurting viability and as a result, demand and activity in the residential construction sector is starting to level off," he said.

"The bigger picture though is that we see Ireland's housing market as relatively resilient given enormous pent-up demand and leverage/income gearing constrained by the mortgage lending rules," Mr MacCoille said.

Davy forecasts that house price inflation will slow to 6% by the end of the year and 3% next year.

Last month, it was reported that more than 50,000 housing units could be completed here in the two years to the end of 2023, if house building continues at levels seen recently, according to the Banking and Payments Federation Ireland.

In its Housing Market Monitor, the BPFI said that could help meet the demand for housing which is being driven by employment growth and rising incomes.