If you want to know what is likely to happen on the housing market, you only have to listen to those affected.
Three of the ‘most read’ stories from Tuesday’s business section of Independent.ie tell their own story. Number one for the afternoon was the CSO’s latest home price data, which showed prices up 14.4 percent in the year to May. That was almost identical to the 14.5 percent increase in the year to April, dashed many’s hopes that house price growth was showing signs of slowing.
The fourth most read story was headlined: “The real estate market is going crazy and buyers are chasing each other in bidding wars.”
At number five was a headline: “How do I use ‘How much is my house worth?'”.
The home price growth story would be engulfed by homeowners taking some comfort in the knowledge that at least the equity in their homes is rising as the cost of living increases.
The story of buyers’ first mutual chewing was more likely to be read by people caught in the maelstrom of a still grossly dysfunctional housing market.
“How much is my house worth?” could be enjoyed by homeowners or maybe some latecomers who have yet to pay property taxes.
For decades, the housing market has faced different circumstances, but always comes back with the same results. Real estate prices are rising unhealthily fast or falling like a stone in the recent crash.
The proverbial soft landing, where house price growth stabilizes, continues to elude everyone.
This time the government is staking so much of its fate in the elections on boosting housing supply enough to dampen house price growth.
Rising construction costs undermine the attractiveness of projects
That plan now looks very doubtful. The construction boom, which was fueled by billions in investments in residential and commercial buildings, is showing signs of slowing down.
Rising construction costs undermine the attractiveness of pre-arranged projects. The lead time for projects is so long that orders at a uniform price do not really take place for some time.
When it’s time to move on, construction cost inflation makes the project unattractive or even unprofitable. Builder wages are rising. Material costs are through the roof. The same issues will affect government plans to build social and affordable housing.
As market prices for homes rise, so does the amount of taxpayer money being spent by government-backed agencies buying ready-made homes.
Oddly enough, we now have a situation where even the Land Development Agency (LDA), the state body that received a budget and mandate to develop housing on state land, is trying to acquire houses in the market from private developers.
This can be a simple convenience when the LDA knows that the lead time for projects is very long and they want to provide some form of social housing in the short term.
However, this means that the land development agency is competing in the market with other housing associations and state actors for the purchase of houses. It’s hard to imagine how that would be part of his remit.
Figures from BNP Paribas Real Estate Ireland this week showed builders cutting back on inventory purchases as planned projects are postponed.
According to BNP Paribas’ John McCartney, around 28,000 apartments are expected to be completed this year, an increase of more than 30 percent compared to 2021.
That’s a solid number. There are many houses. If achieved, the government would also surpass its target of 24,600 public and private households for 2022. The problem isn’t so much with 2022 as with the impact a construction delay could have on the 2023 and 2024 targets.
Perhaps the capacity of the industry has been reached. Maybe it’s just market forces.
A developer I spoke to recently told me that it is totally unprofitable to build apartments outside of the Dublin area at this time. The cost of construction compared to what the market can afford means it’s not worth it.
Any slowdown won’t really show up in home completion numbers until next year.
Throwing government money at the problem is not enough
Unfortunately, any slowdown in supply delivery will result in prices continuing to rise. As long as there are enough people who can afford to pool the deposit and qualify for a mortgage, there will be buyers chasing these properties.
Everything could be thrown off course if energy, gas and inflation spiral up to the point of job losses and business closures over the next year.
Who knows what will happen in such a deep downturn situation.
A simpler slowdown in construction activity would have an inflationary impact on house prices.
Throwing government money at the problem is not enough. Rising cost pressures, including staffing needs and wage rates, will affect the industry’s ability to meet incredibly ambitious goals.
One developer I spoke to recently told me how some of his industry peers were trying to arrange introductory meetings with Sinn Féin’s finance spokesman, Pearse Doherty.
Many developers, who have long feared what Sinn Féin might do in government and the impact on their sector, never met him. They now want to get a sense directly from Mr. Doherty of what to expect when the party comes to power in a few years or less.
Long accustomed to meeting politicians in a tent at racing events, I am quite certain that you will not meet Mr. Doherty in such an environment. Somewhere more spartan is likely.
https://www.independent.ie/business/irish/construction-slowdown-from-rising-costs-would-be-disastrous-for-housing-41838051.html A construction delay due to rising costs would be disastrous for housing construction