Post-Covid construction boom slows as construction costs rise in Ireland

Ireland’s construction sector is experiencing its first slump in over a year as rising costs stifle new commercial and residential projects.

It has been described as a “tipping point” for the construction business as a post-Covid boom fizzles and hiring stagnates.

The decline in housing construction should raise real concerns within the government that it may miss medium- and longer-term targets for housing construction. The consulting firm EY has already forecast outages for 2023 and 2024.

The bleak picture painted by BNP Paribas Real Estate Ireland’s figures this morning shows builders scaling back inventory purchases due to a lack of inquiries and planned projects being postponed as runaway inflation stifles activity.

The latest Purchasing Managers’ Index (PMI) for construction shows that construction activity has contracted for the first time since April last year, when the ongoing impact of the pandemic hit the business.

The seasonally adjusted overall activity index for construction fell to 46.6 in June from 51.5 in May.

Any number below 50 means contraction and any number above expansion.

“June was a turning point for construction activity,” said John McCartney, Director and Head of Research at BNP Paribas Real Estate Ireland.

“The post-Covid recovery has been flattening since February, but the June PMI reflects the first absolute pullback since pandemic restrictions were lifted.

“A recurring theme is that costs are increasing faster than the value of the properties being delivered, affecting profitability.”

However, he described the slowdown in housing construction in June as “marginal”.

Mr McCartney said about 28,000 homes should be completed this year, an increase of more than 30 per cent from 2021.

He noted that while material costs have skyrocketed since early 2021, labor costs are now adding to inflationary pressures.

“The number of people employed in construction increased by 30 percent in the year to March, and the resulting labor shortages have pushed construction wage growth to almost 9 percent a year,” McCartney said.

“However, the June PMI suggests this is starting to regulate itself – order books have been weaker for a third straight month and job growth in the industry has stalled for the first time since lockdown ended.”

BNP Paribas said the 150 industry respondents to its latest survey noted a lack of order requests, with some pointing out that previously agreed projects had been postponed due to pricing pressures.

New business has now declined in each of the last three months, prompting construction companies to scale back their purchasing activities.

BNP Paribas added that price pressures contributed to a negative outlook for construction companies.

Combined with declining new orders and a broader economic slowdown, companies expect activity to slow down over the next 12 months.

It is the first time since September 2020 that companies have expressed such pessimism. Post-Covid construction boom slows as construction costs rise in Ireland

Fry Electronics Team

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