Increased pressure on housing prices as supply plateaus amid strong demand and income growth – BPFI Housing Market Monitor
With construction industry facing capacity constraints and relatively low productivity, BPFI makes renewed call for credit guarantee scheme for SME builders to help deliver higher level of housing output.
Thursday 12th December 2024 – The latest Housing Market Monitor Q3 2024, published today by Banking & Payments Federation Ireland (BPFI), shows increased pressure on housing prices as supply plateaus amid strong demand and income growth. The report highlights that as average house price inflation gains momentum, mainly due to low housing stock and continuing demand, the construction industry continues to face capacity constraints and relatively low productivity making it unlikely to produce the output required in the short term with existing resources.
Outlining the key findings from the monitor, Brian Hayes, Chief Executive of BPFI stated: “Today’s report shows that while there were almost 31,900 new dwellings completed in the twelve months ending September 2024, this is up only slightly from about 31,400 in the twelve months ending September 2023. Trends indicate that the total output at the end of 2024 is unlikely to be significantly higher than last year’s.”
Housing starts in the first ten months of 2024 more than doubled compared with the same period of 2023 but unclear what proportion will be completed next year
“This is despite the fact that housing commencements in the first ten months of 2024 more than doubled compared with the same period of 2023 with some 59,510 units started in the twelve months ending October 2024. However, this increase is heavily skewed by the significant increase in activity in April and September of this year, mainly due to uncertainty about the extension of the government development levy waiver beyond April and the water connection charge refund arrangement expiring in September. As the development levy waiver was subsequently extended to the end of 2024, we may see a further increase in commencement activity before the end of the year. However, the completion date for qualifying units using these waivers is the end of 2026, so it is unclear as to what proportion of these commencements will be completed in 2025.”
Construction industry faces capacity constraints and relatively low productivity
Mr Hayes continued: “The last time we reached similar commencement activity was in the third quarter of 2007, based on historical Department of Housing data. The following year in 2008, the number of home completions reportedly reached over 51,000. However, there were over 237,000 people employed in the construction sector in the third quarter of 2007 compared with just over 176,000 people employed in the same period of 2024. Moreover, recent Central Bank of Ireland research showed that the construction sector in Ireland has a higher proportion of small firms and relatively lower productivity compared with other countries in the euro area.”
Mr Hayes concluded: “Overall, the rate of increase in housing supply seems to have slowed in 2024, that is unless we see a significant level of completions in the last quarter of the year. Nonetheless, it still remains below requirements. Meanwhile, average house price inflation has gained momentum mainly due to low housing stock and continuing housing and mortgage demand amid growing employment and income levels. Given that the residential construction sector in Ireland has a higher proportion of small firms and its productivity has been low compared with other countries in the euro area, unless productivity increases significantly, the sector is unlikely to be able to produce the output required in the short term with existing resources.”
“If a higher level of housing output is to be realised, it is critical that smaller developers can deliver more units each year than they are currently able to do. BPFI is therefore renewing its call for the development of a credit guarantee scheme for SME builders to further advance finance to developers with viable projects but insufficient equity.”
ENDS/
Note: Banking & Payments Federation Ireland (BPFI) represents the banking, payments and fintech sector in Ireland. Together with its affiliates, the Federation of International Banks in Ireland, and the Fintech & Payments Association of Ireland, BPFI has over 125 member institutions and associates, including licensed domestic and foreign banks and institutions operating in the financial marketplace.
Contact: Fiona Murphy, Head of Communications, 087 9740046, fiona.murphy@bpfi.ie or Jillian Heffernan, Director of Communications, 087 9016880, jillian.heffernan@bpfi.ie.
