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Building input price rises could negate easing in property price growth – BPFI

By June 7, 2022No Comments

An increase in the supply of housing may be contributing to an easing in the pace of growth in property prices, an analysis from the Banking and Payments Federation Ireland shows.

However, it warns that any easing in price growth may be offset by cost pressures in the construction sector, which will likely have a knock-on impact on house price inflation.

The latest Housing Market Monitor from the BPFI examines the effect that supply has had on the market in recent years.

Having shown signs of slowing between the second half of 2019 and the second half of 2020, average property prices have been increasing on an annual basis since early last year.

While prices are continuing to rise, the Monitor notes that the rate of increase may now be easing as housing supply also increases.

“Figures show the rate of increase in average property prices has been declining on a monthly basis since the middle of last year, which may reflect increasing housing supply,” Brian Hayes, CEO of the Banking and Payments Federations pointed out.

“With the most recent data showing there were 32,456 units commenced in the twelve months to April 2022, this is a healthy sign of the pipeline for completions,” he added.

The report notes that apartments account for an increasing share of housing output, which generally take longer than houses to complete.

It’s expected that there will be a significant increase in the number of units being completed in the second quarter of 2022, which should help to alleviate some of the pressure on average prices.

However, the Monitor cautions that upwards pressure on input costs in the construction sector may negate some of the relief in price growth being brought about by greater supply.

“Annual inflation for building and construction materials was running at 18.2% in April 2022, where annual inflation for some materials such as metal and wood ranged between 50% and 60%,” Brian Hayes noted.

“In addition, preliminary estimates from the CSO show that average hourly total labour costs increased by 15.2% in the construction sector during the first quarter of 2021 compared with a 4.9% increase across all sectors during the same period,” he added.

The report points out that construction capacity is growing with greater numbers being employed in the sector and output is on course to increase significantly over the coming years.

“However, while building more homes in order to try meet required demand, it will be important to scrutinise cost increases in the sector and, where possible, minimise the impact of building cost inflation on home prices,” Brian Hayes said.

“This could help to provide better affordability for potential home buyers given that average home prices are increasing faster than the incomes of potential home buyers,” he concluded.

The Housing Monitor calculates that nationally, property prices have more than doubled from their low in early 2013.

The increase has been highest in Dublin with average prices rising by 122.5% since their February 2012 low, it notes.

Article Source – Building input price rises could negate easing in property price growth – BPFI – RTE – Brian Finn

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