Rising input costs in construction as a result of the inflationary environment could cancel out the effects of increased supply in easing the growth of property prices, the latest Banking & Payments Federation Ireland (BPFI) housing market monitor shows.
The monthly rate of increase in average property prices has been declining for the past year, with construction of 32,456 housing units having commenced in the 12 months to April 2022, and the uptick in supply is expected to alleviate some pressure on prices.
There were 5,669 new completions in the first quarter of 2022, an increase of 44.5% year-on-year and up 15% on Q1 of 2022, which took place largely prior to the pandemic, and BPFI CEO Brian Hayes said the figures were "a healthy sign of the pipeline for completions."
"Notwithstanding the fact that apartments account for an increasing share of housing output and these take longer than houses to complete, we should see a significant increase in the number of units completed in the second quarter of 2022. This increase in supply should help to alleviate some of the pressure on average prices," he added.
Average property prices increased 15.2% in the year to March 2022, outpaced by inflation of 18.2% in the price of building and construction material in the 12 months to April 2022, driven by 50-60% increases in the price of metals and wood.
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Estimates from the Central Statistics Office (CSO) show that average hourly total labour costs rose by 15.2% in the construction sector during the first quarter of 2021, compared with a 4.9% increase in all other sectors during the same period.
The BNP Paribas Real Estate Construction Purchasing Managers Index for May 2022 highlights that input prices rose at their second-fastest rate on record in April, and the monitor concludes that it will be crucial to analyse cost challenges in the construction sector to minimise the effects of inflation on property prices.
"The capacity of the construction sector is increasing and the latest data show that there were over 160,000 people employed in the sector, up 10% since the end of 2019 prior to the pandemic," Hayes continued.
"With a significant pipeline evident from the commencement activity, we see housing output increasing significantly over the next two years. However, while building more homes in order to try to meet the required demand, it will be important to scrutinise cost increases in the sector and, where possible and minimise the impact of building cost inflation on home prices.
"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.”
Property prices nationally have more than doubled since 2013, and 122.5% in Dublin since their February 2012 low.
(Pic: Getty Images)
