Builders are upbeat for 2024 but input costs continue to rise, according to construction sector reports. What does it all mean for self-builders?
In this article we cover:
- Price inflation for materials and wages
- Where material prices are heading into 2024
- How long it’s taking for supplies to be delivered
- Are project being put on hold?
- How many self-builds are in the pipeline in Q3
- How many self-builds have started and been built in Q3
What state is the self-build market in today? Where are material prices heading? We round up the latest analysis.
How affordable is it to build?
Construction costs have increased by nearly 23 per cent between the end of 2019 and Q3 2023, according to the Banking & Payments Federation Ireland (BPFI) Housing Market Monitor Q3 2023.
Mortgage activity “remains resilient” despite inflation and drawdowns declining by 22 per cent year on year in Q3 2023. The dip was “mainly due to the significant decline in switching activity and in fact, first-time buyers drew down over 7,000 mortgages during Q3 2023, the highest Q3 volume since 2007,” states the report.
The BPFI warns that affordability issues could arise as home prices increase faster than incomes. The solution is to “monitor cost challenges in the sector while building more homes”, according to Chief Executive of the BPFI, Brian Hayes.
Lead times, or how long it took for supplies to be delivered to large building sites, lengthened for the fourth consecutive month in November. That’s according to the BNP Paribas Real Estate Ireland Construction Purchasing Managers’ Index (PMI) for November 2023.
During this time, that report also shows input prices increased; the rise was described as “sharp” but weaker than the inflationary spike experienced in 2021/2022.
Subcontractor rates increased at the fastest pace in seven months, while the subcontractor quality index deteriorated. In short supply were blocklayers, groundworkers, plumbers and electricians, among others.
Despite the poor PMI results, the rest of the indicators for new dwellings are positive with investment increasing and more houses built, according to BNP Paribas Real Estate Ireland’s Director and Head of Research, John McCartney.
“The most likely explanation [for the continued weakness in the residential PMI] is that activity has temporarily slowed in October and November due to projects being completed as we approach year-end. However, national accounts data also reveal that the home improvement market has contracted over the last six months as build costs continue to rise.”
Despite a dampening of demand, the construction firms surveyed said they were optimistic output would increase over the coming year as they expect an improvement in economic conditions and that they will start new projects.
NI paints a similar picture. Material costs as well as wages and salaries all increased in the third quarter of this year, according to the Federation of Master Builders (FMB) State of Trade Survey for the third quarter of 2023.
Around 70 per cent of all FMB members reported an increase in material costs and nearly 60 per cent a net increase in wages and salaries. Although these numbers aren’t as high as in Q1 or Q2, it’s still significant.
Almost three in four builders said rising input costs led them to increase the price they charge for work.
Half of the FMB members who were surveyed said they thought that the year would end on further price and wage increases. One member said that “material costs are now decreasing slightly but not as much as they had increased over the year”.
Projects on hold
In NI, builders noticed a decline in enquiries compared to Q2 but the outlook is still upbeat in that more members reported an increase in enquiries than a decrease. The repair, maintenance and improvement side remains “fairly strong” although enquiries have also been quieter in Q3 than earlier in the year.
“The tightening of the economic climate with increased interest rates does seem to be affecting confidence to proceed with work,” Gavin McGuire Director of FMB in NI said.
“House building continues to struggle with more members reporting less workloads than there are reporting more. The planning offices of district councils are reporting a significant drop in the last quarter in applications which is a concern in terms of pipeline of new homes.”
McGuire also said inflation and “economic adversity” has led to builders increasing their prices. “Without a functioning Executive and Ministers to lead departments, decisions around investment and future planning appear to also have a detrimental effect on public confidence,” said McGuire.
Access to skilled labour continues to be a challenge in the industry, with more than half of FMB members reporting a shortage with knock-on effects such as having to cancel jobs.
How many new builds are in the pipeline
While the BPFI’s analysis shows that one-off house commencements and completions have stayed steady over the years, data for what’s in the pipeline is less promising and could be a result of the affordability issue.
Since the middle of 2022, planning permission granted for one-off houses has been falling while multi-development houses have seen an increase, according to the Central Statistics Office.
There were 7,499 one-off houses granted planning permission in 2021 in ROI, and 6,924 in 2022. For the first three quarters of 2023, the total was 3,819.
As for commencement notices, or how many self-builders notified the authorities they were about the start building, there was a total of 4,695 one-off houses that filed a commencement notice in 2022. As of November 2023 the total stood at 4,314 which is on track to meet the same numbers as in 2022.
According to the BPFI, the total level of new home completions in 2024 is likely to exceed 32,000 units.