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Construction Recovery Hindered by Dwindling Housebuilding Activity, Reveals Latest Report

"Construction industry's recovery hindered as housebuilding activity remains in contraction territory, latest PMI reveals"

Housebuilding activity in Ireland saw a slight increase in March, according to the latest BNP Paribas Real Estate Ireland Construction Purchasing Managers’ Index (PMI). However, the industry remains in contraction territory, slowing the overall recovery of the construction industry, which has faced several economic challenges in the past three years. Confidence among builders faltered last month compared to February, as average input costs rose again.

Despite the challenges, the industry is on much more solid ground compared to recent months. The growth in March was driven by a boost in commercial building, which continued to buck the wider trend and saw activity expand for the second month in a row. Builders also saw a growth in new orders, which led to companies adding to their workforce. Construction employment rose in each month of the last quarter. Builders also welcomed signs that inflationary pressures are cooling.

In the March quarter, three trends were evident for Irish builders, said John McCartney, Director and Head of Research at BNP Paribas Real Estate Ireland. The first trend was that overall construction activity contracted, but marginally, and at a diminishing rate through the quarter. Secondly, input cost inflation slowed markedly compared with Q4 2022. Finally, Mr McCartney said every forward-looking indicator has switched from negative to positive. “Order books strengthened progressively through the quarter,” he said. This was mirrored by increased materials purchasing and hiring of staff.

The survey also highlighted that 87% of Irish building firms are expecting to be as busy or busier in 12 months’ time, which is an improvement on 82% recorded in December. However, stubborn headwinds lie ahead in Q2. Sub-contractor rates increased sharply last month, and Irish construction firms continued to comment on supply-chain issues and delivery delays. The survey also found that vendor performance subsequently worsened further, but at a rate much softer than seen over much of the past three years.

The construction industry in Ireland has faced several challenges in recent years, including the impact of Brexit, the Covid-19 pandemic and the shortage of skilled workers. However, the industry has shown resilience in the face of these challenges, and the latest PMI report shows that the industry is slowly recovering.

Despite the challenges, the Irish government has continued to invest in the construction industry, with a particular focus on affordable housing. In February, the government announced a €2 billion investment in the construction of 9,500 new social and affordable homes. In addition, the government has introduced several measures to support the industry, including the Home Building Finance Ireland scheme, which provides finance for small and medium-sized builders.

The industry has also been supported by a strong demand for housing in Ireland, particularly in Dublin and other urban areas. The shortage of housing has led to rising house prices and rents, which has increased demand for new housing. However, the industry has struggled to keep up with demand, due to the shortage of skilled workers and the impact of the pandemic on supply chains.

Looking ahead, the industry is likely to face continued challenges, particularly as the impact of Brexit and the pandemic continues to be felt. However, the industry has shown resilience in the face of these challenges, and the latest PMI report suggests that the industry is slowly recovering. With continued government investment and support, the industry is well-placed to meet the demand for new housing in Ireland.

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