Housing supply

Rising construction costs ‘could reduce housing supply and raise prices’

Rising construction costs could hamper the supply of new homes and fuel a further increase in existing home prices, Bank of America warned.

In a detailed report on the Irish housing market, Bank of America said current house price increases have been “stronger than expected”. He said he still expects Irish property prices to “maintain firm growth” for the rest of this year.

Supply shortages – partly due to the disruption of construction activity during the Covid crisis – pent-up demand from buyers unable to buy last year due to pandemic restrictions and a build-up of Household savings drove house price growth, he said.

However, rising raw material costs and other issues – from rising timber prices and higher transport costs due to Brexit to shipping disruptions – could adversely affect the market for many manners, he said.

This can mean either higher final prices for properties or lower profit margins, which, in turn, can have negative consequences for builder financing and, therefore, a potential reduction in supply.

Bank of America noted that while housing starts were down 17% last year, the year-on-year decline was less than 5% in the final quarter of the year.

The bank also described the Central Bank’s mortgage lending rules, which were introduced six years ago, as “relatively restrictive”, saying they “may have helped to restrict net mortgage lending at over the last few years”.

Meanwhile, budget watchdog the Irish Fiscal Advisory Council (IFAC) has urged the government to clarify how it will pay for the construction of 40,000 homes a year while retaining the £4billion investment in health care provided for in last October’s budget.

IFAC was responding to Tánaiste Leo Varadkar telling Fine Gael ard fheis this weekend that Ireland needed to build 40,000 houses a year to help solve the housing crisis.

Earlier this year, industry group Institute of Professional Auctioneers and Valuers said an overhaul of existing tenancy laws and an acceleration in the supply of new homes were the solutions needed to solve the rental and housing crisis. lodging.

Recent figures from the CSO showed that the year-on-year rise in house prices reached 4.5% in April, compared to 3.5% in March.