Housing Construction sector, is there a recovery, and if so, is it enough?

Article written by CEO Danny O’Shea for Sunday Business Post

Sunday Business Post

Anecdotal evidence suggests a broad recovery in the residential construction sector, however is it unclear where the recovery is, what is its magnitude and is it sustainable? New figures soon to be released from www.buildinginfo.com shed some light on the specifics of this recovery and point to some answers.

There are three aspects to the residential construction sector 1. The home improvement/extension sector 2. The self build “one –off” sector and 3. The residential development sector.

The home improvement/extension sector is not defined by geographic or demographic factors and is a useful indicator of broad economic activity. Figures show that the number of extension type projects that started  in 2015 was circa 5,100,  an increase of 3%  and 10% respectively when compared to 2014 and 2013. However this number only measures projects that required planning permission (i.e. greater than 40 sq mtr) so it would fair to assume it represents only the tip of the home improvement iceberg and that the real volume of activity in this  sector would be a multiple of that figure.

The one-of house sector which accounts for approx. 3,000 units a year is largely, but not exclusively, a rural phenomenon. One-off houses made up almost half of the entire housing units commenced in the Connacht/Ulster region in 2015, for example. This sector underwent some turbulent times recently with the introduction of the new building regulations in March 2014. Initially there was a surge of commencements in early 2014 followed by a fallow period for the remainder of that year as the impact of the regulations hit home. Overall commencements  for 2014 were up 35% on 2013. This level of growth was obviously unsustainable and this is evident in the fact that 2015 numbers were down 9% when compared to 2014. There has been a subsequent roll-back on the building regulations with regard to one-off house whereby the owner/builder can elect to opt-out. The impact of this change has yet to be fully seen.  On the positive side if compared to 2013, 2015 shows healthy 22% increase. Planning applications for one-off houses are up 20% year on year  2014 vs 2015 to almost 7,000 this is the highest figure in some years.

Residential Commencements

Exclusive research undertaken by Building Information Ireland shows that residential development projects with a total unit count of 15,500 started in 2015. This is an increase of 126% on 2014. The regional breakdown shows that over half of these are in Dublin and 30% in the rest of Leinster. Typically these are multiphase developments and will not be completed in one year. Although 2015 has been by far the strongest year since 2008 it falls significantly short of the 25,000 units per year required as suggested by recent ESRI reports. Further analysis shows that the lead time from submission of application for a residential development to actual commencement is 121 weeks. This suggests that permissions are in place for developments but the climate to start is not quite there yet. Fresh thinking will be required to break the impasse  and square the circle of consumer demand, build price and available credit to potential homebuyers. 

Overall the metrics are all pointing in the right direction and recoveries of varying sorts are underway depending on location and we hope it is sustainable.  Full analysis of the construction industry by sector available from www.buildinginfo.com.

Article can be viewed on Sunday Business Post website