The cost of building more houses can mean that prices do not fall despite extra supply

The cost of building more houses can mean that prices do not fall despite extra supply

Average house prices increased by 15.2 percent during the year to March, and although an expected increase in supply may alleviate this growth, a “serious” cost pressure built up in the prices of inputs can compensate for this, according to a new report.

The Housing Market Monitor for the first quarter, published on Tuesday by the Banking and Payments Federation Ireland (BPFI), shows that the increase in average property prices has been much more widespread outside Dublin with prices in March up 17.3 percent during the year.

This compares with an increase of 12.7 percent in average Dublin prices over the same period. In March, average national prices were 2.1 per cent lower than the highest level observed in 2007.

National property prices have more than doubled from the lowest in early 2013. The increase has been higher in Dublin with average prices rising by 122.5 percent since the low in February 2012.

The rate of increase in average property prices on a monthly basis has decreased since the middle of last year, which may reflect an increased housing supply.

The latest data shows that 32,456 units started in the 12 months to April, which is “a healthy sign of the pipeline for completion”, according to the report.

“Regardless of the fact that apartments account for an increasing share of housing production and these take longer than houses to complete, we should see a significant increase in the number of completed apartments during the second quarter of 2022,” it says.

At the same time, pressure is building up in relation to investment prices, which could have a “chain effect” on housing prices.

BNP Pariba’s Real Estate Construction Purchasing Managers Index for May shows that cost pressures were “severe” in April, the second fastest rise in investment prices since the survey began in June 2000, just after the record published in October 2021.

Annual inflation for building and construction materials was 18.2 per cent in April, while annual inflation for certain materials such as metal and wood varied between 50 per cent and 60 per cent.

In addition, the average total labor cost per hour in the construction sector increased by 15.2 percent during the first quarter of 2021, compared with an increase of 4.9 percent in all sectors during the same period.

In terms of housing production, there were 5,669 new completions during the first quarter of 2022, an increase of 44.5 percent from approximately 4,000 completions during the first quarter of 2021 when Covid-19 restrictions were in place.

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However, this level of completion is still 15 percent higher than the levels observed during the first quarter of 2020 before the pandemic. These are the most completions seen in the first quarter since the data series started in 2011.

Apartments accounted for about a third of all completions during the first quarter, compared with about 18 percent in the same period in 2021.

The number of dwellings granted building permits increased by 41 percent on an annual basis during the last quarter of 2021 to 13,450, the highest quarterly volumes since the third quarter of 2008.

Annual rental inflation was 9 percent during the last quarter of 2021 and the national standardized rental level increased to € 1,415, according to the Residential Tenancies Board (RTB), based on new leases.

Half of all counties had standardized rental levels of more than € 1,000, the highest since the data series began, and were led by Dublin at € 1,916.

Westmeath joined the four Dublin commuter counties, plus Carlow, Cork, Galway, Kilkenny, Laois and Limerick and Waterford as counties with average rents above € 1,000.

Twelve counties reported their highest standardized rent level since the data series started in 2007, while in 10 other counties it was the second highest.

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