A slowdown in new house building output is likely without a relaxation of the Central Bank’s mortgage rules and a government commitment to a continuation of the Help-to-Buy scheme, one Cork-based developer has warned.
This is despite industry figures, this week, showing a widespread increase in construction activity.
“We will begin to see a slowdown in output as the new homes market appears to be reaching equilibrium, with developers supplying as many homes as they can currently sell,” said Eamon Heatherington, a director at Cork-based company GPD Property Developers.
“Recent figures from Daft revealed that in Dublin the average rent is 37% higher than the average mortgage repayment and the average rent in Cork is now 47% higher. The economics of this simply don’t add up. A loosening of the Central Bank mortgage rules would definitely help matters, as would confirmation on the extension of the Help-to-Buy Scheme,” he said.
He was speaking on the back of new CSO figures showing a near 3% increase in overall construction activity in the second quarter of the year – albeit led by civil engineering work, but also featuring an 8.3% quarter-by-quarter rise in residential building work.
The CSO said its construction and building production index rose above the 200 point mark for the first time since 2008, although it remains well shy of the 854.4 peak seen in the first quarter of 2006.
“There have been many complaints that developers are building to rent rather than to sell, but with so few individuals or couples qualifying for a mortgage under the current rules, these developers would appear to have little choice,” Mr Heatherington said.
Latest monthly construction sector data from Ulster Bank, meanwhile, earlier this week showed that building activity growth picked-up for the first time in four months in August. However, new order growth slowed to a four and a half year low during the month and confidence amongst construction firms has slumped to a nine year low.
“The slippage in sentiment largely reflected worries about Brexit impacts, with some firms reporting that Brexit uncertainty is impacting work pipelines due to delayed decision-making among clients,” said Ulster Bank chief economist Simon Barry.
Of further note, international credit ratings agency Moody’s has downgraded its growth expectations for the building materials market – albeit to a ‘stable’ outlook from a ‘positive’ one. This, it said, is based on weakening macro conditions and high performance benchmarks.
“The key drivers of the stable outlook are a combination of weakening macroeconomic conditions – particularly in key European and US markets – and the increasing likelihood that the sector will be unable to outperform strong first half 2019 results as the economy slows,” Moody’s said.