While the residential construction industry grew overall during 2014,( the recovery having started in the second half of 2013 after years of being in the doldrums), it was very much a year of two halves for the industry.
According to the latest National Construction Index there was a huge rise in activity in the first quarter of 2014, with an increase in project commencements of +132% and planning applications of +19% over the same period in 2013. This was probably unsustainable growth despite the huge need for housing, and due in no small way to the introduction of new building regulations on 1st March 2014, as there was a rush to get projects off the ground before the new regulations came into force.
Contributing to this rush was the fact that many people and developers had postponed or cancelled their building projects during the recession, and as the economy recovered, confidence grew and more and more of these decided to take the plunge and start building. So there was an extra large number of projects already in the pipeline and for many of these, the combination of renewed confidence in the industry and the new regulations would have been deciding factors in commencements in the first quarter of 2014.
The growth rate slowed dramatically during the second half of the year to give a year on year increase of +12% in planning applications and +30% in projects commencements nationally.
Initially the recovery was confined to the major urban areas but during 2014 it spread across almost the entire country with 15 counties recording growth in planning applications compared to 2013.
National Housing Construction Index figures
The largest year on year gains across the country for project commencements took place in Westmeath (+67%), Cork (+66%), Donegal (+50%) and Galway (+45%) with Dublin recording an increase of +30%.
Only Longford (-33%), Leitrim (-25%), Roscommon (-2%) and Kildare (-2%) recorded a fall in commencements for the year.
The highest increases in planning applications were in Wicklow +35%, with Dublin (+33%), Meath (+30%), Cavan (+19%) and Westmeath (+18%) also returning significant gains.
2015 and beyond
While growth in the industry is positive it is not always where the greatest need is, and many builds so far are one off homes which will not do much to ease the housing crisis.
Although confidence in the construction industry is still high it looks like 2015 could be another turbulent year for residential construction.
Demand for housing and in particular, social housing is very high, but the exceptional growth of early 2014 is unlikely to return and the situation is further complicated by the recent introduction of new mortgage rules by the Central Bank.
Having to have a 20% deposit and only being able to borrow three and a half times salary may stall growth somewhat, as buyers and especially first time buyers who buy the majority of new builds, may not be able to, or take longer to, put together the finance to purchase a house.
Demand for new builds is now less predictable especially outside Dublin, where it is still more expensive to build than to buy an existing house. Builders who were starting to build on the basis that they would be able to sell at a profit by the time the houses would be built, are now unsure as to how many or when, people will be in a position to put down a deposit on a new house.
The Construction Industry Federation claims that these measures will strangle growth in the sector and prevent the building of enough new homes to deal with the housing shortage.
If developers do not build there will also be implications for the amount of social housing coming on stream as 10% of houses built have to be allocated to social housing.
Progress in funding/investment
On the other hand there are factors promoting growth in the residential construction industry.
The government has said there will be 80,000 private homes and 35,000 social housing units built by the end of 2018. To achieve this €8bn has been earmarked for construction in the next couple of years.
- There is expected to be a partnership between government and private equity firms who are interested in investing €500m in social housing projects.
- The European Investment Bank has committed €150m for investment in housing, with another €150m coming from the Housing Finance Agency.
- €3.8bn was pledged under the Government’s Social Housing Strategy.
- NAMA is expected to lend up to €2.8m to developers building homes in specific areas in Dublin and other areas around the country. It is also planning to lend to local authorities for infrastructure projects.
- Bank of Ireland and AIB have a combined fund of €600m specifically for residential development.
Putting all this money into social housing will boost private developments as well, as builders will go into projects knowing that the 10% social housing allocation is effectively pre sold.
The Construction Industry Federation were cautious in their endorsement of the developments, as they claimed it can be difficult for builders to access available funding borne out by the fact that even with the growth in the industry only half the number of homes required were built last year.
To that end Minister Noonan has invited 100 developers, banks and private equity companies to a meeting this week organised jointly with the Construction Industry Federation to “to bring together debt and equity providers with developers to promote a greater awareness of the extent to which all stakeholders are connected and a better alignment of shared incentives”.
The meeting will allow all parties to discuss the issues and hopefully come up with new models for financing and investing in construction.
Where does Wexford fit in?
Co. Wexford recorded an increase in planning applications of +11% and commencement of +3% in 2014, according to the National Construction Index. So we are pretty much up there in planning applications but not so high in commencements. But at least there is positive growth.
Demand for houses is high in Co. Wexford with Gorey particularly busy, perhaps because of its proximity to Dublin. But as work has started on the N11 extension, people are beginning to look further south to buy or build. Wexford estate agents have recently being saying that there will be less properties coming available this year, which should create further demand for new builds.
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