Irish builders are confident they can profitably deliver housing despite a slight contraction in construction activity in September, ongoing cost challenges and a sharp increase in the number of insolvencies in the sector this year, according to two separate reports.
Published on Monday, BNP Paribas Real Estate Ireland’s construction industry latest purchasing managers index (PMI) for September points to an ongoing easing of inflationary pressures within the sector in September.
While input costs, including wages and materials, were up in the month, the rate of increase slowed for the third month in a row, according to the survey of 150 construction firms in the Republic, to the slowest rate since January.
Overall, the September headline index dropped below the neutral 50 threshold – which separates growth in activity from contraction – to 49 from exactly 50 in August, indicating a decline in activity. Total activity in the Republic’s construction sector has now declined in four of the past five months, BNP Paribas said.
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Builders confident of delivering housing
Underneath the headline figures, the picture painted in the latest PMI is a complex one.
Housing activity returned to growth in September following a minor decline in August with the subsector having now expanded in six of the past seven months, the property investment services firm said. But commercial activity remains challenged, dipping back into contraction territory after growth in August.
Yet, the pipeline for the sector remains robust with new business increasing for the seventh month in a row. Firms also reported “improving client demand”, BNP Paribas said, and responded to it by increasing employment, reversing a decline observed in August.
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“September continued along the lines of the last six months with overall activity broadly flat and residential construction outperforming commercial,” said John McCartney, director and head of research at BNP Paribas Real Estate Ireland. Buttressed by strong demand and rising rents as well as population growth and the strength of the economy, housing activity continues to grow, he said.
“Notwithstanding a continuous rise in costs since the spring of 2020, these factors have given builders confidence that they can deliver housing profitably, and residential commencements are strongly up,” Mr McCartney said.
On the commercial side, the moribund office market is “dragging on overall activity”, he said, with office vacancy levels rising, causing new starts in the subsector to “dry up”.
Meanwhile, there has been a sharp increase in business failures in the construction sector this year, CRIFVision-net said in a separate report published on Monday.
Insolvencies in the sector have increased by 127 per cent in the 12 months to the end of September, according to the latest figures from the business and credit information service, coupled with a “modest” 15 per cent increase in the number of new construction start-ups.
Christine Cullen, managing director of CRIFVision-net, said the data points to the “ongoing challenges” facing the sector and the Government’s housing targets.
“Rising material costs, labour shortages and persistent inflationary pressures are making it increasingly difficult for many construction firms to remain viable,” she said.
Insolvency rates in the sector kept artificially low during the pandemic while businesses were still availing of various Government supports and tax debt forbearance by the Revenue Commissioners. But business failures have increased sharply across most sectors in the last couple of years as firms were removed from Covid-era life support.
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