Construction costs have increased by almost a quarter in the last four years, according to a new report from the Banking and Payments Federation Ireland (BPFI).
Their latest Housing Market Monitor says construction price inflation was up 23% between the end of 2019 and the third quarter of this year. This compares of inflation with just 9% between 2015 and 2019.
The increase followed a similar trend across Europe that came on the back of supply chain issues arising from the pandemic and the war in Ukraine which contributed to a surge in energy prices.
Despite the increase in costs, the level of housing commencements, completions and development approvals have continued to bounce back following a pandemic-related slump in construction activity.
According to the BPFI figures, almost 31,600 new dwellings were completed in the 12 months to the end of September - up from about 27,500 in the corresponding 12 month period to September 2022.
Housing starts in the first ten months of the year were 17% higher than in the same period last year.
On an annualised basis, just under 30,750 units were started in the 12 months to the end of October this year.
"It is encouraging to see that the number of housing starts continues to increase, providing a good pipeline for the level of completions in 2024 which is likely to exceed 32,000 units," Dr Ali Uğur, Chief Economist of the Banking and Payments Federation noted.
About 37,600 housing units were granted planning permission in the 12 months to the end of September, according to the Monitor.
The report also looks at the mortgage market where approval values reached €14.7 billion in the year to October with nearly 52,000 approvals.
Non-purchase approvals, which includes switching and top-ups, continued to decline and accounted for around 13.5% of all approvals in the same period in value terms.
That segment of the market reached a peak share of around 25% in the 12months ending October 2022 as mortgage holders moved in large numbers to lock in for a fixed interest rate period as the European Central Bank started to raise rates.
First-time buyers accounted for nearly 59% of all approvals in the year to October this year with over 30,500 approvals.
When it comes to mortgage drawdowns, nearly 48,000 mortgages to the value of over €13.2 billion were drawn down, a decline of 4.3% in volume, but the value was largely in line with the year to September 2022.
"At the beginning of the year, it was expected that housing and mortgage demand could be negatively affected in 2023 due to the fall in the purchasing power of households caused by higher housing and general living costs, as well as the future uncertainty in the wider economy," Brian Hayes, CEO of BPFI said.
"However, mortgage activity has remained resilient," he added.
Mr Hayes said cost pressures had to be watched closely in the years ahead.
"Given that average home prices have increased faster than the incomes of potential home buyers in the past few years, looking forward, it will be important to monitor cost challenges in the sector while building more homes so that better affordability can be provided for potential home buyers," he concluded.
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