Construction BUSINESS

“The Irish economy is firmly back on its feet,” according to Loretta O’Sullivan, Group Chief Economist at Bank of Ireland. “Consumer spending is just above its previous peak and will be an important driver of growth going forward.”

The improvement in consumer confidence is being fuelled by rising employment as the economy continues to create jobs. Other economic indicators are also positive, she pointed out while addressing the recent 2018 National Construction Summit in Dublin. Inflation remains subdued, we are in a low interest rate environment and household debt has fallen from 215% of debt to disposable income to 140%. However, the top concerns of households include house prices and the cost of renting.

Loretta O’Sullivan, Group Chief Economist at Bank of Ireland.

Construction activity is starting to recover. Based on ESB connection data, annual house completions fell from 90,000 at their peak to 8,000 but are now back up to about 20,000, although 35-40,000 new homes a year are required. “We are building 20,000 so we are a long way short of what we need to be building,” she added.

Bank of Ireland research indicates that builders’ chief concerns include: the weather; a shortage of labour; uncertainty around both general economic policy (eg Brexit) and sector specific policy (eg changes to help to buy schemes); and financing.

Loretta O’Sullivan said that demand for housing will continue to rise as the 25-49 house buying age cohort currently represent a large proportion of the population, and because household size is trending down from 4 people per household to 2.8 now. “We are becoming smaller in our households meaning we need more units,” she explained.

Supply is being outstripped by demand forcing house prices upwards. “We are still about 20% below where they were at the peak,” she pointed out, “but rents are now well above their previous peak, causing people to think it is cheaper to buy.”