Rising construction costs “could reduce housing supply and raise prices”

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Rising construction costs could hamper the supply of new homes and fuel a further increase in existing home prices, Bank of America has warned.

In a detailed report on the Irish property market, Bank of America said current house price increases have been “stronger than expected”. He said he still expects Irish house prices to “maintain firm growth” for the remainder of this year.

Supply shortages – in part due to the disruption of construction activity during the Covid crisis – pent-up demand from buyers unable to buy last year due to pandemic restrictions, and a build-up of l Household savings have driven growth in house prices, he said.

However, rising raw material costs and other issues – from rising timber prices and higher transport costs due to Brexit to disruptions in shipping – could have a negative effect on the market for many ways, he said.

This can mean either higher final property prices or lower profit margins, which, in turn, can have negative consequences on the financing of builders and, therefore, a potential reduction in supply.

Bank of America noted that while housing starts were down 17% last year, the year-over-year decline was less than 5% in the last quarter of the year.

The bank also described the Central Bank’s mortgage lending rules, introduced six years ago, as “relatively restrictive”, saying they “may have helped restrain net mortgage lending in recent years. years ”.

Meanwhile, the budget watchdog, the Irish Fiscal Advisory Council (IFAC), has urged the government to clarify how it will pay for the construction of 40,000 homes a year while still being able to keep the $ 4 billion. euro investment in health care described in last October’s budget.

IFAC responded to Tánaiste Leo Varadkar telling Fine Gael ard fheis over the weekend that Ireland needs to build 40,000 houses a year to help tackle the housing crisis.

Earlier this year, the Institute of Professional Auctioneers and Valuers industry group said that an overhaul of existing rental legislation and an acceleration in the supply of new homes were the solutions needed to address the rental crisis and housing.

Recent figures from CSOs showed that the year-on-year rise in residential property prices reached 4.5% in April, from 3.5% in March.


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