Category Archives: Irish building sector

10/3/19: Irish Residential Construction Sector 2018: A New ‘Recovery’ Low


It has been an ugly decade for Ireland's building and construction industry. especially for housing. Following a historically massive bust in 2009-2012, indices of total production in the housing sub-sector fell from the pre-crisis high of 751.7 for value and 820 for volume, attained in 2006, to their lowest cyclical points of 57.9 and 59.5, respectively, in 2012. In other words, from 2006 through 2012, Irish residential building and construction production fell a massive, gargantuan, non-Solar-System-like 92.3% in value terms and 92.74% in volume terms. That was bad.

The recovery has not been any better. Since the lowest point of the cycle in 2012, through 2018, based on the latest figures from CSO, value of production in residential construction sector rose to 186.6, an uplift of 222.3% and volume rose to 176.9 (a rise of 197.3%). Still, compared to pre-crisis peak, current value of production in Ireland's residential building and construction sub-sector is down 75.2%, still, and in volume terms it is down 78.4%.


Of course, comparatives to the peak production year would be subject to criticism that things should be benchmarked by something 'other' than the levels of activity achieved during the bubble. I disagree. Back in the days of the bubble, Ireland experienced rampant house price inflation, as demand was still lagging behind supply. But, let me entertain, as in the above chart, an argument about averages over two periods: the period of the pre-bust activity and the period of the recovery activity.

Ireland today has an acute crisis in the supply of homes. There is no question about that. What 2018 figure shows, however, is far worse. In 2018, value of production in residential construction sector in Ireland grew by only 6.88% y/y - the slowest pace of growth since the recovery started in 2013. By volume, activity grew only 3.75% y/y in 2018 - also the slowest pace for the recovery period. As the crisis in supply of homes get worse, the rates of growth in the 'recovering' sector get shallower. This suggests that Irish residential construction is nowhere near the trajectory needed to achieve the rates of growth required to fill the gap in the housing supply.

In all 12 years of positive growth (between 2000 and 2018), last year marked the worst rate of growth in Value and the second worst year of growth in Volume terms. To put things into perspective: under 2018 growth rates, Irish residential building and construction production won't reach its 2000-2007 average levels until mid-2033 in value terms and mid-2052 in volume terms.

10/3/19: Irish Residential Construction Sector 2018: A New ‘Recovery’ Low


It has been an ugly decade for Ireland's building and construction industry. especially for housing. Following a historically massive bust in 2009-2012, indices of total production in the housing sub-sector fell from the pre-crisis high of 751.7 for value and 820 for volume, attained in 2006, to their lowest cyclical points of 57.9 and 59.5, respectively, in 2012. In other words, from 2006 through 2012, Irish residential building and construction production fell a massive, gargantuan, non-Solar-System-like 92.3% in value terms and 92.74% in volume terms. That was bad.

The recovery has not been any better. Since the lowest point of the cycle in 2012, through 2018, based on the latest figures from CSO, value of production in residential construction sector rose to 186.6, an uplift of 222.3% and volume rose to 176.9 (a rise of 197.3%). Still, compared to pre-crisis peak, current value of production in Ireland's residential building and construction sub-sector is down 75.2%, still, and in volume terms it is down 78.4%.


Of course, comparatives to the peak production year would be subject to criticism that things should be benchmarked by something 'other' than the levels of activity achieved during the bubble. I disagree. Back in the days of the bubble, Ireland experienced rampant house price inflation, as demand was still lagging behind supply. But, let me entertain, as in the above chart, an argument about averages over two periods: the period of the pre-bust activity and the period of the recovery activity.

Ireland today has an acute crisis in the supply of homes. There is no question about that. What 2018 figure shows, however, is far worse. In 2018, value of production in residential construction sector in Ireland grew by only 6.88% y/y - the slowest pace of growth since the recovery started in 2013. By volume, activity grew only 3.75% y/y in 2018 - also the slowest pace for the recovery period. As the crisis in supply of homes get worse, the rates of growth in the 'recovering' sector get shallower. This suggests that Irish residential construction is nowhere near the trajectory needed to achieve the rates of growth required to fill the gap in the housing supply.

In all 12 years of positive growth (between 2000 and 2018), last year marked the worst rate of growth in Value and the second worst year of growth in Volume terms. To put things into perspective: under 2018 growth rates, Irish residential building and construction production won't reach its 2000-2007 average levels until mid-2033 in value terms and mid-2052 in volume terms.

13/10/17: Debt Glut and Building Dublin


Just back from Ireland, a fast, work-filled trip, with some amazing meetings and discussions, largely unrelated to what is in the 'official' newsflow. Some blogposts and articles ahead to be shared.

One thing that jumps out is the continued frenzy in building activity in Dublin, predominantly (exclusively) in the commercial space (offices). Not much finished. Lots being built. For now, Irish builders (mostly strange new players backed by vultures and private equity) are still in the stage where buildings shells are being erected. The cheap stage of construction. Very few are entering the fit-out stages - the costly, skills-intensive works stage. And according to several sector specialists I spoke to, not many fit-out crews are in the market, as skilled builders have not been returning to the island, yet, from their exiles to the U.S., Canada, Australia, UAE, and further afield.

Which should make for a very interesting period ahead: with so many construction sites nearing the fit-out stages, building costs will sky rocket, just as supply glut of new offices will start hitting the letting markets. In the mean time, many multinationals - aka the only clients worth signing - have already signed leases and/or bought own buildings on the cheap. Google owns its own real estate (hello BEPS tax reforms that stress tangible activity over imaginary revenue shifting); Twitter has a refurbished home; Facebook is quite committed to a lease (although it too might take a jump into buying); and so on. Tax inversion have slowed down and Trump Administration just re-committed to Obama-era restrictions on these, while Trump tax plan aims to take a massive chunk out of this pie away from Ireland. So demand... demand is nowhere to be seen.

Will this spell a twin squeeze on office blocks currently hanging around in a pre-weather tight conditions?

The market timing for a lot of this real estate investment is looking shaky. Globally and across Europe, corporates are doing relatively well. But, despite this, there is no investment cycle on the horizon. And revenues growth rates have been sustained by a massive glut of legacy credit sloshing in the international monetary system. Courtesy of Daniel Lacalle @dlacalle_IA, here is a Deutsche Bank chart illustrating what the past monetary excesses have produced:
Three lessons are to be extracted from the above:

  1. Lags in corporate investment activity imply that the current level of demand for hard assets worldwide is driven by the 2016 ultra low borrowing rates; 
  2. Forward corporate investment activity is starting to show the pressure of rising rates and reduced (or even negative) assets purchases by the Central Bankers, with negative rates share of the total debt market shrinking from over USD12 trillion at the end of 2016 to USD8 trillion now; and
  3. The glut of debt continues to rise through 2017, albeit at a slightly slower rate than in 2016.
These points suggest that, barring a new miracle of monetary variety, forward debt financed investment and growth is bound to slow. And the cost of debt carry is bound to rise. Which should be bad news for the European and U.S. debt-funded real estate activity. 

And it will be an even tougher pill to swallow for the crop of new (Nama-linked) Irish developers who were quick in raising hundreds of millions in funding in form of cheap (ultra cheap) debt and frothy equity. Many of these lads have nearly zero experience in building, some are backed by 'experts' from Nama's top cohorts of 'specialists' - the cohorts that were dominated by the pre-bust advisers, not developers. 

The bust is still unlikely at this stage, as majority of current sites that are in mid-stage development have a low acquisition cost, thanks to the fire sales by Nama, and still enjoy a couple of years of cheap debt carry costs. 

But inflation in construction costs will sap whatever wind the housing building sub-sector might have had in it (which is not much, as housing construction is still sitting well behind offices activity). Planning permissions for new housing are languishing sub 1,500 per quarter, comparable to 2010 levels. Planning permissions for ex-residential are at late 2007- early 2008 levels, aka stronger.


In other words, the upcoming cost squeeze is likely to do two things to the Irish market:
  • Cost inflation at fit-outs will probably dent future development activity, instead of creating a large-scale bust; and
  • Commercial development sector will continue pressuring house building, driving up rents and residential property prices.