DAVY Research: surprising fall in residential output Q2 2014

by Bregs Blog admin team

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DAVY Research: surprising fall in residential output Q2 2014

The following analysis by Davys research was posted on their website on 10th September 2014 (see link here). They confirm an increase in construction output in non-residential sectors. However there is a marked fall in residential sector output compared to the same period in 2013. Last year was a record low in residential construction, and the impact or “spike”  due  to the introduction of the new building regulations is noted.

Link here to download full report here: Davy Report- QS 2014

Quote: “According to the index, construction output has now increased 26% since troughing in Q3 2012 but still remains 73.5% below the peak levels of 2006.

Nonetheless, the fall in residential work is a little surprising given the strength of recent house building statistics. In the first two months of the year, 5,247 house builds were started compared to 645 in the same period in 2013, albeit with many projects brought forward due to the introduction of building standards in March. Moreover, in the year to May, completions totalled 3,941 compared to 2,997 in the same period in 2013. In this context, the second consecutive quarterly fall in residential work in the index is therefore puzzling

In a previous post we noted:

“Everybody, including the DoE, accepts that the “February spike” was a rush to beat the introduction of S.I.9. But not all of those Notices cover real project starts. If they did, there would have been a matching spike in tender volumes beforehand. There was none. And there would have been a matching increase in construction activity in April/May. There was none.

There was no spike in tender volumes in January/February; and no spike in the Construction Purchasing Managers’ Index in early summer…Six months into S.I.9, indications are that the number of construction commencements in 2014 will be lower than in 2013.

The February spike in Commencement Notices was on paper, not on shovels.” (see post here)

CBRE Research are also sounding the alarm in their September 2014 Report (See link Here) noting that “onerous new building regulations… are impacting severely on the feasibility of development

Figures from the Central Statistics Office and Davys report would seem to back this up and that the “spike” in residential ‘paper’ commencements masked the crisis that has been developing since 1 March.

Full DAVY article to follow:

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Irish Economy: Construction output rises sharply in Q2

September 10 2014 – Research Report – 1 page(s)

DAVY VIEW

As expected, there was another sharp rise in Irish construction output in Q2. Volumes were up 4.1% on the quarter and 10.1% on the year. Output from the sector has now increased 26% since troughing in Q3 2012 but still remains 73.5% below the peak levels of 2006. Overall, these data add to the growing evidence that the construction sector recovery will gather pace this year.

Construction output up 4.1% on the quarter

As expected, there was another sharp rise in construction output in Q2. Volumes were up 4.1% on the quarter (qoq) and 10.1% on the year (yoy). The sector breakdown reveals a 1.9% qoq fall (-8.8% yoy) in residential work, a 4.7% rise (+23.4% yoy) in non-residential work and a 9.3% rise (+8.5% yoy) in civil engineering work. According to the index, construction output has now increased 26% since troughing in Q3 2012 but still remains 73.5% below the peak levels of 2006.

Nonetheless, the fall in residential work is a little surprising given the strength of recent house building statistics. In the first two months of the year, 5,247 house builds were started compared to 645 in the same period in 2013, albeit with many projects brought forward due to the introduction of building standards in March. Moreover, in the year to May, completions totalled 3,941 compared to 2,997 in the same period in 2013. In this context, the second consecutive quarterly fall in residential work in the index is therefore puzzling.

However, the CSO has previously cautioned on the interpretation of the construction data given a recent re-weighting and the unprecedented low base from which the series is starting. We therefore cannot read too much into the sectoral split of the headline data.

Overall, these data add to the growing evidence that the construction sector recovery will gather pace this year. Our investment forecasts are for an 11.4% rise in building and construction work in 2014, 11.2% in 2015 and 9.6% in 2016. Our forecasts are based on growth in housing completions from 8,300 in 2013 to 9,850 in 2014, 12,150 in 2015 and 14,600 in 2016. This is one area where we are especially uncertain. If supply constraints are alleviated, the sector could well recover at a much faster pace than our conservative forecasts imply.

 

Construction sector growth

construction20140910_10092014_001

 

construction20140910_10092014_002

Residential work vs completions

construction20140910_10092014_003

Source: CSO

Other posts of interest:

Commencement Notices | 6 months after S.I. 9

Continuing Collapse in Commencement Notices: Building Register – 5th August 2014 

Construction Recovery- watch this space

‘Recovery’ is Still Worse than the 1980s Crisis

Commencement figures- June 25th 2014

CSO: (Q1 2014) planning permissions for dwellings -30% drop

Minister Hogan rejects Irish Times Article

Irish Times: Dramatic fall in number of buildings being started

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