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.

10/9/15: Building & Construction: 2Q 2015 y/y & historical compratives

Having looked at the relationship between PMI and actual activity in Irish Building and Construction sector in the previous post, now, let's take a closer look at the CSO series for actual activity in the sector.

As a starter, consider the current consensus view of the ongoing strong recovery in the sector.

All data not seasonally adjusted, so we are looking at y/y changes here.

First in terms of Volume of Production (excluding inflationary effects):

• Total volume index for production in Building & Construction sector in Ireland was at 106.0 in 2Q 2015. This represents a rise of 8.72% y/y, second strongest increase in last 4 quarters. Compared to 1H 2011 the index is up 39.47%, seemingly confirming the overall story of strong recovery. However, the problem is that this recovery has been off horrific lows. Compared to series peak, activity in the sector was still 72.9% lower in 2Q 2015, and current levels of Building & Construction volumes are 53.7% below their 2Q 2000 levels. For the sake of another comparative, today's reading of 106 compares to 2000-2001 average reading of 234.6.
• Residential Construction volume index stood at 112.6 in 2Q 2015, up massive 45.7% y/y, and up 58.9% on 1H 2011. Again, levels of activity are still weak: the index is still down 88% on pre-crisis peak and is 77.7% below 2Q 2000 reading.
• Non-residential building volume index reached 113.3 in 2Q 2015, up 7.9% y/y and 26% ahead of 1H 2011. The index is still down 41.4% on pre-crisis peak and activity in non-residential building sub-sector is 33.4% below 2Q 2000 reading.
• Civil engineering is the only sub-sector of the Building & Construction sector that is posting activity above 2000 levels. Current index at 92.6 for 2Q 2015 is, however, marking a decline in activity compared to 2Q 2014 (down 14% y/y). Compared to peak activity, the index is 43.9% lower today, but it is 16.2% ahead of activity registered in 2Q 2000.

Now, in terms of Value of Production (including inflation):

• Total value index for production in Building & Construction sector stood at 107.1 in 2Q 2015, up 9.85% y/y, marking, once again the second highest rate of growth in the last 4 quarters. The index is still 71.3% below its peak reading, and is down 34.6% on 2Q 2000. Current reading of 107.1 is well below 2000-2001 average of 177.2.

Chart to illustrate:

Conclusions: overall, the recovery rates in the sector have been driven (to-date) by the low base from which the recovery is taking place. Double-digits growth is hardly inspiring when it happens in an environment where actual levels of activity are massively below where they were 15 years ago. That said, growth is better than contraction. 

18/6/15: Tripling Permissions... and Where's That Construction Boom?

CSO released Planning Permissions figures for Q1 2015 with the following summary:

Which certainly conveys a sense of a veritable boom going on in the construction sector future activity pipeline. Yes, tripling of the apartments permissions and doubling of total dwelling permissions.

But here are the numbers in their more sober presentation. Please, mind - these are numbers from CSO itself.

• Total number of planning permissions granted in Ireland in 1Q 2015 stood at 3,895. which is 11.2% higher than in 4Q 2014, but only up 1.62% y/y. In 1Q 2014, the same rose 17.04% which is much faster than in 1Q 2015. So the boom is getting less boomier.
• Current level of planning permissions granted is 77.5% lower than at the peak while at absolute minimum of the crisis it was 81.1% lower. In other words, we are not that far from the crisis trough.
• Current level of planning permissions granted is 10.27% below the absolute minimum achieved in 1975-1999 period.
• The record busting quarter of 1Q 2015 is actually 13.76% below the quarterly average between 1Q 2011 and today.
• Dwellings saw planning permissions granted rise to 1,065 in 1Q 2015 which is 21.3% ahead of 4Q 2014 (remember - seasonal variation not accounted for). 1Q 2015 number is 19.5% ahead of 1Q 2014, so there is nice growth here y/y.
• Still, 1Q 2015 reading for dwellings permissions granted was 85.9% lower than pre-crisis peak, 26.9% lower than 1975-1999 period lowest recorded number and is 35.4% lower than the quarterly average for the period from 1Q 2011 through 1Q 2015.
• In Sq. Footage terms: total volume of planning permissions granted in 1Q 2015 came in at 952,000 sq.m. which is 28% ahead of 1Q 2014, but 85.8% below pre-crisis peak. Things are getting healthier here, but still off very low levels.

You can judge the trends for yourself in the following charts:

Boom here?

Or boom here?

Or maybe a boom here?

Ah, at last, a boom here?

Oh dear... gotta be next time...

25/6/2013: Planning Permissions in Ireland: Q1 2013

The latest data on Planning Permissions was released by the CSO under a rather cheerful headline: "Dwelling units approved up 24.7% in Q1 2013" which prompted me to start writing a positive note. However, having updated the database, I could not believe my eyes. Not until the third bullet point in the release do you get the sense as to what is really going on in the sector - the fact confirmed by looking at CSO data, rather than reading the CSO release which focuses the top points of analysis on positive side of select sub-components of the overall sector performance. So here are the facts, as conveyed to us by the data itself.

In Q1 2013, total number of planning permissions granted in Ireland for all types of construction stood at 3,275, which is 1.35% down on Q4 2012. This marks de-acceleration of seasonally-driven 17.96% q/q decline recorded in Q4 2012. However, on an annual basis, allowing for some seasonality controls, overall number of planning permissions granted in Q1 2013 was down 2.76%, which contrasts against an annual increase recorded in Q4 2012 of 1.13%.

In summary, things are not going well at all. Q1 2013 marks an absolute historic low for any quarter since Q1 1975! That's right: we hit an absolute historic low in 37 years and CSO release says things are 'up' by focusing on sub-series before it reports in the text the actual aggregates.

In charts below, I marked current sub-period (since Q1 2010) low against historic low before the current crisis. Take a look.

Note: in Q1 2013,

• Total number of planning permissions hit a historic low (as mentioned above)
• Total number of permissions for dwellings stood at 862, the second lowest after the historic low of 832 hit in Q4 2012.
• Total number of permissions for 'other new construction ex-dwellings' stood at 785, which is above the historic low of 636, but still marks a decline q/q.
• Number of permissions for extensions hit a historic low.
• Number of Alterations, conversions, renovations etc hit a historic low. 

Again, I find little to cheer in the above...

4/4/2013: Irish Planning Permissions 2012 data

Per data released on March 22 by CSO, Irish Planning Permissions for Construction have continued to collapse in 2012. Full year data shows that:

• In 2012 total number of all types of planning permissions issued in the state stood at 14,407 - an all-time record low (with records starting in 1992), down 9.91% on 2011. 2010-2011 rate of contraction was 15.11% and 2009-2010 rate of decline was 27.64%, so naturally for such steep drops in previous years, the rate of annual declines is moderating. 
• From the pre-crisis peak, number of planning permissions is now down 76.90%
• Planning permissions for dwellings fell to 3,643 in 2012, down 23.58%, having fallen 24.89% in 2010-2011 and 38.85% in 2009-2010. Compared to peak, the permissions are down 86.76% to a new historical low.
• Planning permissions for other new construction rose in 2012 to 3,407 from 2,964 in 2011, a rate of increase of 14.95% y/y that follows declines of 7.52% in 2010-2011 and 29.01% in 2009-2010. Relative to peak, 2012 level of permissions for other new construction are down 82.4% against absolute minimum reached in 2011 when these were down 84.72% relative to peak.

In square footage terms, planning permissions issued

• Fell 21.56% y/y for all types of new construction (these are now down 86.67% on peak, hitting a new historical low);
• Fell 39.48% y/y for dwellings (these are now down 90.89% on peak, hitting a new historical low);
• Fell 7.44% y/y for other types of new construction (these are now down 86.78% on peak, hitting new historical low);
• Rose 0.52% for extensions (these are now down 68.87% on peak, having hit the bottom at -73.41% on the peak in 2011).

At certain point in time (soon, one assumes given the rates of decline on peak already delivered), a broom shed construction somewhere in West Meath will qualify as an uplift in the market....

14/03/2013: Irish Construction & Building Sector Activity 2012

Latest index for Irish Building and Construction Production volumes and value is out today, confirming what I wrote about on the foot of new planning permissions data (here), namely that Construction and Building sector continued to shrink in 2012 and there is little hope beyond some public spending projects uptick for the already devastated sector.

Top headline numbers for full year 2012 (these are imputed from Q1-Q4 2012 data):

• Value index for all production activity in Building and Construction sector declined from 25.9 in 2011 to 24.7 in 2012 (using base of 2005=100). This means all activity in value terms has hit another historical low for the series and is running at less than 1/2 of the level of activity in 2000 when the index was reading 53.5.
• 2012 was the sixth consecutive year of declines in the sector activity by value and volume. 
• Peak sector activity was registered in 2006 with index reading of 109.7, which implies a decline from peak through 2012 of 77.5% in value terms.
• Value sub-index for Building excluding Civil Engineering has dropped from 20.9 to 18.2 between 2011 and 2012 (decline of 12.8% y/y) and is down 83.2% on peak attained in 2006.
• Residential Building value sub-index is down to 8.6 in 2012 from 10.2 in 2011, marking a decline of 92% on peak (2006).
• Non-residential building sub-index for value is down to 55.2 from 61.7 in 2011 and is 53.9% below peak levels attained in 2008.
• Civil engineering value sub-index was up in 2012 to 66.0 from 58.6 in 2011 (+12.6% y/y) but is down 49.3% on peak attained back in 2007. 

Similar story is traceable across the volume of production indices.

Charts to illustrate (note, charts are referencing a different base - instead of 2005=100 these have been rebased to 2000=100 for more clear compounded effect illustration):

Rates of decline, degrees of (construction sector) misery

Earlier today (here), I gave some figures from the CSO data release on planning permissions. Here is what I wrote:

"Also per CSO release, the number of dwelling units approved was down 22.4% in year to the end of Q4 2008. In Q4 2008, planning permissions were granted for 10,375 houses as opposed to 13,135 in the Q4 2007, a decrease of 21%. Only 3,392 planning permissions were granted for apartment units, compared with 4,598 in Q4 2007, a decrease of 26.2%. The total number of planning permissions granted for all developments was 8,977, as compared to 12,330 in Q4 2007, a decrease of 27.2%. Dire stuff once again. I will do the detailed analysis of the sectoral decline dynamics in a follow up to this post."

So, as promised here are some graphs illustrating the dire state of affairs in construction industry.

First chart below shows two things:

1. Numbers of permissions granted (annual totals) for main categories of dwellings and in total - these are now clearly falling at the fastest annual rate;
2. Total area of all construction projects applied for is also falling at the fastest rate of decline.
   

Now, the next chart shows total number of permissions granted per quarter. Here, the most dramatic trend is also found in 2008, most specifically in Q3 and Q4 2008, when quarterly rates of decline in total number of permissions granted were the steepest for any quarter since Q3 2000. And the rates of decline are accelerating, relative to Q1-Q2 2008.
Lastly, more detailed quarterly date below, by each broader category of permits. I also included trend lines for the period of peak-to-present contractions, showing that Q4 2008 dynamics were consistent with generally accelerating deterioration in all categories of permits, save for 'Other'. This means that we can expect this category to actually fall further and faster in months to come.
So here you have it, for construction industry - there is no bottom in sight, yet...