Impact of Covid Lockdown on New Homes Market

Writing in The Irish Times this week, chief economist and head of research at Knight Frank, Joan Henry, shared insights from the company’s latest survey of property developers. You can read the article in full here:

https://www.irishtimes.com/business/commercial-property/majority-of-new-home-schemes-delayed-by-up-to-six-months-by-covid-19-lockdowns-1.4526268

Knight Frank carried out the survey of property developers in order to assess the real impact of Covid-19 on building delivery, current development decisions and future plans. Unsurprisingly, more than half (54 per cent) reported weaker construction activity for 2020, when compared to 2019. The new homes sector has been particularly badly hit by the continuing construction lockdown, which will begin to lift from next Monday, April 12th. According to the results of this survey, 18 per cent of construction projects were delayed by between seven and 12 months. The majority of  projects, 64 per cent, were delayed by between four and six months, and 18 per cent were delayed by less than three months. Despite these delays, the total number of new homes completed in 2020 was 20,676, which actually exceeded expectations, however, the output levels are expected to fall well below this for 2021. Even if the industry manages to outperform expectations again this year, output levels are still likely to fall significantly short of the estimated 35,000 new homes per year required to meet current demand.

There has been much market speculation over the past week, with Q1 results showing that the demand for housing, which as Joan Henry pointed out in her article “was already considerably in excess of annual supply delivery”, has “intensified” over the past year. Again, this is not surprising given that the industry has been subject to a ban on non-essential activities for more than five of the past 13 months. According to the more recent report from Sherry FitzGerald, activity levels in the new-homes market suffered a greater decline than the second-hand market. About 7,600 sales of new homes were recorded, a decrease of 20 per cent year on year, with new home sales falling by 33 per cent in Dublin. This is coming against an unexpected backdrop of residential sales in Q4 of 2020 that were the strongest for more than a decade, with 16,900 property transactions closing in the final months of the year.

Taking a broader view, demand for new public and private housing remains consistently strong. More than a third of sectors including technology, media and telecom, finance and pharmaceuticals have been largely unaffected or in some cases positively affected by the pandemic. Furthermore, as a nation we are saving more than ever before, with cash on deposit reaching record levels over the past quarter. According to the Knight Frank research, the combined impact of robust demand, dwindling housing supply, decreased delivery levels, increased savings and the enhanced help-to-buy scheme is resulting in upward pressure on prices “with a risk of further increases in 2021 and 2022”.

Other challenges for property developers, as identified through this Knight Frank research, include an intensification of the prevailing industry skills shortages, with 57 per cent of developers seeing this as a bigger problem than the coronavirus. Also, as an indicator of future trends, 82 per cent of developers surveyed believe that Covid-19 will bring about changes to the way new homes are designed. Such design changes include home working spaces for newly-built apartments and home offices or garden pods for new houses. Significantly, 82 per cent of respondents are planning to add to their existing land banks in 2021.