Irish housebuilders are more confident about next year, and the financial viability of new home development is improving, according to the latest BNP Paribas Real Estate Ireland Construction Activity Index.

Although it posted below the 50 "no-change" mark in September for the third month running and for the eighth time this year, it also showed a distinct upturn compared to August.

With the return to softening cost inflation and new-home price inflation running at 11%, the viability of new development has improved. The Future Expectations Index showed that construction firms remain broadly optimistic, with 81% expecting to be as busy or busier in one year’s time.

At 48.6, the confidence index was up from 44.9 in August and pointed to a modest and much softer fall in activity, and the decline was the softest in the current sequence of decreasing activity, BNP Paribas Real Estate said.

Some panellists reported signs of improving demand, reflected in new orders, which showed a move toward stabilisation in September following reductions in July and August.

Input cost inflation has been on a slowing trend since October 2021, but this was reversed in July and August. However, the long-term trend resumed in September, with a pronounced slowdown in input cost inflation relative to August amid reports of reduced pressure from material prices. Some companies also noted reduced wage costs.

Companies generally expect improving demand over the coming year to lead to higher construction activity, and the proportion of firms expecting to be busier in 12 months’ time rose from 31.2% in August to 37.4% in September, while employment rose for the ninth successive month.

“September was a broadly positive month for the construction sector. Activity edged lower, but the slowdown was marginal, and considerably less than in July and August which were particularly weak months,” BNP Paribas Real Estate Ireland Director and Head of Research John McCartney said in a statement.

“Input cost inflation slowed again, after sharpening against the run of play in July and August. Panellists reported that the cost of steel, sanitary ware, insulation and construction wages all fell in September,” he added. “The latter tallies with CSO data which showed reduced average earnings in construction and, in tandem with the sustained pick-up in employment, suggests no immediate shortage of building workers.”