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Construction costs rise faster than during the Celtic Tiger era

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Construction price inflation is outstripping even runaway consumer prices as the cost of building is rising faster than during the Celtic Tiger, according to the Society of Chartered Surveyors in Ireland (SCSI).

The SCSI’s latest Tender Price Index shows commercial construction tender prices increased by 7.5pc in the first half of the year, up from 6pc in the second half of 2021.

It marked the biggest six-month increase since the Society started tracking construction inflation in the index 24 years ago, exceeding the 7.4pc recording in the second half of 2000.

The annual rate of inflation was running at 14pc at the end of June, up from 13.4pc six months ago when the SCSI published its last inflation report. In the last 18 months, construction prices have risen a record 22pc, according to the SCSI.

“These are significant increases, and their continuous nature is adding tremendous pressure on the sector in terms of viability for projects,” said Kevin Brady, chair of the quantity surveying professional group in the SCSI.

“It had been anticipated that the increases we saw in the second half of last year following the reopening of the industry after Covid restrictions would stabilise as supply chains and demand adjusted in the first half of this year. However, the war in Ukraine has continued and has resulted in a sustained rise in inflation.”

The SCSI said these “exceptional events” had led to higher prices for building materials last year due to pent-up demand, but now this is being compounded by labour shortages and rising labour costs alongside.

SCSI president Kevin James said the high and rising costs were putting the viability and affordability of projects at risk.

He said the industry was at peak capacity but that a downturn might lead to a reduction in the pipeline of work and, therefore, more competitive tendering prices, which would see inflation ease.

However, that view is at odds with a recent research note published by the Department of Finance that high construction costs are now baked into the Irish economy and probably wouldn’t budge much in the event of a recession.

Department economists arrived at a similar number for construction inflation as the SCSI – 13pc last year and rising in 2022 – but said costs in the industry have been detached from consumer price inflation for 25 years and needed to be addressed structurally.

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They said the high costs in the sector were putting the supply of affordable housing at risk. Housing starts have fallen 43pc this year after a strong recovery in 2021 following the Covid lockdowns.

Mr James said that while the sector is strong, with a lot of activity in new industrial and logistic developments, retail and some office segments were struggling due to post-Covid and general viability issues.

A poll of the 300 industry members commissioned by construction software provider Autodesk found that most cannot cope with current demand and are stalling projects due to high costs and labour shortages.

Nearly two out of three polled reported struggling to recruit enough workers due to negative perceptions of the sector and lack of career progression.

More than 80pc said they had slowed down their work as a result of the stresses on the industry. An overwhelming majority believe that it will be impossible under the current circumstances to meet the Government’s Housing For All targets.


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