Margins are so tight that price rises are putting developers off
The dramatically rising cost of building materials is putting residential and public projects at risk, according to construction consultants Duke McCaffrey.
“Residential projects are already on the borderline of feasibility. The margins are so tight that any kind of price increase is putting developers off,” said the firm’s co-founder and managing director, Joe McCaffrey.
The Central Statistics Office (CSO) said last week that the rising cost of materials is the biggest post-Brexit worry for Irish firms, with 65pc of construction companies expressing concerns.
Brexit, Covid-19 and a global shortage of shipping containers have put a strain on supplies of steel, timber, bricks and other materials.
Finance Minister Paschal Donohoe told a European Parliament committee yesterday that an EU-wide homebuilding drive was also putting pressure on prices.
European Central Bank chief Christine Lagarde told the same committee that the bloc could be in for a house price “correction” – although she said there was no 2008-style bubble ready to burst.
Nama CEO Brendan McDonagh told reporters last week the rising cost of materials will result in higher prices for home buyers and lower margins for firms.
The Irish Homebuilders Association estimates supply shortages and delays could add up to €15,000 to the cost of an average three-bedroom home.
The cost of concrete, brick, insulation and timber have gone up between 4pc and 15pc since December 2019, while the cost of shipping and transport has shot up by 32pc. Galvanised steel has gone up more than 40pc.
Ireland is more exposed than most to price hikes as it’s a small economy that is tied into UK supply chains, Mr McCaffrey said.
“Ireland sits on the periphery of world economies and there is a very real worry that we may find ourselves last in supply chains due to our relatively small size, and as a consequence of bigger states snapping up and hoarding raw materials in a bid to preserve their own prosperity post-Covid.
“Any hopes that Ireland – as home to two of the world’s largest material suppliers in CRH and Kingspan – would be immune to such supply and demand issues have proved unfounded.”
But Shane Carberry, a building materials analyst at Goodbody stockbrokers, said that prices have been inflated by successive lockdowns and will eventually normalise.
“We believe the majority of the build cost inflation is transitory,” he said. “Supply chains globally have been under severe pressure, having shut down for a sustained period. Coupling that with pent-up demand, which has been stronger than expected, has led to a squeeze in terms of inflation.
“We do expect the inflationary pressures to moderate as pent-up demand fades, supply chain bottlenecks ease and the market returns to equilibrium.”
The head of the US Federal Reserve, Jerome Powell, said last week that he expects inflation pressures to fade in the same way that lumber prices have.
US lumber futures are down 42pc from a high in May.