Cost of building rising at twice rate as before pandemic

The cost of building is rising at twice the rate that it was before the pandemic, according to a new survey. The Society of Chartered Surveyors in Ireland (SCSI) tender price index figures show prices nationally jumped by 7 per cent in first half of 2021.

That is up dramatically on the 1.3 per cent recorded in the second half of last year.

"The last time we saw comparable rates of tender inflation was in 2000, at the height of the Celtic Tiger," said Kevin James, SCSI vice-president. "While that highlights the seriousness of the current situation, we believe underlying market conditions are fundamentally different from that era."

He said a rise in prices had been expected after construction sites reopened on April 12th. However, the scale of the increase had been much greater than anticipated “due to supply chain issues and intense competition internationally for building materials”.

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“Given they account for up to half of overall delivery costs in some instances, a return to more normalised costs for key construction inputs such as timber, insulation, glazing, piping/ducting and steelwork appears likely and will be very welcome,” said Mr James.

Costs rose faster outside Dublin, in large part because they were coming off a lower base figure. The index focuses exclusively on costs in the commercial construction sector but the factors affecting prices are equally relevant in the residential sector.

Separate figures from the monthly Ulster Bank purchasing managers index for construction showed that activity expanded again in September but with the rate of growth softened for the fourth consecutive month.

New orders continued to increase sharply but the sector was affected by the global shortage of raw materials.

“While we have no control over international markets or shipping costs, we would urge Government to address issues within our control,” said Mr James.

Essential infrastructure

These, he said, included planning delays, “unwieldy” public procurement procedures, a lack of essential infrastructure such as water, the backlog in forestry permits and attracting more young people into apprenticeship schemes.

“For its part, the construction sector, if it is to drive down costs, needs to prioritise innovation and apply sustainable building practices,” he said.

In a separate report, estate agents Savills said sales of Irish development land totalled €184 million in the third quarter – 19 per cent lower than the quarterly average over the past five years. However, it said, the market appears to be "turning a corner in its recovery from the pandemic" with turnover well ahead of the €100 million in business that was done in the previous three months

The latest figures bring activity so far this year to €378 million.

Savills said demand for development land remains strong and the market could see additional turnover of between €150 million and €200 million in the final three months of the year, driven by the sale of several high-profile sites on the market.