Rising cost of building provokes fresh warnings on housing crisis

Appetite for home building amongst developers remains strong.

Sarah Collins

Warnings of house price crises and construction delays are mounting as building firms grapple with supply shortages and skyrocketing costs.

A survey by the Society of Chartered Surveyors Ireland (SCSI), published today, shows construction tender prices are now double what they were pre-Covid.

“The last time we saw comparable rates of tender inflation was in 2000, at the height of the Celtic Tiger,” said SCSI vice-president Kevin James.

“It’s clear the cost increases outlined here will also affect the cost of delivery of new homes as well as refurbs and extension to existing homes.”

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The SCSI’s tender price index increased by 7pc in first half of 2021, more than five times the rate of increase in the previous six months, bringing the annual inflation rate to 8.3pc.

The highest rates of inflation were recorded in Leinster (excluding Dublin) and Connacht/Ulster, while the lowest rate was recorded in Dublin.

Kevin Brady, the chair of SCSI’s quantity surveying group, said costs of steel, timber and insulation products were seeing “exceptional increases” due to supply chain issues and global competition.

“These increases, coupled with serious labour shortages in the domestic market, have led to unprecedented disruption and the current increase in overall tender price inflation,” he said.

Ulster Bank’s construction purchasing managers index (PMI), also published today, shows firms are still confident about the future despite rising costs.

The headline PMI eased back for the fourth consecutive month, to 56.3, from 57.5 in August, although total activity has risen for five consecutive months. Any score above 50 points to a growth in activity on the previous month.

However, supply delays were more pronounced in September than in August, according to firms, who also reported a steep rise in input costs – only a fraction softer than the all-time highs seen in July.

Firms also reported difficulties finding staff.

“Despite such headwinds, firms remain confident about the 12-month-ahead outlook as sentiment was again above long-run average levels,” said Ulster Bank’s chief economist in Ireland, Simon Barry.

“The headline index of overall activity still points to very solid growth on a par with that experienced in the three years prior to the pandemic, while it also points to faster growth than signalled by the latest construction PMIs in both the Eurozone and UK.”

Appetite for home building among developers also remains strong, according to property advisors Savills, with some 60pc of the land trading this quarter expected to have residential use once developed. John Swarbrigg, a director in Savills’ development, consulting and agency team, has also warned about growing delays in the delivery of residential units because of planning backlogs.

“Housing developments in Ireland have been subject to a wave of judicial review challenges which has inevitably harmed delivery rates of residential units,” Mr Swarbrigg said.

He also warned that the €165bn National Development Plan could “exacerbate” existing inflationary pressures in the construction sector if it crowds out private investment.

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