Soaring construction costs threaten to stall new home building in the Republic, a multinational surveyors’ firm has warned.
The inflation that added as much as 23 per cent to costs of key materials including timber in 2021 will continue to the end of this year, when it will begin easing, says surveying firm Linesight.
However, rising costs over the last year have prompted developers to put new home building projects on hold, according to Stephen Ashe, the firm's senior director for Europe.
He argued that house prices can only go so high before they are no longer viable for buyers. “Someone is not going to pay €800,000 for an apartment that’s not in the city centre,” Mr Ashe said.
Consequently the squeeze between affordability and viability on the one hand, and costs on the other, has left builders fearing they could lose money on some projects.
“What we are seeing is that projects in the pipeline are being reviewed, they’re being put on hold,” Mr Ashe said.
He explained that companies were doing this to weigh differing funding options against the likely cost of each project.
The surveyor added that high site costs and planning issues were adding to the problem.
Mr Ashe said apartment blocks were more vulnerable, as they cost more to build than houses.
However, he cautioned that tight margins in house building meant that some of those projects could be at risk also.
Inflation and supply
Linesight expects materials inflation and supply disruption to continue this year, but with less volatility than in 2021.
Local shortages and high import prices pushed the cost of timber up 23 per cent last year to almost €80 a sq m from €65 in 2020.
Linesight expects supplies to improve this year but prices to remain relatively high.
Government delays in issuing licences needed to fell timber have been squeezing supplies for more than two years.
Copper surged 43 per cent last year to €7,901 a tonne from €5,222. Cement rose 4.4 per cent to €217 a tonne.
Diesel jumped almost 18 per cent to €1.42 a litre, reflecting high energy costs.
Workers’ wages are due to increase from this month, with tradespeople earning €20.52 an hour, from €19.96.
Category A workers, including scaffolders, crane drivers, steel fixers and heavy machinery operators, will earn €19.91 an hour, up from €19.37.
Skilled labourers with more than two years’ experience or category B workers, will earn €18.47 an hour, up from €17.97.
Richard Joyce, Linesight's managing director for Europe, said construction lockdowns and Covid's second wave led to a likely 0.3 per cent slip in construction against expected growth of 3.7 per cent.
“However, the outlook is positive and growth is expected this year,” said Mr Joyce.
Headquartered in Dublin, Linesight manages building projects for data centres, pharmaceutical manufacturers, technology companies and a range of other industries in 24 countries.
Integrated Project Services, part of US-based, Alleghany Capital, bought the firm last year.
