Construction cost inflation in Ireland has continued to decrease as supply chains stabilize and energy costs become more consistent. According to a report from the Society of Chartered Surveyors Ireland (SCSI), non-residential construction costs rose by 2.4% in the first half of 2023, down from 3.7% in the second half of the previous year. This represents a significant drop from the 11.5% increase seen between January and December 2022. Since July 2022, costs have increased by 6.2%. The report also highlights that while prices for materials like steel reinforcement, insulation, and fuel are stabilizing, concrete prices continue to rise. The availability of skilled labor is becoming a major concern for the sector, leading to wage demands and pressure on tender price inflation.
Donal Hennessy, chairman of the Quantity Surveying Professional Group in the SCSI, acknowledges that inflation remains an issue for the construction sector, but the more subdued rate is a positive development. The 6.2% annual increase is significantly lower than the 14% inflation rate recorded between July 2021 and June 2022, the highest rate in the 25-year history of the index. Hennessy notes that while material price inflation is still a concern, it is becoming less influential as supply chains stabilize and energy costs in manufacturing materials become more consistent.
Kevin Brady, a chartered quantity surveyor, explains that construction costs in Ireland are primarily driven by high demand resulting from economic growth and population expansion. This ongoing need for new infrastructure and construction projects leads to increased construction activity and tender prices. However, Brady expects low single-digit growth figures in the medium term, barring any major economic shocks. He also points out that while the overall trend is positive in terms of the index leveling off, capacity pressures and the high interest rate environment continue to impact project financing, leading to significant uncertainty in the market.
In conclusion, the construction cost inflation in Ireland has decreased, thanks to more stable supply chains and energy costs. While material prices are still a concern, they are becoming less of a driver in construction costs. The availability of skilled labor remains a dominant concern for the sector, leading to wage demands and pressure on tender prices. Despite these challenges, the overall trend is positive, with a leveling off of the inflation rate. However, capacity pressures and the high interest rate environment continue to create uncertainty in the market, impacting project financing.