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Cost of Construction Continues to Rise

Earlier this week, you might have seen that quantity surveyors and industry consultants Linesight published its latest annual report on construction costs for the Republic of Ireland. According to the figures released, the cost of building a family home has risen 7.5% to as much as €161,000 over the past twelve months. This report effectively updates the organisation’s yearly handbook, which demonstrates how the construction industry is worth in excess of €20 billion to the Irish economy.

A breakdown of the figures show the ‘pure construction cost’ of an average suburban (housing estate) house is now somewhere between €1,260 per sq m and €1,610 per sq m. Using the example of an average three-bed, semi-detached house,100sq m (1,076sq ft), the total build cost is now between €126,000 and €161,000.

The cost of building apartments has increased at a similar rate of growth, increasing year on year from €2,200 per sqm in 2017 to €2,380 in 2018 thus far.

As many of you will likely know, the Linesight annual handbook (previously Bruce Shaw) has been one of the most accurate and reliable indicators of annualised build cost inflation in recent years. It is one of the only ‘pure’ construction cost reviews i.e. it only gives the cost of actually building a home, taking in the labour and raw materials for the structure, heating, plumbing and electrical installation. In practice, this cost is effectively doubled when the cost of development land, VAT, cost of finance, development levies and professional fees are included. Interestingly, when doubled, the cost of constriction of a typical family home is still below the national average price of such a home, which currently stands at €291,579 (based upon Central Statistics Office figures to the June 2018) and €345,000 in the capital.

Also, this 7.5% increase is greater than the 4% increase noted by Glenveagh at its most recent shareholder briefing and it is significantly higher than that 2.9% build cost inflation calculated by Cairn Homes. Perhaps scale offers some protection to these annual increases?

This increase in construction costs has been attributed to a persistent labour shortage, rising industry wages and a general increase in the cost of raw materials. Of course, it does not help that home builders are still playing catch-up when it comes to demand. The lag between supply and demand is likely to continue for years (or forever, depending upon your economic school of thought). While half-year figures showed an increase in homebuilding activity of 30% year on year, we are still grossly behind on the Ireland 2040 target of delivering 550,000 homes over the next two decades.

On a positive note, the Linesight report certainly indicates that the recovery in construction is set to continue, albeit with challenges.

Ian Lawlor
086 3625482

Director / Business Development
Lotus Investment Group