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Tender price inflation expected to drop from 12% to 5% in 2023

The start of the year is always packed with industry reports and forecasts, which are to be welcomed. Data is the antidote to uncertainty and property development in Ireland is already having to contend with uncertainty across policies and regulations right now, good information is the only dependable resource. This week infrastructure consulting firm AECOM published its latest review of the Irish construction industry, which highlights a significant risk that the Government’s ‘Housing for All’ target of 29,000 residential unit completions this year may not be met due to continued inflation in the construction sector. 

The report notes that tender price inflation is expected to be around 5 percent this year, significantly lower than the record 12 percent inflation recorded in 2022. AECOM forecasts that the value of construction output this year will be around €34 billion, a €2 billion increase from 2022; however, when inflation is taken into account, the industry is not likely to experience any growth this year. The inflationary environment is also expected to impact housing completions, with interest rate increases and market uncertainty contributing to completion volumes being lower than the government’s target. This must be a concern for the government  – and for the wider industry – given the ambitious target of 33,000 new homes to be completed every year between now and 2030. 

It is no surprise that Ireland’s housing market was hit hard by the pandemic and the government is clearly keen to get back on track and meet the demands of the people, unfortunately this has not been reflected at a policy level.

The analysis by AECOM also highlights that while construction continues to be impacted by skills shortages, the numbers employed in the sector increased to 171,000 in the third quarter of 2022, an increase of 16.5 percent from pre-pandemic levels in 2019. This is a positive sign for the construction industry, as it indicates that the sector is recovering from the pandemic; however, the skills shortage is still a major concern for people we speak to in the industry and the government needs to take measures to address it.

Critically, the report also notes that there are signs that the viability challenge, which has been on a cliff edge, has in some instances tipped into negativity, as inflation and interest rates have risen. Regular readers here will recall that the Society of Chartered Surveyors issued a similar analysis last week, which warned that a combination of construction price inflation and an apparent easing in property price inflation could threaten the viability of some planned projects. This demonstrates the need for the government and the industry to take steps to address the inflationary environment and to ensure that the housing market remains viable. Unfortunately, current State efforts continue to fall short in this regard.

Ian Lawlor
086 3625482

Managing Director 
Lotus Investment Group