Tender prices increase by 2%

Construction tender costs increased by 2% in the second half of last year, said the Society of Chartered Surveyors Ireland Price Index, despite the level of house completion falling to historic lows.

Chairman of the Quantity Surveying Professional Group Andrew Nugent said the prices stabilised in the first half of 2011, before rising in the second half of the year. The price rise, the first since 2007, is not due to an increase in demand but because contractors are no longer pricing work below cost, he said.

“The levelling off and slight increase in tender prices is also due to a growing realisation that pricing work at below cost and not pricing risk items in tenders is unsustainable,” he added.

The rise in tender prices comes as the level of new house completion fell to pre-1970 historic lows in 2011, according to official figures and could fall even further this year, according to the latest AIB House Market Bulletin.

Department of Environment data shows that there were just 10,480 housing units completed in 2011, a fall of 28% compared to the 14,600 units completed in 2010 and the lowest level of output since 1970.

Chief economist with AIB Global Treasury, John Beggs, said the depressed levels of new activity would indicate that output will fall further this year. Even on the basis of a further finishing of work commenced in earlier years, AIB forecasts only 8,000 units will be completed in 2012.

“This is well below our estimate of potential demand of around 20,000 units, after allowing for continuing significant emigration, suggesting there should be a slow erosion of the supply overhang of unoccupied properties,” said Mr Beggs.

Mr Nugent said factors other than demand were pushing up tender prices.

“The stabilisation and slight increase in tender prices in 2011 reflects the severe shortage of new construction projects and reduction in the available pool of contractors. This is due to both company failures and some contractors and sub-contractors concentrating their efforts on overseas markets,” he said.