Sharp drop in construction cost inflation

Prices for steel, insulation, and energy stabilise while concrete and labour costs remain an issue

The 6.2% annual increase is down significantly from the 14% inflation rate recorded between July 2021 and June 2022. Picture: Larry Cummins

Construction cost inflation has dropped further as more stable supply chains and energy costs feed through to building costs.

A report from the Society of Chartered Surveyors Ireland (SCSI) shows that non-residential construction costs rose by 2.4% in the first half of 2023, down from 3.7% in the second half of last year.

Since July of last year, the report shows costs increased by 6.2%, a significant drop on the 11.5% increase in the preceding 12-month period between January and December 2022.

The SCSI survey found price increases for a range of materials and inputs such as steel reinforcement, insulation, and fuel are settling down, but concrete prices continue to rise. 

The availability of suitable labour is becoming the dominant concern for the sector, driven by skilled labour shortages and wage demands that are applying significant pressure to tender price inflation.

Price inflation

Donal Hennessy, chairman of the Quantity Surveying Professional Group in the SCSI, said that while inflation is still an issue for the construction sector, the more subdued rate is a welcome development. 

The 6.2% annual increase is down significantly on the 14% inflation rate recorded between July 2021 and June 2022, which was the highest 12-monthly inflation rate recorded since the index began 25 years ago.

"Material price inflation is still an issue, but it is becoming less of a driver as supply chains and the cost of energy in manufacturing materials have stabilised compared to the immediate post-covid period," Mr Hennessy said.

Chartered quantity surveyor Kevin Brady said construction costs nationally continue to be driven by high demand due to economic growth and population expansion. 

"As a result, there is an ongoing need for new infrastructure and construction projects, driving up construction activity and tender prices," he said.

However, barring any major economic shocks, we expect to see a continuation of low single-digit growth figures in the medium term. 

"And while the overall trend is positive for the sector as far as a levelling off of this Index is concerned, capacity pressures, as well as the high interest rate environment, will continue to put pressure on the financing of projects, leading to significant uncertainty in the market."