30 Jan 2020 | 07.32 am
Housing Promises Are Pie In The Sky
Where are the construction workers, asks Mitchell McDermott
30 Jan 2020 | 07.32 am
Election promises by political parties to ramp up housing construction are not connected to reality on the ground, a new report on the sector suggests.
Ireland’s construction sector is already under ‘Celtic Tiger’ levels of pressure and is in danger of overheating, according to consultants Mitchell McDermott.
Their report finds that construction output grew by 12% to €23bn in 2019. However, the number of construction workers only grew by 6,000 or 4%.
Paul Mitchell predicts output will increase by a further 10% this year to over €25bn. “Output is outstripping our already constrained supply chain, and this is a worrying trend going forward,” said Mitchell.
“This is reflected in the continuing cost inflation we are seeing in the market. Construction prices increased by 6.6% in 2019 and we expect them to rise by between 5 and 6% in 2020. Based on our figures an office building which cost €20m to build in 2015 would cost €25.2m at the beginning of 2020, an increase of 26%.
“That level of increase is just not sustainable. The main cost drivers are labour, materials, risk and the imbalance in supply and demand.”
While the number of housing unit completions has gone from around 6,000 in 2018 to 21,500 last year, this is still far below the 34,000 which most commentators say the market requires.
Last year saw a huge surge in the number of planning permissions for apartments, 19,000 in all. However, Mitchell points out construction has yet to get underway for many of them. When it does, they will take another 18-24 months to complete.
“If they all do go ahead, it will amount to a doubling of our current residential output in two years to just under 40,000 units. Indeed, several political parties in the run-up to the election are promising that this will be the state’s housing output for the next five years. That’s 200,000 new units in total.
“Given the constraints in the sector, the key question is who will build these units? We estimate up to 30,000 additional workers would be required to reach that level of output.”
The report states that a scarcity of Tier 1 contractors for large schemes, continuing labour supply issues and an increase in the use of modular construction will be key elements in the market in 2020.
According to the report hotel and office construction are reaching full capacity, and while there is still strong demand for student accommodation, the latter is facing viability and affordability issues.
Mitchell added: “Significant office schemes came through last year with Salesforce, Amazon, Facebook, Google and the ESB all to the fore. While hotels in Dublin are nearly at demand, there is still a way to go for student accommodation.
“However, these schemes are facing increasing competition from co-living site purchasers. In fact, we would say that the prices being paid for student accommodation sites are now threatening their viability as their rents were already at a high level.”