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Apartment construction set to expand dramatically as changes to guidelines begin to bear fruit

Construction tender prices are set to rise by 6-7% this year, more than five times the predicted annual rate of inflation, according to a new study.

The research, which was carried out by consultants Mitchell McDermott, shows that prices are being driven higher by increases in wages and labour shortages.

Based on the research an office building which cost €20m to build in 2015 would cost €25m in 2019, an annual average increase of 6.7%. Director Paul Mitchell said poor worker productivity was one of the surprising issues highlighted in the study.

Not only are we facing a serious shortage of workers in the sector, we are also facing a shortage of foremen to supervise those workers. As a result, many contractors are reporting a sharp drop in productivity which is resulting in increased costs and missed deadlines.”

While general operative rates increased by 2.5% last year, wages for Mechanical and Electrical labour increased by 9% and are predicted to grow by a further 5% this year, twice the general operative rate. The increases are being driven by lack of supply and while more people are coming home, the sector is desperately short of a variety of workers including consultants, carpenters, electricians and labourers.”

The new Nearly Zero Energy Building regulations will impact on design and costs as will new rules on disposal costs for site excavation. The backdrop to this price inflation of course is the supply constraint issue.  Contractors’ books are filling up quickly each year and as a result they are applying a premium to projects which involve more risk” he said.

Construction Output

According to the research, which is based on 68 construction projects valued at over €1.4bn, construction output for 2018 is forecast to be €21bn, an increase of 16% on the €18bn output of 2017.

The sector is now employing 147,000 workers but significantly more will be required in 2019 to meet market demands. A recent IBEC report suggested that between 60-80,000 more workers will be needed by the industry.

Bumper year for apartment permissions

One area where the study predicts rapid expansion is in apartment construction. While there is very little new apartment development actually delivered, the study says there is a considerable amount in the pipeline and it forecasts 2019 will be a bumper year for planning applications.

Mitchell said that given the extent of the housing crisis this is a very positive development.

Apartment construction is slow, but product is coming. The Government set about making changes to the apartment building guidelines in March of last year and these changes made apartment development more viable and are now bearing fruit. An increase in supply will help alleviate the housing supply situation while rents should stabilise and become more affordable in the medium term.

The study found that while hotel and office construction in Dublin is well on the way to meeting demand, student accommodation nationally still has a way to go and while housing output is increasing, it is still way short of meeting demand.

The Central Bank’s Macro Prudential rules are having the desired calming effect and the stabilisation of house prices is positive for consumers. New housebuilding is viable in the Greater Dublin Area and commuter belt and the increase in supply of suitable housing schemes is most welcome” Mitchell concluded.