According to the SCSI’s index – which is the only independent assessment of construction tender prices in Ireland – the national average inflation rate increased by 2.8% in the second half of 2019, down from 3.4% in the first half of the year. This brought the annual growth rate to 6.2%, down from 7.1% in 2018 and 7.5% in 2017.
The survey, which is based on a combination of a member sentiment survey and tender returns, was conducted pre-Covid-19. Given the uncertainty that the virus outbreak is having on the domestic and global economy, the SCSI decided not to include the usual six month forecast.
Fig 1. The SCSI Construction Tender Price Index. As the graph above illustrates construction tender prices have risen steadily since their post-recession low in 2010/11.
Chartered Quantity Surveyor Micheál Mahon, Vice President of the SCSI, said the impact of the Coronavirus on the sector and how best to respond to it were the key issues for the construction sector.
Mr Mahon said it was critical that Government take on board the harsh lessons learned from previous crises, especially the financial crash of 2008.
“It’s inevitable the Coronavirus will have a significant and immediate impact on the construction sector. The situation is evolving so quickly that no one can predict with confidence what the scale of that impact will be, but that fact alone is causing huge uncertainty in the market. We can already see investment is slowing and some decisions are already being delayed in the commercial, hotel and residential sectors”
“While work has been suspended on non-essential sites as part of measures to contain the spread of the Coronavirus, we believe it is vital that finance and planning for state projects which are being progressed at the moment should continue as much as possible in the current circumstances. Issues in housing, health and infrastructure will still be with us when we come out the other side of this crisis. If projects are shelved it might take 18 to 24 months to get teams back working and up to current levels.”
“The construction sector employs 150,000 people and the value of construction output is estimated to be €23bn. It’s importance to the Irish economy is clear. When the financial crash occurred over a decade ago, Ireland faced massive financial and budgetary challenges. It’s clear we will face very significant challenges in the aftermath of this crisis which is why it’s so important to ensure plans are put in place for the post-Coronavirus landscape.”
“The current housing shortage, our infrastructure deficit, particularly in health, and widespread skills shortages can all be traced back to the failure to plan for the economic recovery in the post-crash scenario. That cannot be allowed to happen again, and it would give the sector some confidence if Government could demonstrate such planning was in train” he said.
Skills shortages driving price increases
Mr Mahon said the main cost drivers for tender price inflation now and over recent years remains the skills and labour shortage.
“After the financial crash apprenticeships fell off the cliff and there was an exodus of skilled workers and professionals. We’ve been struggling with a skills gap ever since. Labour shortages have put upward pressure on construction inflation and given the huge demand in the sector for construction services, prices have continued to rise. The fact that capacity within the sector has been increasing as our economic recovery gained pace is a positive, so we believe if we can maintain momentum, we should be able to bounce back and scale up quickly” he added.
Regional Disparity
The indices represent national average figures; however, the rate of increase was not uniform across the country. The SCSI said that whilst the second half of 2019 saw a further easing in tender price inflation, the Rest of Leinster was the outlier with tender inflation of 3.6% for the last six months of 2019. It believes this was driven by increased demand from foreign direct investment and residential sectors in the counties surrounding Dublin.
