Labour shortages now main driver of construction inflation, says SCSI

Inflation in the construction sector moderates ‘significantly’ over the past year, falling by a third in the first half of 2023

Inflation in the construction sector has moderated “significantly” over the past year, falling by a third in the first half of 2023, according to a report by the Society of Chartered Surveyors Ireland (SCSI).

The society, which represents professionals in the property, construction and land sectors, said that as supply chains and energy costs stabilise, the main driver of inflation in the sector is now the shortage of skilled labour.

The latest Tender Price Index published by the SCSI on Friday shows that the rate of commercial construction inflation increased by 2.4 per cent in the first six months of 2023, down from 3.7 per cent in the second half of last year.

The index also highlighted a fall in the annual median rate of inflation, which was 6.2 per cent between July 2022 and June 2023, down from 11.5 per cent in the 12-month period from January 2022 to December 2022.

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This is a further decrease from record annual median inflation of 14 per cent between July 2021 and June 2022.

Donal Hennessy, chair of the Quantity Surveying Professional Group in the SCSI, said that as supply chains and energy costs have stabilised, the availability of labour is now the “dominant concern” for the sector.

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He said that rising labour costs, driven by skills shortages and wage demands, are applying “significant pressure to tender price inflation”.

Welcoming the Careers in Construction Action Plan launched by Government earlier this week, Mr Hennessy said the issue needs to be prioritised and will “require continual focus for the foreseeable future”.

The society said skills shortages are particularly acute in the mechanical and electrical services areas, where resources are in high demand from the pharma and commercial sectors, followed by “wet trades” such as plasterers, block layers and tilers.

Chartered quantity surveyor Kevin Brady said while the prices of most materials were levelling off, concrete prices are continuing to rise.

“This is a real concern for the sector, particularly given the Government plans to introduce a ‘concrete levy’ in quarter three,” he said.

Mr Brady said an ongoing need for new infrastructure and construction projects is driving up construction activity and tender prices, but that barring any economic shocks the society expects a continuation of low single-digit growth in the medium term.

“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,” he said.

Ellen O'Regan

Ellen O’Regan

Ellen O’Regan is an Irish Times journalist.