Timber prices rise 5%, fuelling inflation in construction costs

Construction timber costs are rising following a shortage in supplies sparked by forestry licensing delays.

Tree-felling, planting and building roads to transport logs all require licences under Irish law, but delays by the Department of Agriculture in issuing these permits stalled forestry activity last year.

Figures issued this week by multinational quantity surveyor Linesight show that timber prices are rising by 4 per cent to 5 per cent, making it one of several building materials whose costs are increasing ahead of construction inflation.

Linesight predicted in its Ireland Handbook 2021, published this week, that construction costs generally could rise 3 per cent this year, but warned that the cost of some materials could increase beyond this.

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The firm forecast a price rise of up to 4 per cent for concrete, increases of 6 per cent to 8 per cent for insulation, 4 per cent to 5 per cent for copper cable and 3 per cent to 4 per cent for some aluminium materials.

At one point last year sawmills estimated that the forestry licensing delays had stalled the production of 1.1 million cubic metres of wood, enough timber to build 50,000 new homes.

Imelda Hurley, chief executive of State forestry company Coillte, which supplies three-quarters of sawmills' needs, recently acknowledged that the department was beginning to deal with the problem.

However, she warned that it would take the rest of this year for the entire Irish forestry industry to return to normal.

Applications

The Oireachtas passed a new law in the autumn streamlining the licensing and appeals process. The department has also begun hiring new staff to deal with the volume of applications and appeals.

Tackling the licence backlog is a one of four key aims of a new Government forestry industry strategy begun in February by Senator Pippa Hackett, Minister of State for Agriculture.

Linesight says that Brexit is also contributing to construction inflation. However, the firm notes that building workers’ wages are relatively flat, while contractors are taking a conservative approach to tendering for work as a result of the uncertainty sparked by ongoing Government pandemic restrictions.

Consequently, the firm believes the prices bid by contractors for work will not rise dramatically this year. “In light of this, Linesight’s updated projection for tender inflation for 2021 is in the range of 1.75 per cent to 2.25 per cent,” its handbook says.

It cautions that these figures assume that building will restart this month, while the Government’s Covid vaccination programme will lift activity in the second half of the year.

Around 60 per cent of the Republic’s construction industry remains locked down under the Government’s Level 5 restraints until April 12th, when private house building and other work will restart. Full reopening is possible in May.

Output

Building tender prices increased 2 per cent last year, the firm notes. That was a sharp fall on the 6.5 per cent growth recorded for 2019.

Linesight calculates that construction output could fall €3 billion this year, bringing the total drop since 2019 to €5 billion.

This year’s €3 billion fall could reduce the State’s tax take from the industry by €420 million, while it could knock €2 billion off economic expansion, the firm says.

However, Linesight believes that the work delayed as a consequence of Government lockdowns will ultimately be completed.