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Market Stabilising, But Housebuilding Costs Up 24% Since 2020

Market stabilisation comes with ongoing concerns about rising costs.

Despite mixed sentiment among contractors, the Irish construction industry has reached a period of stabilisation, according to the latest market intelligence report from consultant Turner & Townsend.

It called that a “notable shift” from previous years' volatility, with 37.5% of contractors observing market stability, another 37.5% sensing a “warming trend” and 25% perceiving a “cooling phase,” the company said.

Housing was the top-performing sector covered by the report, with an emphasis on private housing, buoyed by government-backed initiatives, driving an upswing in the sector.

There has also been a deceleration in construction inflation, alongside a plateauing of interest rates. However, tender price inflation is expected to persist, albeit at moderate levels, as the industry continues to grapple with a range of challenges including skilled labour shortages, rising construction costs and extended lead times.

The demand for specialised skills in sectors like data centres, life sciences and industrial areas is particularly acute.

Contractors also reported limited engagement with net-zero commitments, with significant action observed in less than 25% of projects. High compliance costs and regulatory barriers were cited as major impediments in this area.

The first half of 2023 saw a tender price index of 2.5%, a cooling from previous years. The year-end forecast suggests a stabilisation of around 5%, though contractors anticipate materials price increases, notably for steelwork and concrete. Labour costs are also expected to rise modestly, reflecting the ongoing cost-of-living crisis and skill scarcity.

Those concerns were backed up by a separate report from the Society of Chartered Surveyors Ireland that found that the average cost of delivering a new three-bed, semidetached home in Dublin has risen by 24%, or €90K, to €461K over the past 3.5 years. 

The industry body’s latest survey found that the cost of building a basic three-bed house in a multi-unit scheme ranged from €354K in the north-west, the cheapest region, to €461K in the Greater Dublin Area, which includes Dublin and commuter belt Counties Meath, Kildare and Wicklow.

The increase was driven by a combination of hard costs on materials, up 27% or €49K on average, and soft costs including land, development levies, fees, value-added tax and developers’ margin, which rose by 21%, or €41K.