Construction sector set to hit Celtic Tiger levels

A new review predicts the value of construction output will jump from €27 billion to €32 billion this year. That’s a jump of 18.5 per cent and just €6 billion short of levels recorded at the height of the Celtic Tiger.

However the volume of output remains behind what it was 15 years ago, evident through employment figures and annual house completions, once inflation is accounted for.

The annual construction industry review was recently by infrastructure consulting firm AECOM.

AECOM is hopeful there will be no further lockdowns resulting in construction site closures in 2022 and that unlike the last two years, the industry will have a full 12 months of activity. AECOM says the planned capital investment by the Government of over €11 billion, as included in Budget 2022 and Ireland’s 2040 update of the National Development Plan should provide a strong backbone for the industry to grow to such levels.

However, AECOM is warning about some significant challenges ahead for the industry.

When it comes to housing, AECOM is predicting the residential sector, driven by strong public expenditure, is on track to significantly increase completions this year and should well exceed the Government’s Housing for All target of 24,600 units coming off the back of 32,000 commencements in 2021.

This compares to 21,068 in 2019, 20,500 in 2020 and what is expected to be a similar level in the 2021 outturn figures. This is well short of what the market needs.

AECOM says cost and tender price increases in 2021 saw many residential projects come close to the viability tipping point.

The company say there is significant pressure on the construction sector to rapidly expand output to meet targets in terms of housing and infrastructure delivery. A critical issue is providing the necessary skills for the sector given the pipeline of work to transform and transition the Irish economy as outlined in the National Development Plan and the Climate Action Plan.

2021 saw AECOM’s tender price index increase by 10% due to a combination of material price and labour cost increases. A shortage in skilled labour for key trades is a problem that pre-dates the pandemic but has been exacerbated by Covid-19.

Director of AECOM Ireland, John O’Regan said: “Overall, 2021 was a stable year for the construction sector. When it comes to construction costs and tender prices, the outlook for 2022 remains uncertain because of continued volatility in the market and the potential unknown impacts of another Covid-19 wave.

“2021 saw the rate of increase in material prices increase higher than at any other time in recent history with the cost of key materials like steel, timber and electrical fittings increasing significantly. Due to increasing energy costs and logistic supply chain issues, it is unlikely that material prices will reduce or remain stagnant.

“Taking all of this into consideration, we expect construction cost inflation of approximately 3% this year and tender price inflation of approximately 5%. Overall, we are hopeful, albeit with an element of nervousness about the year ahead, but we can’t ignore the fact that we are facing a number of significant challenges particularly in relation to the supply of labour which must be addressed to make sure we can meet demand.”