October 1, 2021 By Retention Back
He’s talking about the rising material costs in construction projects across the entire industry, public, commercial and most importantly, residential.
“It’s an unprecedented phase of disruption the industry has ever faced in terms of material supply and material cost increases.
It’s not a new issue but rather something that has been building throughout the year due to any number of factors and industry research data is out of date as soon as it is published. A widely circulated Irish Home Builders Association (IHBA) market survey published in May 2021 was no longer accurate two months later for tendering in July, such was the pace of price inflation.
CFI and the Society of Chartered Surveyors in Ireland (SCSI) point to industry stockpiling due to fears of a hard Brexit in 2020 as providing initial relief to Irish supply constraints but this gave way immediately to winter Covid lockdowns across Europe that closed factories and sawmills.
The blockage of the Suez Canal was another significant shock to the global supply chain that scattered scarce containers and jammed supply chains from Asia to Europe and beyond. Competing global demand in post-Covid recovery programmes between the US, China and the European Union (EU) is also placing further strain on recovering material supply culminating in what Mr O’Connell described as a “perfect storm” for the industry.
For construction workers operating in the industry, the supply shortages are resulting in significant delays, project cost increases and longer and longer lead-in times. Ivan McCarthy, a chartered construction manager with KPH Construction Services Ireland in Co Kerry said many contractors are resorting to stockpiling again but questions the sustainability of the current market.
The first question is how does this affect the homeowner. Mr McCarthy believes new mortgage holders are under serious financial pressure to complete projects as contractors struggle to meet costs. “The private individual constructing his own home, the cost of his build, if you rounded it all off, would be up 30% or 40%,” he said.
Kevin Brady, a chartered quantity surveyor and chair of the quantity surveyor professional group of the SCSI agrees with an added emphasis on labour shortages contributing to project delays.
Another major issue identified by the society is suppliers unable to commit long term to a commodity’s price.
“Some of the suppliers aren’t holding their price. So there may have been a three month period for holding a price for a larger-scale project in a residential house that has now been reduced down to weeks, that is a concern and in some instances that can be less than weeks,” he said, “that is obviously an issue in the market”.
But what are these materials? And what kind of price increases are resulting from rising inflation as a result of supply constraints?
“PVC, insulation, timber and steel, they’re the four big ones and there’s spin-offs as well,” said Kieran McCarthy, designer and build director of KMC Homes in Co Cork.
“Material costs are a really big proportion of project costs. It really is down between material and labour,” he said. “And it is bleeding off into all forms of construction then, if timber is going up then things like cardboard packaging is going up, there is a whole raft of related industries that might be going up for whatever reason,” he said.
Some of the price increases and the change of speed are eye-watering.
An August report from project managers Turner and Townsend described price increases of 34.2% for reinforced steel while a procurement survey conducted by Sisk group construction company found the price of softwood timber had increased overall by 60% since 2019.
The same report said the length of time to complete a project remained adversely affected by these challenges as well as Covid-19 restrictions with 37.5% of the surveyed contractors reporting that their projects had increased in duration by five or more weeks.
“Lead in times have also dramatically increased in the last six months with the majority of respondents reporting average lead-in times in excess of three to four weeks,” said Mark Kelly, Manager Director Ireland.
All of this is happening well ahead of inflation in Ireland which hit 2.8% in the most recent report from the Consumer Price Index (CPI) published by the Central Statistics Office (CSO) The SCSI is reporting the start of some price stabilisation but said how long it lasts is questionable. Mr Brady points to the reliance on imports for construction materials and the risks further shocks to the global supply chain can have on the cost of materials.
There are also risks of delay as Ireland competes against larger importers for construction materials.
“This, in turn, increases the cost of delivery of a home or housing project in a residential setting,” he said.
And that is the big question that hovers over every discussion on construction and housing- housing prices. Between mortgage financing, procuring a site, and funding operational costs, spiralling material prices and extended delays as a result of labour shortages could jeopardise homeowners projects even after mortgage approval.
In the immediate term rising material costs for the construction industry are going to filter into prices, said CFI’s Mr O’Connell “and even into prices later on this year” as profit margins will be affected which in turn poses issues for providers of funding capital.
“A construction builder is a conduit for these prices. In other words, if the price of the raw materials or the price of doing business increases that has to be passed on to the customer,” he said.
Isn’t it all going to settle down eventually though? As global supply improves and market efficiencies resume prior to the Covid-19 pandemic, the SCSI is optimistic that some improvements are coming despite their current concerns.
“The society is concerned but from a society perspective this is going to stabilise, markets are going to settle down and return to some sort of normality possibly within the next 12 months,” said Mr Brady.
The building director of KMC Home’s is also positive that some signs of stability in timber prices are returning.
“Hopefully and with fingers crossed it may begin to level in terms of timber,” said Mr McCarthy.
He has identified a longer-term structural issue that is going to plague the construction industry even further after material costs and the Covid-19 pandemic. Ireland’s shortage of skilled labour in trades.
The SCSI has also come to this conclusion and believe this is impacting every type of construction project from residential building to home renovation.
“Labour shortages are now becoming a big problem for construction projects. Materials and price increases are one part.
“Labour is having a significant effect which in turn could affect the delivery of your 30 or 40-metre extension to your house,” said Mr Brady.
With a government housing programme launched just two weeks ago, aiming to spend €4bn a year aiming to deliver 300,000 homes by the end of 2030, with 33,000 per year being built by 2025, industry figures are still pointing to bureaucratic barriers impeding their construction projects.
A major source of supply constraint on timber according to the CFI is a Department of Agriculture backlog on forestry permits.
Not labour shortages and global supply disruption but administration and regulation undermining the foundations of an industry critical to the economy and quality of life in Ireland.
TUE, 28 SEP 2021 – 21:09 CIARÁN SUNDERLAND