Ongoing supply chain issues and rising inflation, coupled with a record interest rate increase by the European Central Bank (ECB) last week, poses a “monumental challenge” to meeting annual housing targets, according to Cork construction bosses.
Speaking at the Construction Federation of Ireland’s (CFI) Southern Construct Summit & Exhibition 2022, leaders in both the private and social housing sectors said that the rising cost of building homes is creating a core viability issue in the industry.
Conor O’Connell, Director of Housing with CIF, said that Brexit, the pandemic, and the war in Ukraine have caused an “unbelievable disruption to material supply, availability, and cost” for housing development.
He added that as the ECB has raised interest rates by an unprecedented three-quarters of a percentage point, “many projects are subject not just to a material cost increase, but also the double whammy of the interest rate rises and the effect that has on development finance”.
Respond, Ireland’s leading housing association that provides social, affordable and cost rental homes, has reported a significant drop in the number of homes it has been able to commence this year, due to spiralling costs.
Parag Joglekar, Head of Development with Respond, told the southern construction conference that 2022 has been the third year of “challenging times” that have had an impact on construction commencements.
Last year, Mr Joglekar said that around 750 homes were commenced by Respond, while to date this year the number is less than 200.
While it is expected that a further 200 homes will be commenced by the association before the end of the year, the final tally will still be significantly lower than last year, reflecting a “number of viability issues”, according to Mr Joglekar.
“We've definitely seen the viability issue having an impact on construction commencements,” he said, adding that approved housing bodies such as Respond are in dialogue with the Department of Housing and Department of Public Expenditure and Reform, “to look at that whole viability of funding and kickstarting construction”.
He added that “joined up thinking” would be needed between different bodies to strengthen the housing construction industry to “absorb future shocks”, such as those currently being experienced.
Michael O’Flynn, Managing Director of O’Flynn Construction, said that the private sector is also anxious about rising construction costs.
“We are really, really struggling to produce housing at affordable prices… costs are going up, and funding costs are now becoming a factor… we have a core viability problem in housing. If it doesn't work on a calculator, it doesn't work,” he said.
He added that “there is no doubt” the number of houses completed this year is going to fall “well short” of the 33,000 per year target set in the government’s Housing for All plan.
Minister for Public Expenditure and Reform, Michael McGrath, said that he has heard the concerns of the industry about rising costs, supply bottlenecks, and a heightened sense of uncertainty.
“It makes it difficult for contractors to plan properly for pricing jobs, and then to be able to complete live projects. From the public sector point of view, we have introduced a new inflation co-operation framework whereby we are prepared to share the burden of the extra inflation with the industry, and I think that appears to be working well,” he said.
“But the volatility of construction materials is a concern, it does feed into uncertainty, and that’s never a good thing when you’re trying to increase the pipeline of projects. We’ll work with the industry and see what we can do to try and alleviate that,” he added.