The cost of building a two-bedroom apartment has risen 14% since the start of the pandemic, according to a report by consultants Mitchell McDermott.
The study estimates that the cost of construction of a mid-range, two-bedroom apartment is now €219,000, an increase of €26,876 since before the pandemic began in early 2020.
The company calculated that between building costs, indirect costs, parking areas and VAT, the total cost of building an average apartment is now €440,000, and it has forecast a further increase of 3% or €6,000 this year, if particular cost drivers materialise.
The biggest driver of price increases has been raw materials, the cost of which have surged due to supply chain disruption caused by Covid-19, with the cost of timber up 86%, windows 61%, steel 52% and sanitary 20%.
Construction inflation averaged 10.7% in 2021, a three-fold increase from the 3.4% measured in 2020, and Mitchell McDermott said inflation could rise as high as 6-7% as a result of the war in Ukraine.
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One would expect a lot of the cost spikes to correct themselves in the short to medium term once supply chains return to normal," said Paul Mitchell, director of Mitchell McDermott and a co-author of the report.
"That said the situation in Ukraine will cause additional supply chain issues for certain materials."
The report also found that the number of judicial reviews of Strategic Housing Developments rose by 30% year-on-year, leading to delays on 26,151 units that had been granted planning permission.
"While the country aspires to build more houses, the harsh reality on the ground is it's just not going to happen unless we reform the planning process," said Mr Mitchell. "The SHD process has been in place for four years and in that time 30% - or some 28,000 units – have been stalled in judicial reviews.."
"A new 'Large-scale Residential Development’ (LRD) planning system has just been introduced, but judicial reviews will continue to be a feature and at this point there is nothing to suggest anything is going to change. That is a real concern."
He went on to say that once proposed restrictions on build-to-rent developments or on the proportion of units that can be rented in new developments come into force, it would damage the supply of new housing, with apartments accounting for a quarter of the 20,000 homes built last year.
The company estimates that 25,000 to 30,000 units will be built this year, rising to 35,000 in 2024 or 2025 in line with annual requirements.
"The caveats to that would be that we have a sustained effort with no surprises or changes in regulations," Mitchell said. "We will also need 10 to 15,000 more construction workers and sourcing those will be a challenge."
