Michael McGrath: 'Inflation and labour shortages are slowing down homebuilding'
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Rising material costs and labour shortages are suppressing home building in Cork and across the country — and a significant percentage of homes granted planning permission are not being built, according to Cork County Council.
Public Expenditure Minister Michael McGrath said volatility in construction material costs is a concern.
He said the construction sector faces very serious challenges, including rapid material inflation, supply chain bottlenecks, and labour shortages, and added:
“From a 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.
“I am really conscious of the impact of hyperinflation in construction materials.
“In May of this year, I introduced the Inflation Co-operation Framework, which allows for the increase in the cost of energy and materials to be apportioned between the parties with the State bearing up to 70% of the additional inflationary-related costs.
“I think it is having some positive effect, but we will keep it under review.”
A wider review of public works contracts is currently under way, he said, and he anticipates further permanent changes to public works contracts, particularly around price variation.
"We have to ensure that taking on public works contracts is a viable proposition for the industry," he said.
However, despite current challenges, the industry is growing post-Covid, with approximately 167,000 full-time and part-time workers in the construction sector as of Q2 this year. This represents the recovery of some 40,000 jobs over a 12-month period, Mr McGrath said at a recent Construction Industry Federation conference in Cork.
The National Development Plan, with €165bn of public capital investment will bring public investment in Ireland to about 5% of our national output per annum, compared to the European average of about 3%, he said.
“Our population is growing, and growing quicker than most anticipated,” he said. “The census gave us up-to-date stats in terms of a population of over 5.1m people, the highest population that Ireland has had since 1841.
“We have net inward migration to Ireland despite all of the challenges that we face. It is an attractive place still for people to come to live and to work.”
Mr McGgrath said: “It is a key Government priority to build the strength of urban areas here in the southern region, Cork, Waterford, Limerick, and so on in line with Project Ireland 2040 to act as a driver of growth for the region and to act as a counterbalance to the economy of the greater Dublin area.
"So this region here will be a very significant beneficiary of the capital investments that I have touched on.
"If you take our own city and county here in Cork, for example, major projects either currently under construction or in the pipeline include €600m for BusConnects Cork, following an extensive public consultation process.
“Housing is a top priority for this Government. We need to continue to drive the supply of new residential units.
"We do grasp the scale of the challenge. It is enormous. And it is growing because of the rising population.”
Building more homes is now both an urgent social need and is critical to maintaining economic growth, as attracting more foreign direct investment requires increased residential capacity, he said.
The Government has committed €4bn annually in capital investment to increase supply nationally, anticipating 24,000 to 25,000 units this year — up from 20,000 units in each of the last two years, he said.
“We need to get that level of output up, we need to get it to 30,000 and beyond to meet the needs that are there,” said Mr McGrath.
Labour shortages also continue to be a significant issue for the construction sector, he said.
“An additional 27,500 workers are needed to deliver the minimum 33,000 homes per annum we require under the development plan,” he said. “And that really is in addition then to the thousands of people we will need for retrofitting.”