HISCo CEO Update

Uncertainties creating challenges for the residential construction sector

During normal market conditions, when you are producing a product which is in high demand, you would expect your business model to be extremely successful. Unfortunately, the Irish Residential Construction Sector is not experiencing normal market conditions. As the challenges posed by the COVID-19 pandemic begin to subside, house builders in Ireland are now faced with the problem of rising costs for essential materials. It is well documented how these are increasing on an almost daily basis due to supply chain challenges, related to the ongoing war in Ukraine and to legacy issues following on from the pandemic. Contractors are also experiencing delivery delays, adding to the growing uncertainty in the industry.

These fluctuations in material costs provide builders with a serious challenge when they try to price a job or prepare a tender. It is creating new challenges for contractors that are trying to deliver housing under a fixed price contract for a local authority, particularly when the tender was probably prepared 9-12 months ago. The same issue arises for any contractor trying to deliver infrastructure for a state agency under a Public Works Contract.

The Construction Industry Federation have strongly advocated on behalf of the sector with Ministers in the Departments of Housing and Public Expenditure and Reform. To be fair to those Ministers and their officials, this is a difficult challenge to overcome. Ultimately, the additional financial burdens will be borne by the State, and this comes after the phenomenal amount of financial support the Government provided for all those impacted by the pandemic.

Credit must be attributed to some local authorities who have recognised the pressure being experienced by the providers of social housing, and have built in an annual review of unit prices which will be linked to the Construction Cost Index.

When you also consider the number of Judicial Reviews being lodged challenging the validity of planning decisions, you begin to realise how much uncertainty exists in attempting to plan a residential development. Once a Judicial Review application is lodged then a developer must await a hearing date in the relevant court. While there is an obligation on the courts to hear a Planning Judicial Review application as quickly as possible, there is no method for a developer to calculate how long the proceedings will take.

As all Stakeholders in the Residential Development Sector in Ireland try to meet the targets set in the Government’s “Housing for All” plan, it is important that we identify any area that can be streamlined to speed up the delivery of much needed accommodation. The recently enacted  Planning and Development (Amendment) (Large-scale Residential Development) Act 2021 attempts to take the positive elements of the Strategic Housing Development Regulations 2017 and improve the Planning Decision Process. This new piece of legislation restores the primary decision making powers for residential developments of 100 units or more to local authorities. It also reintroduces the time bound appeal process to An Bord Pleanála.

Notwithstanding the impact of global matters beyond our immediate control, it is incumbent on all of us involved in the residential development industry to ensure we do what we can to eliminate uncertainty in the delivery process.