Rising construction costs and the residential real estate market in Ireland

Construction costs are a key factor to consider when analysing the residential real estate market in Ireland given their impact on housing supply. This Note examines longer-term trends in construction costs in Ireland and shows that these costs have increased steadily over the last twenty-five years and faster than general inflation over the same period. The increase in gross construction costs over this time was driven primarily by cost inflation in two periods, namely the early 2000s and the increases observed since March 2020. Some of these patterns have been accentuated by changes to the tax regime over the period 1998-2008. In the last two years, construction costs in Ireland have increased substantially owing to the impact of the COVID-19 shock and the war in Ukraine on the costs of building and construction materials. Although there are challenges with cross-country comparisons, drawing on a number of data sources and a recent bespoke questionnaire issued to stakeholders in the Irish construction industry, the Note shows that construction costs in Ireland are at the higher end of the price spectrum in Europe. The outlook for construction costs in Ireland remains challenging with expectations of further increases in costs owing to a number of factors including supply chain issues as well as increases in commodity prices.