Tuesday, 15 June 2021
Department of Public Expenditure and Reform
415. To ask the Minister for Public Expenditure and Reform the degree to which inflation has affected the construction sector; the actions needed in response to same; and if he will make a statement on the matter. [32078/21]
The Construction Sector Group (CSG), established in 2018 and chaired by the Secretary General of my Department, ensures regular and open dialogue between Government and the construction sector. Its remit includes, but is not limited to, considering opportunities to introduce reforms within the sector that will help in controlling construction price inflation.
To support the work of the CSG, an annual "Build" Report was produced by my Department in 2019 and 2020. The purpose of this report is to give a comprehensive overview of the performance and prospects of the Irish construction sector, based on the available official statistics and data. The report aids in monitoring of trends across the sector, ranging from output and investment to employment and cost inflation, so that risks and performance issues can be identified and addressed where necessary.
Inflation measures how much more expensive a set of goods and services becomes over a certain period of time. A number of measures relating to inflation in the Irish construction sector are detailed in the Build Report. The data included in the report is mostly obtained from the Central Statistics Office.
Two major costs for the construction industry are the cost of materials and the cost of wages.
Inflation in the cost of construction materials can be measured through the Wholesale Price Index. As for the wage inflation, this has been measured by monitoring average hourly earnings for the construction sector.
The Wholesale Price Index (WPI) for Building and Construction Materials provides a general indication of price trends in the sector. WPI essentially measures the changes in the prices of goods sold and traded in bulk. In April 2021 the WPI for Building and Construction Materials stood at 3.4% on an annual basis. However within this there are certain materials which have seen elevated levels of inflation such as timber and steel.
Average Hourly earnings for the construction sector (includes all employees of construction) increased by 9% between Q1 2020 and Q2 2021.
The Society of Chartered Surveyors Ireland Tender Price index reveals that national construction tender prices increased by 1.3% in the second half of 2020, up from 0.9% in the previous 6 months. The results indicate a slight rebound of tender price growth in the construction sector, with national annual inflation now at 2.2% (Jan 2020 to Dec 2020), however it is still significantly less than tender price inflation levels pre-Covid. The Index is the only independent assessment of construction tender prices in Ireland. It is compiled by the Quantity Surveying members of the Society. The Tender Price Index (TPI) is based largely on sentiment returns with actual tender returns included in the calculations. The TPI is for non-residential projects during the period in question. It is based on predominately new build projects with values in excess of € 0.5m and covers all regions of Ireland. The Index relates to average price increases across differing project types and locations.
Overall, while there was elevated construction sector inflation in 2019, construction price inflation has slowed overall in 2020 as a result of Covid-19. Elevated levels of inflation possesses risk for the construction sector and wider economy as a whole by undermining value for money.
There are two primary channels through which inflation in the construction sector can be addressed; by reducing demand through lower levels of investment or by supporting the increase of supply.
Industry is being supported by the Government to expand its capacity with three broad policies: communicating for industry confidence, securing the skills pipeline, and driving innovation. Specific actions include a new apprenticeship action plan, the work of the Expert Group on Future Skills Needs, the funding and establishment of the Build Digital Project to drive digital adoption across the built environment sector and work by Enterprise Ireland to assess the potential for a Construction Technology Centre.