A critical “skills shortage” in the construction sector is driving the rapid growth in wages, quantity surveying firm Buildcost has said.
Director Liam Langan said a lack of manpower across the industry was “putting pressure on salaries”.
There are approximately 170,000 workers in the construction industry here, down from 237,000 at the height of the Celtic Tiger period.
Mr Langan noted that the recent surge in wage growth was also fuelled by a sectoral employment order (SEO) that came into force in August, which boosted salaries for craft people, operatives and apprentices by 3.4 per cent.
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“Labour makes up 30-40 per cent of the construction cost, so an increase of 3.4 per cent to labour rates will add somewhere between 1-1.5 per cent to construction costs in the second half of this year alone,” Mr Langan said.
In a report last week, the Economic and Social Research Institute (ESRI) cautioned that the economy was operating near full capacity, with evidence of overheating in the construction sector.
It noted average hourly earnings in construction rose by 10 per cent in the second quarter of 2025 and that this put the State’s housing targets and the National Development Plan at risk.
Tender price inflation in the construction industry peaked at 11 per cent in 2022 on the back of the energy price shock but has subsequently fallen back to 3 per cent.
This inflation is now being driven more by labour increases rather than materials, Mr Langan said, while warning it will have an impact on housing delivery.
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“It will put pressure on margin for developers. Ultimately the cost will be passed on to homeowners looking to purchase these homes,” Mr Langan said.
“For local authorities, where fixed budgets are already approved, it may lead to less homes being built.”
The Government has set a target of building 303,000 homes between 2025 and 2030, when its term in office is due to end. The revised targets would mean delivering an average of 50,500 homes per year.
But a slowdown in construction has now put these targets at risk.
“As evidenced by the recent rise in construction wages, the sector is unlikely to have the capacity to simultaneously increase housing output substantially, invest in critical infrastructure, and retrofit and renovate the existing housing stock at full employment,” the ESRI said in its report, while warning that trade-offs will have to be made.
“The trade-off is we build fewer homes for a fixed budget or spend more taxpayer money to cover inflation and ensure that housing targets are achieved,” Mr Langan said.
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“The State cannot build more homes at lower or current costs, with higher wages, especially when working within fixed budgets. The other alternative is for the State to increase subsidies such as help-to-buy schemes, affordable purchase schemes etc, to enable buyers to purchase their homes.”
In terms of possible solutions, Mr Langan said the State needed to expand apprenticeships for trades such as mechanical, electrical and carpentry.
He noted that the increase in wages would assist with retaining workers.
