‘Customers have dropped projects, because they just can’t afford it’

Builder Tom O’Sullivan has changed the way he does business; he has had no choice. When pricing a job, he offers clients an initial price but then meets them four to six weeks before works starts to offer the final bill that takes latest inflation into account.

Generally customers are understanding, O’Sullivan tells The Irish Times: “Nobody is living under a stone — everyone planning an extension, or a refurb is acutely aware of price and construction inflation.

“I met one potential client recently and gave him the revised figure and he said to me, he thought it would be worse — he was expecting a 20 per cent hike, but it was 15 per cent,” says O’Sullivan, a director of Titan Construction based on Curragh Road near Turner’s Cross in Cork.

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“You are dealing with ordinary people who have only so much money. You are trying to give them their dream, but when you walk into a meeting and tell them things are costing €20,000 or €30,000 more, I’m not saying there are tears, but you are bursting their bubble and they are gutted,” he says.

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The latest official statistics reported that all building materials jumped on averaged by up to 16.9 per cent year on year, but some products have gone up by even more, with timber rising by 46.3 per cent and structural steel up 64.1 per cent.

Consequently, O’Sullivan has narrowed his range, concentrating operations in Cork city to cut down on travel and transportation costs for the business, his staff of 10 and the 20-30 subcontractors they usually work with.

“We could have eight to ten projects on the go, all at different stages, some near finishing, others just starting,” he said, adding that his “rule of thumb” when gauging prices that his costs have increased by a quarter in just 12 months.

O’Sullivan blames a combination of factors: Brexit, the slow pace of Coillte issuing licences to fell Irish forests for construction timber, the Suez Canal blockage, the war in Ukraine pushing up fuel and energy prices.

Together, they have created a perfect storm. Timber prices have recently stabilised, he said, while the price of sheets of steel has levelled off recently, too, after jumping from €40 a sheet to €120, but insulation slabs are the latest product to jump dramatically in price.

One suppliers has told him to expect a 20 per cent increase in July, blaming higher energy and transportation costs: “I have heard of one manufacturer, and it was costing them €1m a month last year to run their factory. Now, it is costing them €3m a month.”

[ Developers put home building on hold as costs soar — surveyor ]

O’Sullivan’s customers do not have unlimited budgets: “They might have €100,000 or €150,000 for the job. They can’t go back looking for extra money from the bank. That means that customers have dropped projects, because they just can’t afford it.

“It’s not like in the public sector where if a project jumps in price, the builder can get a letter from the supplier, and they can get their money increased under this new Government initiative, the Inflation Co-operation Framework to ensure builders tender,” he says.

With three interest rate hikes likely in the next six months, O’Sullivan believes that even smaller jobs, such as extensions, could be affected if their cost rises by “perhaps €30,000 or €40,000″.

In addition, supply problems, caused by Brexit and other issues, means that jobs are taking longer to complete, leading to occasional shortages of materials and offer chances to larger builders who buy in bulk to get in ahead of smaller operations.

“Time is money — whereas before we might be finishing a job in six months, now it might take seven months. That’s an extra cost — whether it’s another month’s diesel in transport costs going to the site or even providing welfare facilities, another month renting toilets for the lads,” he goes on.

Labour costs have jumped, too: “Subcontractors have no choice but to up their rates. Lads that were, say looking for €28/€29 an hour are now looking for €35. Masons and plasterers are thin on the ground, so if you want them you have to pay them, or they will start somewhere else.”