With building and materials cost inflation forecast of c.3.0% through 2026 and expected labour cost increase (due to Aug ‘26 SEO) in the range 3.2 - 3.5% in the same period, based on these assumptions I expect tender prices (for general building) to increase by up to 3.1% in 2026. This assumes that contractors targets gross margin of 7.1% given the expected level of activity in the market. With the forecast tender increase being in line with the past 2 years it is a good time to progress projects to take advantage of current prices.

The Irish construction sector in 2026 faces a unique situation: there is strong demand for housing and infrastructure, yet housing commencements have fallen by 80% in 2025. Extreme disruptions to supply chains seen in previous years have largely stabilised, new challenges have emerged for developers, contractors, and the public sector. These primarily revolve around rising labour costs and shifting material prices. 

As we have seen in recent years, and indeed months, in the current global environment things can change very quickly. With such a backdrop the key to success is staying focused and adaptable while looking to fix prices at Q1 rates.

Main Drivers of Construction Costs in 2026
A number of major factors are influencing construction budgets this year:

• August 2026 Sectoral Employment Order (SEO): New regulations have led to an increase in minimum hourly wage rates across the sector, affecting a broad range of construction workers.
• Evolving Costs Building Materials: Shifts in material pricing, especially for sustainable and energy-efficient products, are impacting overall project costs. Copper prices are near an all time high.
• Competition for pipeline: As companies look to have a strong pipeline of work to maintain capacity some margin reduction may take place to win work.  
• Geopolitical uncertainty: uncertainty about US FDI and energy cost linked to Middle East conflict.

Q3 Labour Impact: The 3.2% Wage IncreaseOn 1 August 2026, the implementation of the legally binding Sectoral Employment Order will happen. This order will result in a mandatory 3.2% wage increase for many construction workers, building upon a similar 3.4% rise in 2025. The ongoing wage increases are part of efforts to address the chronic shortage of skilled workers in the sector. Key Wage Changes Effective August 2026:

Worker Category & New Minimum Hourly Rate
Craftsperson (Bricklayers, Carpenters, etc.) - €23.74
Category A Worker (Skilled Operatives) - €23.03
Category B Worker (General Operatives) - €21.37
Apprentice (Year 4) - €21.37
 
In addition to hourly wage increases, employer contributions to pension and sick pay schemes are incoming. These additional "soft" labour costs are now a larger portion of total project tenders, particularly in the residential sector.

Material Costs: Navigating Stability and the "Green Premium"While global energy prices have eased, resulting in more stable prices for energy-intensive materials such as steel and glass, the market in 2026 will see a divergence in the costs of different building materials.

1. The Concrete Reality
Concrete remains a central source of inflation. The ongoing effects of the Concrete Products Levy, originally introduced at 5%, continue to be felt. Since concrete is essential to nearly every Irish building project, even minor cost increases will significantly impact overall project "hard costs." Energy price instability on account of the Middle East conflict will have significant impact on construction costs.

2. The "Green" Shift
There is a widening price gap between traditional building materials and their low-carbon alternatives. With stricter building regulations around carbon emissions, demand—and consequently prices—for sustainable timber, high-spec insulation, and carbon-neutral cement have increased. Prices for insulation and glazing remain high due to competition between deep retrofitting and new-build projects. Mechanical and electrical systems, such as heat pumps and advanced ventilation, have seen a 4–6% price increase in 2025, driven by global demand and the need for skilled installation labour, while copper, which touched an all time high at $14,527.50 a metric tonne on 29th January is forecast to remain high and volatile in 2026. 
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Outlook: Resilience Amid High Costs
Despite ongoing inflationary pressures, the sector is still resilient. The National Development Plan continues to inject significant funding, and the Society of Chartered Surveyors Ireland (SCSI) reports that, although tender prices are still rising (2.5% in 2025), the pace has become more predictable, with mid-single-digit increases rather than the volatility experienced in 2022 and 2023.

For both developers and homeowners, early procurement and the securing of fixed-price contracts are the primary strategies for mitigating the impact of upcoming Q3 wage increases.

The new apartment design guidelines were issued by the Government on 8 July, 2025.

There will be a number of  potential savings that could be made on existing schemes, however, the savings will vary a lot from scheme to scheme, depending on the unit mix in each scheme.

While the changes introduce some flexibility to apartment design, there is still an affordability gap and some financial support will be required to achieve viability prior to committing to a start on site.

​Our high level financial model looks to illustrate the quantum of savings that may be achieved per unit. Of course, one has to consider the impact on a total development of the new design guidelines and as such the overall mix of apartments will be critical. For example, the number of parking spaces will be closely linked to location and unit mix in addition to the price paid for land having to be apportioned across the total number of units.

The VAT paid by a purchaser on an apartment designed to the new standard will still be high ranging from €40k to €66k dependant on unit type - this contributes to affordability issues for purchasers.

​The high level indicative cost model can be accessed here

​ bit.ly/newapartmentstandardscost.

​Hope that it is useful and looking forward to getting feedback

With current uncertainty and volatility in the market it's important to review property projects and carry out a sensitivity analysis on a project's overall return by varying the original baseline assumptions. This may be particularly be the case where a project is distressed, being restructured or in advance of being offered for sale. Using as an illustrative example the case of the mixed use Camden Yard project in Dublin a sensitivity analysis should review the impact on return of as broad range of assumptions as possible in order to understand and quantify the risks in a project or ballpark what a site may be worth. ​

With a building and materials cost inflation forecast of c. 4.0% through 2025 and expected labour cost increase in the range 2.5% - 3.5% in the same period I expect tender prices (for general building) to increase by up to 3.4% in 2025 based on these assumptions. This assumes that contractors hold gross margin targets of 7% given the expected level of activity in the market. With this forecast tender increase being lower than that experiences in 8 of the past 10 years it is a good time to progress projects to take advantage of current prices.

With the LDA seeking applications for over 600 cost rental apartment in January there has again been much discussion on the level at which the rent is set. The target for the rents was set at least 25% below market rates in the area. 
 
It is called cost rental because the rent is used to cover the cost of constructing the accommodation over the life of a long-term building. It has proven to be a very effective way of providing housing in many European countries and is a part of the LDA’s housing delivery mechanism. Through the Project Tosaigh initiative the LDA are currently trying to unlock stalled developments and kickstart construction through partnering with developers and make homes available as either cost rental or for purchase through a shared equity scheme.
 
While there has been recent discussion about cost rental these is less visibility on how rents are set, however, in a January Oireachtas housing committee meeting[1] there was some interaction among the witnesses and committee members on how the rent level was set and why the rent was at the level it was. The high level and unaffordability of the proposed cost rental rents  (>30% household disposable income) was highlighted by some of the attendees. 

[1]https://www.oireachtas.ie/en/debates/debate/joint_committee_on_housing_local_government_and_heritage/2024-01-23/3/accessed on 1/2/2024

There are difficulties in achieving rents below €1,000 per month given the costs associated with residential projects and the level of subsidy required to drive down the rent level under this delivery mechanism. Using the LDA Barnwell Point development in Hansfield Dublin 15 as an example this article and the attached financial model looks to illustrate how the rent is calculated based on assumptions made from publicly available sources. The subsidy or grant required to bring the monthly rent below €1,000 is also calculated. ​

​LDA Cost Hansfield Cost Rental Scheme
Having obtained planning in 2018 and being completed in late 2023 the Barnwell Point development (part of the wider Hansfield SDZ) by McGarrell Reilly involves 247 apartments over 6 blocks on a 1.5 Ha site with 272 carpark spaces. The works include the construction of 70 No. Studio & 1 bed apartments; 164 No. 2 bed apartments; 12 No. 2 bed duplex units; and 1 No. 3 apartments. With my estimate of total construction costs for the 21,447 sq m GIFA scheme at €66.8M the total development cost is €85.2M inclusive of VAT and land.

A net household income of up to €66,000 makes you eligible for the scheme. The rent is linked to the cost of the build, and will remain stable despite any market increase. Tenants will pay €1,400 per month to live in the 2-bedroom Cost Rental  homes delivered as part of this project[1]. The rent of €1,400 per month, based on the cost of delivering and maintaining the homes, is a significant reduction when compared to market rents for 2-bedroom apartments in this location (<25%) The projects have been delivered through the LDA’s Project Tosaigh initiative. The completed development will be manged by a named management agent (not the LDA).

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Cost Drivers
The following are the costs that have to be covered when setting the cost rental rent level:

• Construction costs – The initial cost of developing the site and constructing the homes.
• Land Cost - although when provided by State usually zero.
• Maintenance costs – including planned, reactive and replacement costs for the estate and the buildings to cover wear and tear and refurbishment costs. This will rise usually in line with CPI inflation.
• Administration and General – the costs associated with running the rental units including insurance costs, salaries, taxes, marketing, accounting etc. This will rise usually in line with CPI inflation
• Cost of renewal - Periodic major replacement of elements such as roof coverings, windows, lifts, kitchens & white goods, electrical systems, boilers etc. which have reached the end of their useful life. This will rise usually in line with expected construction cost inflation.
• ​Finance Cost – cost associated with any loans used to fund construction of the homes. 

Residual Value at End of Analysis Period
The apartments are owned at the end of the assumed 40 year period and thus they have a residual value beyond the analysis period - this can be based on the market value at that time (using an appropriate terminal cap rate) or the rebuilding cost at that time (using an appropriate average construction inflation estimate). 

Discount Rate
The projects discount rate is the rate of return used to discount future cashflows back to their present value (PV). This rate is often an organisation’s weighted average cost of capital, required rate of return, or the hurdle rate expected relative to the risk of an investment. In Ireland the NDFA publishes recommended project specific discount rates. An approximation can be made by using a long term building loan.
 
The model (bit.ly/KeoghCostRental) calculates the present value of each individual cash flow (rental income or expense) as a growing annuity – a series of future periodic payments that grow at a proportionate rate. Final year values and costs are calculated by inflating incomes and costs using the assumed growth rates – these values and costs are then discounted to the present value using the discount rate. 

[1] The average rent across the development is calculated to be €1,347 p.c.m. with a total estimated gross income of €123,456 p.a.