There is a significant risk that the Government's 'Housing for All' target of 29,000 residential unit completions this year may not be met due to continued inflation in the construction sector.

That is according to the infrastructure consulting firm AECOM, in its latest review of the Irish construction industry.

The report notes that, while tender price inflation is likely to come in at around 5% this year, it would be significantly lower than the record 12% inflation recorded in 2022.

The value of construction output this year is forecast by AECOM to be in the region of €34 billion - a €2 billion increase on the total recorded in 2022.

However, when inflation is taken into account, the industry will effectively not experience any growth, the report concludes.

The inflationary environment will likely have an impact on housing completions, AECOM says, with interest rate increases and general market uncertainty contributing to completion volumes coming in lower than the 29,000 targeted in Government plans.

A similar analysis was issued by the Society of Chartered Surveyors last week which warned that a combination of construction price inflation and an apparent easing in property price inflation could threaten the viability of some planned projects.

2022 saw a significant increase in housing output on the previous year, AECOM concluded, with an estimated 27,000 completions well exceeding the Government's goal of 24,600 units for the full year.

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"That was the highest number [of completions] since 2010," John O'Regan, Director of AECOM Ireland told Morning Ireland.

"The challenge is, because of cost increases over the last few years, the viability of certain types of homes - particularly apartments for rental - the viability of building those has fallen away. It's because off that the number of commencements in the second half of 2022 did start to fall off," he added.

The Government's average annual target is 33,000 units to 2030.

The rolling 12-month average number of residential commencements peaked at 35,000 in March 2022, the report noted, but has been declining since.

Mr O'Regan said the likelihood of achieveing the target for this year was 'ambitious' but he said outcome was dependent on what types of initiatives were introduced to drive numbers up.

"There are a lot of initiatives in place to try to bring supply up. The challenges with all of those initiatives is that they take a bit of time to feed in," he explained.

While construction continues to be impacted by skills shortages, the numbers employed in the sector increased to 171,000 in the third quarter of 2022, an increase of 16.5% from pre-pandemic levels in 2019, AECOM says.