During the Celtic Tiger years, the construction sector was both a driver and a symptom of the booming economy. Things are very different today, but the sector is bouncing back. Not even the industry, though, wants it to return to the heady days of 2006 – when activity was both unsustainable and unhealthy.
That said, the industry believes it does need to grow further from where it is now and that the new government needs to take steps to accelerate its recovery. Ireland’s Construction Industry Federation points out that the government accepts that a healthy level of construction activity is around 12% of GNP. “It is now 7.5%, so there is lots of scope to grow,” explains the Federation’s director general, Tom Parlon.
“We have pretty substantial growth and are expecting close to €15.6bn turnover this year, which is still way below pre crisis level [of €38.6bn in 2006], which was too high. We were down to €9.2bn in 2011.” An extra thousand people are employed in the Irish construction sector every month as it recovers.
There have been both job losses and business closures since the crash. At the end of last year, 127,400 people were working in the sector – half the number of ten years before. “Our members have suffered,” says Parlon. “Order books are pretty full now. Margins have been pretty tight. We went through a period of low cost tenders, which means somebody doesn’t get paid, or somebody goes broke.”
The easiest way to see visually what is happening in construction is to do the cranes on the skyline test. The Irish Times’ monthly crane survey in May found 43 in Dublin, up by three on a month earlier. “There was a time in Dublin when the only cranes were those left behind, waiting to be dismantled,” recalls Parlon.
Ireland is benefiting from significant FDI projects at present. These include a €1bn bio-processing lab in Dublin resulting from investment from Bristol-Myers Squibb. Facebook has a new €1bn data centre being built in Clonee, County Meath. Twitter has commissioned a major refurbishment of offices in Dublin, while other overseas investments have led to a general resurgence in major refurbishment jobs in the capital.
But this level of FDI investment needs to be supported by infrastructure improvement, including house building. The Economic and Social Research Institute calculates that Ireland needs to build about 25,000 new homes per year to meet demand, but only half that many were built last year. This is despite worsening housing stress in Dublin, where the population is projected to rise by 100,000 over the period 2006 to 2020. A boost to the house building programme would generate 25,000 jobs for every 10,000 new homes built.
Every €1bn in infrastructure spend creates another 10,000 jobs. CIF points out that while infrastructure quality in Ireland has improved, it still lags behind the OECD average. In its ‘Manifesto 2016’ it argued: “We have a unique challenge in Ireland. We have the fastest growing economy in Europe, but we have the second lowest level of investment in infrastructure. Rapid investment in water treatment, rail, ports and broadband will ensure our competitiveness on a global scale.” It laments that the political crisis over water charging has derailed the intended €5.6bn of investment in infrastructure necessary to support the building of new homes.
Meanwhile, the focus on Dublin is at the expense of the rest of Ireland, suggests Parlon. Dublin has grown substantially and is the base for 47% of Irish economic activity. “Ireland is now very lopsided,” he says. Places like Limerick and Galway have fallen behind because of the lack of investment in transport infrastructure, he argues. One of the major infrastructure projects currently underway is within Dublin, with the linkage of two Luas lines. Future developments will include a light rail scheme linking the city centre with the airport.
The last government’s Capital Plan for 2016 to 2022 contained other transport improvement programmes intended to addresses weaknesses around the island of Ireland. Capital allocations almost double under the plan from €1.05bn in 2014 to €1.93bn by 2022. Road schemes are allocated €6bn across the life of the programme, intended to improve capacity across Ireland. The construction of the motorway link from Gort to Tuam is already well underway. The entire island is to be circled with motorway standard links, eventually.
A project jointly endorsed by Dublin government and the Northern Ireland Executive is a dualling upgrade of the road from Dublin to Donegal and Derry. The additional work for the construction sector in Northern Ireland will be welcomed. “We are in a better place than in the north,” explains Parlon.
The visual test of construction activity in Northern Ireland is very different from the south. It is not the skyline search for cranes – it is the passengers at the airports. First thing on a Monday morning Northern Ireland’s three airports are filled with large numbers of construction workers travelling to London, Manchester, or Liverpool, where they will be working for the week, flying back home on Friday for the weekend.
“Looking at general construction and civil engineering, most of the turnover of the larger companies is being generated outside Northern Ireland,” explains John Armstrong, managing director of the north’s Construction Employers Federation. “Indeed with some construction firms, 100% of the turnover is now outside the province. That is good in some ways, but in the longer term we may lose their expertise from the Irish market. In contrast, we are seeing many small and medium sized companies growing and filling some of the gaps in the market.
“Northern Irish construction companies are particularly efficient and competitive. So they have been very successful in picking up work in GB and beyond. Part of the reason for this is that they deliver what they say they will, on time and on budget. The flip side of this however is that many companies are reporting that this success is having an effect on family life, with workers spending too much time away from home.
“The construction sector recovery in Northern Ireland is slow and fragile. To illustrate that, in Q4 of 2015, total output was £618m. This was a fall compared to Q1 of 2015 when it stood at £643m. At the height of the market, Q1 in 2007, it was £904m. A vibrant construction sector is a clear indicator of a vibrant economy. We are particularly keen that the new Northern Ireland Executive commits to the investment in, and the delivery of, much needed infrastructure.”
One of the early tasks of the new Executive will be to review infrastructure, with a new Department for the Infrastructure taking the lead on this. The current Northern Ireland Investment Strategy is for the period 2008 to 2018. Priorities for a new strategy are likely to include upgrades to the Dublin to Derry and Belfast to Derry roads, plus Belfast’s York Street interchange. Investment will also be needed in the north’s telecommunications infrastructure.
Armstrong is optimistic that the Executive will start to get to grips with the infrastructure needs in Northern Ireland. “The political parties here are actually beginning to get the message that if we don’t get the economy going we don’t grow our wealth, and create the jobs our society needs, together with the tax revenues we need to be able to afford much needed public services,” he says.
“House building is still very thin. Statistically, house sales and prices appear to be rising again. However, that growth would appear to be concentrated in the North Down-Belfast-Lisburn corridor. As you move further west, prices and transactions have yet to recover. According to government figures we should be building some 11,300 homes a year to meet need. Last year, according to Land and Property Services, we completed less than half that figure. If we don’t build enough to meet demand, we could see the creation of another bubble.”
According to the Northern Ireland Federation of Housing Associations, it is the lack of availability of land for development that is the main restricting factor on new house building. One of the reasons for that is the high cost of remediating polluted land in Belfast, the area of highest housing stress. Another factor is the lack of planning approvals for new build housing. Armstrong comments: “We welcome the devolution, a year ago, of planning powers to district councils and we look forward to a more economically-focussed planning system evolving.”
Another constraint on new housing development is the accounting treatment of the main bodies in the north responsible for social housing. Housing associations in England were recently reclassified by the Central Statistical Office as public bodies, because of the level of interference in their operations by the UK Government. A similar reclassification is expected for Northern Ireland’s housing associations. This would have the effect of putting their borrowing on the Government’s balance sheet, leading to likely restrictions on new borrowing and constraining development opportunities.
The main body providing social housing in Northern Ireland is the Housing Executive. A recent survey conducted by Savills concluded that its housing stock requires £6.7bn of improvement over the next 30 years. The value of the stock has already been written down from over £3bn to a little over £2bn. While these figures show the need for construction sector activity, it is at present unclear how this will be financed.
There has been a political stalemate over the future of the Housing Executive. As a public body it has been unable to borrow to either build new homes nor to improve existing homes to meet decent housing standards. NIHE therefore needs to sell all or parts of its housing stock to housing associations, or cease to be a public body for accounting purposes. Discussions on how to restructure NIHE have dragged on between the main political parties for the last three years or so.
Both north and south, the development of effective social housing strategies have been held back by political problems. With elections in both jurisdictions behind us, and new governments in place, it is up to politicians to agree new strategies that create homes, work for the construction industry and thousands of jobs.
The construction sector’s manifestos for recovery
Ireland’s Construction Industry Federation is calling for:
Substantial investment in new house building;
Investment in infrastructure to support further FDI;
Construction skills development for school leavers.
The North’s Construction Employers Federation is part of the Housing Supply Forum. The Forum’s ten point plan includes proposals for:
A planning presumption in favour of sustainable development;
Targets to release publically owned land for development;
Joint ventures between housing associations and developers for mixed tenure housing developments;
Powers for councils to assemble sites for house building.