The construction sector is set for a return to steady growth over the next four years with output expanding by 30% by 2018 according to a new report.
The expansion will lead to the creation of just over 30,000 construction jobs which will bring total employment in the sector to 178,000, if barriers to development can be overcome.
According to the report, which was written by Amárach Research on behalf of the Society of Chartered Surveyors Ireland, the return to growth will be driven by the private commercial and residential sectors.
The President of the SCSI, Micheál O’Connor pointed out that while the growth figures may sound considerable, the volume of construction growth will still only reach 7.4% of projected GNP by 2018.
“The report shows a stabilisation in construction output for the first time in several years and that is most welcome. We expect to see a modest increase in growth of around 5% this year with overall output expected to grow by 30% to 2018.
However output in 2018 is expected to be still below 2009’s output and still a long way short of the optimum level of 12% of GNP which is seen as the European norm. The industry has contracted enormously from output levels of around €34bn in 2007 to around €8.8bn last year” he said.
Mr O’Connor called on Government and stakeholders not just to study the report’s findings but to act on the three key issues which emerged.
“Firstly the recovery is Dublin led with limited signs of recovery in many parts of the country. Secondly the lack of availability of finance for development, for mortgages and in public sector construction is seen as a key barrier to growth potential. And thirdly the employment and skills shortages which will and are arising out of the recovery need to be addressed at a national level” Mr O’Connor said.
According to the report the number of residential units completed in 2013 was 8,301 (in 2006 it was 89,000) which is substantially below the numbers required according to the ESRI. They estimate that between 10,00 and 12,000 new houses are needed this year and next and after that the need will double to between 20,000 and 25,000.
Almost a third of the SCSI members surveyed as part of the report said the availability of finance for both developers and buyers is seen as the primary challenge facing the residential construction sector over the next three years.
Property prices in Dublin grew by almost 16% in 2013 and over half of the 177 surveyors who took part in the survey said there was a lack of supply due to the low level of residential construction over the past five years.
Stakeholders who were interviewed for the report said development levies, zoning and the need to move to lower density were all seen as barriers to development.
According to the report investment in the Irish commercial property market grew to almost €2bn in 2013 – three times higher than 2012. The growth was driven by the office market due to increased Foreign Direct Investment.
The lack of supply is a key challenge and falling vacancy rates – down to 9% in central Dublin – have led to rent increases. However the rise in rents is bringing construction projects closer to viability and according to members, more controlled speculative development is needed to ensure that large multinationals coming to Ireland can source suitable accommodation rather than waiting the 24-36 months needed for construction.
Thirty seven per cent of surveyors said the key challenge was the availability of finance. They also suggested that the planning timeframes are too long and a fast track planning process should be put in place for developments with high potential job creation opportunities.
Public Sector Construction
The Public Capital Programme, which has accounted for close to 50% of the construction industry output in the recent past, has been hit hardest by fiscal retrenchment with Government spending on capital programmes declining from €9bn in 2008 to €3.4bn in 2013. This means that the Programme is back at 1999 levels.
Not surprisingly over a third of respondents to the survey cited the lack of government funding/investment as the main challenge facing the social infrastructure sector (health and education) over the next three years due to fiscal constraints.
The report found that while tender prices are down by 33% since the peak, prices have stabilised and have begun to increase by around 3% per annum.
The SCSI also called for the appointment of a Chief Construction Advisor to Government to ensure that there is greater co-ordination around policies to return the construction sector back to sustainable levels.