Irish building speaks to industry leaders about the future of the construction industry in advance of the CIF Conference “Constructing Ireland 2027” being held on October 6th at Croke Park, Dublin.
Constructing Ireland 2027 is a 10 year vision for the construction industry and will set out ambitious targets for construction based on the provision of essential infrastructure, housing and specialist builds in a sustainable and cost-competitive way. Irish building magazine spoke to Tom Parlon, Director General of the CIF; Michael Stone, President of the CIF; Paschal Donohoe TD, Minister for Public Expenditure & Reform, and other speakers about the conference and the 10-year vision for the Irish Construction Industry.
Experts In The Field
The speaker list for the event is comprised of high-profile names: Minister Paschal Donohoe; Minister Simon Coveney; Graham Watts, Chief Executive UK Construction Industry Council; Ian Kehoe, Editor of The Sunday Business Post; Michael Stone, CIF President; Tom Parlon, CIF Director General; Julie Sinnamon, CEO of Enterprise Ireland; Mary Buckley, Executive Director of IDA Ireland; P.J. Rudden, Director of RPS Group; Dr Edgar Morgenroth, Associate Research Professor at the Economic and Social Research Institute and Adjunct Professor at Trinity College Dublin; Karl Deeter, Compliance Manager at Irish Mortgage Brokers; Annette Hughes, Director of DKM Economic Consultants; Brian Moran, Senior Managing Director of Hines Ireland; and Dr Mary-Liz Trant, Executive Director for Skills Development at Solas.
Synergy In Construction Planning
We spoke to Tom Parlon about the conference and the CIF’s 10 year vision. Parlon described the aim of the plan. “Industry is creating a 10 year vision to provide a starting point for a partnership with Government in Constructing Ireland 2027.”
“This partnership will ensure that the development of the construction industry and the Irish economy and society are complementary. This will ensure that the industry has the capacity to deliver the ambitious targets in housing, infrastructure, and jobs the Government has set out in the Housing Action Plan, the Public Capital Programme and the Jobs Action Plan.”
“We want to avoid what happened in the past with massive rises and falls in terms of construction output.”
“The CIF are currently drafting up a 3-year management strategy for the organisation to ensure we are adequately resourced to support our members in delivering on the vision in Constructing 2027. As part of that foreign direct investment, economic growth, jobs, regional development infrastructure are all dependent on having a dynamic construction sector, indeed all other areas of the economy depend on construction to deliver the physical infrastructure. We get construction right and other sectors are more efficient and competitive globally.”
“Our research shows that the Irish Construction Industry is set to grow year on year at a rate of 10% over the next four years and reach a value of about €20 billion in 2020. This is about 10% of GNP, still below the accepted sustainable GNP target of 12%. Getting closer to Government and seeing how we can grow jobs and the economy, this is about putting a sustainable path in place and being part of the solutions. It is a framework approach. Other industries have taken a similar approach and have aligned with central Government.”
We asked who was involved in developing the vision. He said, “The CIF Executive, our members, with outside stakeholders, from organisations like Enterprise Ireland, IDA, and the UK Construction Industry Council. We are also getting external experts to review the report. We want this vision to be realistic and ambitious.”
Tom told us about the growth areas and targets. “International experts say the construction industry in a normal economy should be 12 to 15% GNP of a sustainable economy. We were at about 23% at one stage, this dropped to 7%. On an economic policy unit’s research, it is said it will rise up to 10% GNP by 2020. We hope it will grow to 12%. At 12% GNP it would mean a sector of around €25 billion with suitable growth and world-class infrastructure, delivering jobs across the country and enabling other industries and sectors to grow. We believe that if our vision in Construction 2027 is shared with Government then the 12% GNP level will drive sustainable economic growth and deliver vibrant communities around Ireland.”
Tom explained the export strategy that will help Irish companies capture niches in the global construction market. “The Irish Construction Industry is small by international market standards. The global construction market is estimated to reach €15 trillion by 2030; Irish construction companies are increasingly targeting these opportunities. The challenge for industry and the government is to ensure that the business environment is right domestically so companies can build up export potential here.”
“Many companies currently have offices in the UK and London is and will continue to be a growth area for Irish companies. The trick will be to increase the proportion of Irish construction (products and services) to other countries particularly in the EU, Nordics, the East Coast of North America and other destinations were Irish expertise can be sold. We export over a €1.7 billion worth of products. We should be aiming to increase this by 50% by the end of 2027.”
“In Ireland, our companies have set up with big international players, such as Intel, Coca-Cola, and big pharmaceutical companies. Irish contractors have been chosen to do some big projects around the world. The mechanical and electrical contractors, undertaking specialist work, are doing well abroad because of the expertise and relationships they have developed working with multi-national corporations in the pharma, tech and life sciences arenas.”
“Irish operators are involved in big projects, most of the wind farm projects in Scotland are being undertaken by Irish operators and there are many Irish contractors involved in Crossrail also. We want to help Irish companies expand beyond the Irish market. Ireland is closer to the UK than other countries are, and our interest in the UK is common sense.”
The maintenance of existing infrastructure is addressed in the plan. “Certainly, maintenance and refurbishment are currently substantial, they are labour intensive and it is critical to the whole industry. If you walk around Dublin, you can see there is significant refurbishment works being undertaken on buildings,” Tom said.
Affordable housing is a key issue and will be addressed here also. Tom told us, “Minister Simon Coveney has covered this in his Rebuilding Ireland Action Plan. The industry will have to look at its costings. Viability and getting the houses built is a factor. The hard building costs are less than 50% of the actual sale cost of a first-time buyer’s house. When you add in the other costs, such as the cost of the site, VAT, all of the other costs, there is more than 50% there. The industry will have to look at its costs and be efficient there, but the Government and exchequer must also look at their costs.”
“We have looked at initiatives such as reducing VAT, reducing levies etc. We are told these will be featured in the next budget. The viability of building affordable housing is currently a challenge.”
Technology In A Changing Sector
Michael Stone, President of the CIF, spoke to us about the inclusion of BIM and Construction IT, and education and skills. BIM and Construction IT are changing the construction industry. We asked if technology will form a significant part of the plan. Michael said, “The construction industry needs to adopt innovative technologies and processes to improve its effectiveness, efficiency and ability to deliver sustainable construction projects.
The ambitious goals that we will outline will be contingent on Irish companies increasing productivity through the uptake of technology and innovative processes. Our clients, public, private and international are increasingly demanding Irish companies use these approaches. The CIF is developing the next phase of its continuous improvement strategy with a view to increasing uptake across its membership and the wider industry. The overall effect of higher uptake of IT and BIM will be to enhance our reputation globally that will, in turn, help us to secure more business.”
Education and skills are a significant part of the plan. Michael said, “A central part of the CIF’s work is ensuring a steady supply of appropriately skilled employees into the sector to ensure we can deliver the housing, infrastructure, and specialist builds that our economy and society requires. The CIF is completing an economic forecast up to 2020 based on the ambitious Government targets in housing, foreign direct investment, and infrastructure.
This identifies the required level of employees to sustain the required level of construction activity. It’s generally agreed that 12% of GNP arising from construction is a sustainable level of overall economic activity for a modern society. In Ireland, construction accounts for approximately 7% GNP and should, based on our forecast, hit 10% by 2020.
The purpose of developing a long-term vision for the industry is to ensure that we maintain this level at around 10 to 12% GNP whilst overall contributing to an expanding economy.
Our vision and the economic forecast underlying it provides the basis for tying more closely policy and planning to economic activity in the sector.”
“Previously, the disconnect between the two have meant issues such as skills shortages when the industry is expanding and vice-versa when the economy downturns. This report will allow us to identify how many graduates, apprentices and employees by category; the industry will need to meet Government targets in 2020.”
Concluding, Michael described how progress will be monitored. “A central part of the vision is the establishment of a High Level Implementation committee involving industry, relevant Government Departments and state agencies. The key Departments involved would be Housing, Planning and Local Government; Public Expenditure and Reform; and Jobs, Enterprise and Innovation. This group will measure its progress towards the ambitious targets set out by Government in the Action Plan on Housing, the PCP, the Jobs Action Plan and other related strategies. Part of this committee’s role will be to identify barriers to this progress and where industry requires support if it is to deliver these targets. The committee would publish an implementation plan and then report to Government annually.”
Rebuilding a Sustainable Industry
We got the views of Paschal Donohoe TD, Minister for Public Expenditure & Reform who will be speaking at the conference. He said why it is important for the industry to have a 10 year vision. “In terms of planning for future growth and development, in any sector, a long-term plan or vision is critical to ensure that we can successfully get to where we want to be.
This is particularly important in attempting to rebuild our construction sector after the many difficult years we have been through, which impacted particularly severely on that sector. A plan for the future is also key to ensuring that our towns and cities are well equipped to meet the needs of foreign and indigenous companies who are looking to grow and create jobs here, and whose ambitions will be thwarted if we have a construction sector that cannot adequately meet their needs.”
We asked what will be the main areas for infrastructure expenditure in the coming decade and what role the Government will play in delivering a more sustainable construction industry. The Minister replied, “Government has already made it clear, in the Programme for a Partnership Government, that the Capital Plan (which was published in 2015) is the starting point for increased investment in infrastructural into the future. The aim of this is to address the future infrastructural needs of the economy, create jobs and help grow a sustainable construction sector. The Programme for Government takes the first steps towards increasing the level of public capital investment (under the Plan) and commits to seeking Oireachtas approval for an additional €4 billion in Exchequer capital investment over the period of the Plan. This will be allocated to such areas as transport, broadband, health, education, and flood defences, on the basis of the outcome of the mid-term review of the Capital Plan.
In recognition of the importance of the Capital Plan in further reinforcing our economic progress, I am bringing that review forward, with work set to begin after the Budget (October) to see how the Plan can be strengthened.”
“In the Summer Economic Statement, which I published in June, a further commitment was made to provide an additional investment of €1.1 billion, bringing the total additional capital investment to €5.1 billion, of which €2.2 billion has been committed to the Government’s housing plan “Rebuilding Ireland – an Action Plan for Housing and Homelessness”. This will ensure that a sustainable house building programme is underway to meet the needs of our people and further support the sector.”
He concluded, describing what he will be speaking about at the conference. “I will be outlining the Government’s priorities in terms of investment in capital infrastructure under the Programme for a Partnership Government and providing an update on our implementation plans in the years ahead.”
Identifying Infrastructural Gaps
P.J. Rudden, Director of RPS Group will be a speaker. P.J. was a member of the Engineers Ireland Advisory Group on “The State of Ireland 2016 – A Review of Infrastructure in Ireland.” We asked him what he thought were the main issues to be addressed in the construction industry. P.J. said, “The main issues facing the construction industry over the next ten years are the need for adequate human resources and funding for strategic infrastructure which if not provided will hold up the extent of economic recovery that is now possible. The resource issue is a lack of graduate civil engineers and trade apprentices following the impacts of the recession. Engineers Ireland are seeking the establishment of a National Infrastructure Board and I support that necessary move to expedite dealing with the major deficits outlined in the 2016 State of Ireland Report in transport, water, energy, flood control and broadband.”
PJ told us about what he will speak about at the conference. “During my contribution to the CIF Annual Conference, I will deal with the infrastructural gaps that could hold up implementation of new housing strategy Rebuilding Ireland and the Government infrastructure strategy Building on Recovery. These include roads, water, drainage and urgent waste management recycling and recovery facilities for inert wastes from new building projects. The latter issue is now acute in the Greater Dublin Region and needs urgent addressing to prevent delays to new housing and infrastructure.”
Supply & Demand
Ian Kehoe is an award-winning journalist, author, and broadcaster. He is Editor of The Sunday Business Post. From a journalist’s perspective, we asked him what he thought the key issues are that the industry needs to address over the coming decade. Ian acknowledged the many issues in construction but specifically highlighted the problem of housing. “Where to begin? There are both macro and micro issues that need to be addressed. The biggest issue, of course, is bridging the gap between supply and demand. The current shortage of stock has the potential to strangle the economy and impact our recovery. The market is still not functioning. We need bold, innovative plans to unlock supply and to get builders actually building. The recent Action Plan by Simon Coveney is a start. Hopefully, this plan will succeed where others have failed and actually get implemented. Remember, there was a broad welcome for the Alan Kelly plan, but nothing happened – even the modest commitment to a couple of hundred rapid-build modular homes couldn’t be delivered because of one obstruction or another.”
“We need to restore trust in the property market. It has been in flux for far too long. We need to create a climate that does not penalise renters and does not prohibit people from purchasing a property.”
“We also need to curb expectation – people have to realise they will not be able to borrow to the hilt and buy a house they cannot afford and developers need to be cognisant of the fact they will not become overnight millionaires; we are not returning to the boom. Nor should we return to the bust. We need to find the new normal.”
With technology and other influences, is the construction industry is changing and this is evident when people give their views after attending industry events. However, there is still a sceptical public view of the industry and its capabilities. This was reflected in Ian’s answer when we asked him if he thought the image of the construction industry was changing. He said, “I am not sure if public perception is changing. I think there remains scepticism towards the industry and this needs to be addressed.”
Dr Edgar Morgenroth, Associate Research Professor, Economic and Social Research Institute and Adjunct Professor at Trinity College Dublin gave his views on what he thinks are the main issues to be addressed in the next decade. “There has been a lot of change in what we need over the last 20 years but that often does not come through in discussions – the major interurban roads system is largely complete so we don’t need to build those roads again (there are still some gaps and they will need to be filled). There is a significant challenge to reduce Greenhouse Gas emissions arising from transport which will require behavioural change including modal shift, which is more feasible in urban areas, and here significant investment is needed. The other big area in need of investment is water and wastewater infrastructure.”
“Of course, the housing crisis is a big issue for the industry – so far the industry does not seem to be delivering the required housing units – why? A more fundamental issue to the industry is the relative lack of innovation and low productivity growth.”
CIF Budget 2017 Submission
Many of the topics to be covered at the conference are also featured in the CIF’s annual budget submission. In its submission, the CIF has outlined how the industry can deliver the housing, infrastructure and specialist buildings required to transform the Irish economy and society over the next decade.
The submission identifies five ranges of solutions to barriers hindering the construction industry’s capacity to deliver the Government’s commitments on housing, infrastructure and jobs. The submission covers the following key areas: Support Infrastructure investment under the Public Capital Programme; Restore Residential Construction Activity to a Sustainable Level; Social Housing Crisis; Facilitate Renewal of Sustainable Construction Jobs and Training; and Address Taxation Matters.
Regarding infrastructure investment, the CIF propose increasing and maintaining infrastructure investment over the next decade. The solutions proposed for residential construction activity include connecting those who can afford a mortgage to a supply of suitable homes by introducing a help to buy scheme and improving finance in the housebuilding sector. The proposed solutions for the current social housing crisis include improving public procurement rules and identifying land banks owned by local authorities suitable for construction. The CIF suggest solutions for making it easier for construction companies to provide employment through a range of measures. For to address taxation matters the CIF propose a range of solutions such as the introduction of a 9% VAT rate, amendments to the seven-year Capital Gains Tax rule and introduction of incentives for living in town centres to revitalise rural towns.
A Return To Industry Growth
The Leaders in Construction articles in the last issue of Irish building magazine presented interviews with the Directors of Ireland’s top building and engineering contractors and consultants. The leaders identified the problems the industry is facing and the issues arising from change. These included: the need for more graduates and apprentices; current lack of skilled professionals; the changing role of building contractors from direct employers of the trades to undertaking the roles of project managers; the need for sustainable growth; the cost of apprentices; the management of public sector projects; the adversarial nature of the public works contracts; the housing shortage; the need for foreign investment; adoption of new technologies and processes; staff training; and targeting foreign markets. For a number of the problems the industry is currently facing, there are plans being put in place for addressing them, and time will tell of their success. The industry is going through a time of great transition while it returns to growth. Irish contractors and consultants are also undertaking large prestigious projects around the world and these are promoting the image and reputation of the Irish Construction Industry. This is evident in interviews and project profiles presented on the Irish building and BIMIreland.ie websites and in past issues of the magazine. The CIF conference will cover these aforementioned topics and related areas.
The last remaining places are available for this ground breaking conference, book now to ensure your place. http://www.cifconference.ie/ Our next issue will have a report on the conference proceedings.