As we enter a new cycle for the Irish Construction Industry Irish building magazine discusses the future of the industry with CIF and Minister Simon Coveney.
Perhaps more than any other industry in Ireland, the Irish construction industry is innately cyclical. As we continue along the road towards sustainable recovery across the industry and begin to enjoy the start of a new cycle of growth and prosperity our leaders urge us to take stock of the past in order to build for the future. It is essential, say our industry chiefs, for us to be aware of our capabilities and responsibilities throughout Ireland’s more prosperous times. 2016 ended on an extremely positive note for the industry as a whole with activity rising throughout the sector and a number of high profile projects taking place across the country, 2017 looks to be an extremely busy and successful year for the construction industry both at home and abroad.
Tom Parlon, Director General of CIF says it’s a great time for the construction industry. “I am extremely positive about the future,” he says. “The Government are again looking to this industry to deliver the housing, infrastructure and specialist FDI related buildings we need to drive this economy forward”. Parlon points to the Government policies as challenging the industry to be better than ever before. “Their housing, infrastructure, jobs and public capital programme are all contingent on our industry being able to deliver construction more effectively, more efficiently, with less waste and more sustainably than in previous years.”
The climate, says Parlon, is generally good. “There is €19 billion construction activity in the pipeline. “We are hiring 1000 additional workers every month and there will be an estimated 112,000 workers required to deliver government mandated construction in housing, infrastructure, and specialist building up to 2020.”
The Construction Information Services Construction Opportunities Report for 2017 provides clear evidence of this upward momentum in the industry and shows signs of activity spreading beyond the Dublin and Leinster regions. The civil and utilities sectors will receive a much-needed boost, as two major projects get under way over the coming months. Work is currently ongoing on three major road schemes in Ireland (N25, New Ross Bypass, M11 Enniscorthy and N17/N18 Gort to Tuam) with a combined value of €1.225billion. Plans will progress during 2017 on three other road schemes (N6 Galway City Bypass, N22 Macroom Bypass and M7 Naas) with a combined value of €770million.
Irish Water’s delivery of their business plan will involve a €5.5billion investment in capital spending on drinking water, wastewater quality, capacity and new infrastructure up to 2021. A substantial amount of this is expected to be invested in 2017. Major schemes to go ahead in 2017 include the Vartry reservoir upgrade project in Wicklow and the Ringsend Wastewater Treatment Works Extension project.
“There are many transformative projects under way and in the pipeline,” says Tom Parlon. “However, without increased capital investment in infrastructure this pipeline will become clogged. The Government is working hard to increase the amount available in the current Public Capital Review as they recognise that we have undergone a decade of underinvestment in infrastructure. There may be an extra €5billion or so available and this is positive. However, due to the low investment levels over the past decade, our rapidly growing population and our fast-growing economy, we now need a quantum increase in investment in this regard. The Irish economy needs both the Metro and the M20 Cork-Limerick and the budget needs to be expanded to deliver these critical pieces of productive infrastructure. The opportunity cost of making a choice between both is huge for Cork/Limerick region, Dublin and the overall economy.”
“The Government must 1. Expand the public capital programme, 2. Put in place innovative funding models to ensure that access to finance for those across the construction industry improves and that work outside of the major urban centres becomes viable once again and number 3: secure a relaxation of the fiscal constraints imposed on our infrastructure spend by the EU.”
The hospitality, community and leisure sectors show signs of growth too, with exciting projects like the construction of the Center Parcs Holiday Resort in Ballymahon, County Longford, estimated at €233 million to start in the coming months. Accommodation continues to be a focus in the Greater Dublin Area with a requirement of around 6000 hotel beds in the city centre and almost 6,000 beds for students are in the pipeline for Dublin City with more than 2,000 places already under construction in purpose-built student blocks.
“Significant steps have been taken to address the chronic inattention to the house building sector over the past 7 years,” says Parlon. “The measures introduced by the Government are aimed giving consumers, house-builders and banks some certainty in the market. The ‘help to buy’ incentive, the local infrastructure fund aimed at making sites development-ready and the housing delivery unit are all steps in the right direction. However, more needs to be done to reduce the cost of construction across all sectors of the industry to allow it to deliver on the Government’s targets. A reduction in VAT for a defined period would have a major impact on the delivery of housing across the economy.”
Despite the undeniable green shoots sprouting throughout the industry, CIF President Dominic Doheny cautions that there are challenges yet to be overcome. “There are a number of issues that continue to cause difficulty throughout the sector,” he suggests. “Finance for mid-sized house-builders and contractors is not available so as a result investment is low, tech uptake is low and the ability to tender for large contracts is out of reach.” Doheny says that the replacement rate of housing in pockets of the country are below the cost of building new homes, and that this poses a huge challenge for the industry. Furthermore, he cites current infrastructure investment as inadequate and says that as a result, parts of the industry are concerned about the medium-term pipeline. As suppliers push through long held-off price increases, the CIF say that business costs for construction companies are increasing, adding extra pressure to an already tenuous market.
The industry’s strength is its resilience, says Doheny. “During the recession, exports from the construction industry increased dramatically particularly to the UK,” he attests. “Irish construction companies are shaping the UK, North America and Far Eastern economies and societies. We have companies like PM Group who are building the largest pharma facility in China; Shay Murtagh are key players in bridge building in the UK, the Mace team are working on data centres for Facebook, Height For Hire is the largest access company in the UK and Carlow Precast build most of the largest reservoirs in the UK.”
Part of our resilience is our openness to change and ability to adapt to changes in the market, he says. “The Government should consider the introduction of the use of BIM and Lean in the public procurement process. We have recently launched a BIM/Lean/Construction Technology Policy Committee with the objective of pushing the uptake of these practices in the industry.” According to Doheny, the uptake in activity gives the industry the impetus to ensure that we have adequate numbers of skilled labour force to meet the demand. “Education’s Industry Engagement Unit to ensure that we have the skilled employees required to drive activity. There is great work going on, particularly within the ETB network. However, we are facing such an increase in activity we need to quadruple this activity rapidly.”
Tom Parlon says that there are a number of areas of concern for the coming year that need to be addressed by the industry as a whole. “We at the CIF are carrying out a piece of research to examine the difficulties our members are facing in accessing finance. Safety is always an industry-wide concern and reducing accidents and fatalities is the cornerstone of the modern construction industry’s reputation. Accidents and fatalities mostly occur amongst the very small companies and self-employed in the industry and the safety message must be communicated to them as it has been to the wider industry.
CIF will be promoting safety throughout the year and will spearhead Construction Safety Week in late October.” Parlon says that government investment in infrastructure is too low. “It is 2% of GDP at the moment but needs to be 5%.” He believes that the National Planning Framework and successive Public Capital Programmes must coordinate infrastructure delivery across Ireland’s regions over the next 25 years. If we don’t put in place a long-term solution here, the political cycle will continue to stymie our efforts to balance our economy and build a globally competitive economy. Investment in infrastructure, says Parlon, is of the utmost importance. “The Government must secure a relaxation on fiscal constraints to allow more investment in infrastructure. Currently, the Government are unable to access Junker Funds (cheapest finance available) due to constraints.” Parlon says that the CIF plans to run an event on the innovative funding models for infrastructure.
CIF says that in Rebuilding Ireland, government has put in place a very strong housing strategy. The Rebuilding Ireland Action Plan will see the State invest €5.3 billion in social housing between now and 2021 taking due account of the housing needs that exist in each local authority area, while also accelerating overall housing supply (private and social) to a level of 25,000 home per annum by 2021 (effectively doubling the level of output from the 12,500 homes delivered in 2015 prior to the publication of Rebuilding Ireland). Minister Coveney says that the plan will ensure that the planning and development system for the entire country is aligned with current and emerging economic and social development needs. “The strategic importance of the proposed NPF cannot be overstated as it represents a necessary and vital first step towards charting the critical pathway to effective, sustainable and regionally balanced economic and social development over the next two decades.”
In terms of the wider housing market, government’s objective is to double housing output to deliver over 25,000 units per annum on average by 2021. A range of actions are already underway in pursuit of this objective, says Minister Coveney. “The Planning and Development (Housing) and Residential Tenancies Act 2016 now enable large-scale housing development proposals (100 plus homes or student accommodation units) to be submitted directly to An Bord Pleanala.
The first tranche of 23 key strategic development sites in major urban areas with the capacity to deliver housing on a large scale, at multiple locations in the Greater Dublin, Cork City and Cork County metropolitan areas and at sites in Limerick and Galway, were announced in November. These 23 sites are capable of delivering up to 20,000 new homes in the medium term. They are being programme managed by the new Housing Delivery Office in the Department and will be exemplars for the coordination and delivery of plan-led housing development and active land management.“
In terms of infrastructural deficits, plans are already in place to remedy them, says Coveney. “In order to quickly get key sites moving, Rebuilding Ireland has put in place a €200 million Local Infrastructure Housing Activation Fund, better known as LIHAF. This has the potential to open up lands and deliver housing of the order of 15,000 to 20,000 units by 2019.“
Tom Parlon says that alongside Rebuilding Ireland, an equally robust and complimentary National Planning Framework is even more important from a longer-term economic and societal perspective. “The Government has worked with CIF to deliver the construction contracts act which will put fair trade at the heart of commercial relations sector. The remaining actions in the medium-term strategy should be put into place as soon as possible.” Placing CIRI on a statutory footing is essential to the reputation of the sector, says Parlon. “CIF has worked with the OGP to ensure that public procurement is supportive of SMEs and this work should continue. What we need is the re-establishment of the Construction Sector Group with a view to setting out a successor to the Construction 2020 sector strategy. This will help ensure long-term thinking in relation to construction and help the entire industry develop in a sustainable and beneficial way. Ultimately, developing innovative funding models to support the delivery of housing and infrastructure is key.”
With Brexit on the horizon, is the current international political landscape a grave concern for the Irish ConstructionIndustry? Dominic Doheny is optimistic about our ability to navigate a way through this latest challenge. “Brexit is undoubtedly a concern with so many of our companies holding a significant presence in the UK,” he says. “Activity is being held up over there and the currency is an issue, but we are working closely with members and government to monitor the situation and ensure that construction is at the fore in any decision we have influence over.”
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