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Will it be a positive Budget for the construction industry?
By Ruth Baily
As always in the run up to the Budget, there has been a sizeable amount of speculation as to what is likely to happen when Ministers Noonan and Howlin get to their feet in the Dáil. This year, the construction sector has been one of the key areas of focus for this speculation.
So what can those involved in construction expect tomorrow?
Perhaps the most obvious boost could come in the form of enhanced capital spending. It looks like there may be a sizeable sum dedicated to the construction of social housing. This would be a very positive development and would lead to a much needed resource being built.
There is also a lot of speculation that there will be an increase in the schools capital spending budget and further money will also be made available for water treatment improvements. Again if these steps come to pass it would help ensure much needed infrastructure was provided.
However the capital spending elements may only be provided on a multi annual framework. If that was for a period of say three years, then there is little certainty around when these projects will actually move forward. Planning for a project one year away or three years away is a world of a difference. For that reason the detail in any capital spending announcements will be important.
Any increase in capital spending is to be widely applauded. For the last six budgets capital spending has been cut. It has fallen by 59% from the first austerity Budget in 2009 when it was at €8.23bn – to €3.34 billion in Budget 2014. So over that time the annual capital spend has decreased by €4.89 billion.
Traditionally public spending has been responsible for half of all construction activity so any movement to increase funding for capital projects will give the industry a boost.
Aside from capital spending, there also seems to be speculation that the windfall tax will be amended. This would be a positive measure. It is a boomtime tax which holds little credibility in the current construction market – especially when you consider that it has generated zero funding for Exchequer since it was introduced in 2009. Altering this tax would seem to be a relatively simple and positive step for the Government to take.
Funding is a pressing matter in the construction industry. While banks are beginning to lend again, the maximum they will lend on any project is 60%. That means construction companies have to come up with the other 40% themselves. Any company who has survived the recession does not have access to these kinds of reserves to make up the shortfall – beyond going to some of the vulture funds. Therefore some kind of mechanism to bridge this gap is crucial. There has been talk of an Investment Bank which would advance funding to viable projects. This would be most welcome and would make a major difference to progressing private housing developments.
Development levies have also been earmarked for a possible change in the budget. This would be great news as they form part of the non core building costs of any project but add to the final purchase price for the end buyer. Many councils throughout the country are still pitching development levies at boom time rates. This is not sustainable and is a barrier to build. These levies need to be brought into line with current market realities. This will make it finance a project and get it off the ground.
If these measures were brought in as part of Budget 2015, it would help to really kick start the industry. There are some small signs of recovery in the sector but it is worth remembering that this year only 10,000 new homes will be completed with 2,000 in Dublin. We are told that 8,000 new households are formed in Dublin each year. We need new homes for these households. Creating the conditions to encourage construction helps job creation, activity in the sector which in turn impacts the wider economy. These measures could have a huge impact.