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Tom Parlon: Solving the Housing and Infrastructure crisis
Solving the Housing crisis is a major priority for the new Government. That much is clear with the appointment of a senior Ministerial position with responsibility for this area. The CIF welcomes the appointment of Minister Coveney and wishes him well in his role. The CIF will meet the Minister in the coming weeks and we will be putting forward constructive solutions for the Minister around the three key areas of his remit – housing, water and planning. Our first recommendation will be to address Ireland’s infrastructure gap as a platform to solving the housing crisis. Without addressing both, we may address housing supply issues but end up piling pressure on the Greater Dublin region while our regional economies lose out in attracting foreign direct investment and stagnate.
The new Programme for Government makes a series of promises to increase housing output rapidly, including increasing annual output up to 25,000 per annum by around 2020, increasing social housing output, and a Help to Buy Scheme for first time buyers.
We began building 8,000 houses only in 2015 and we have begun only 2,000 so far in 2016. House building, large estates in particular, require huge investment in roads, rail, broadband, water and the other vital infrastructure to transform them into sustainable, vibrant communities.
Housebuilders and homeowners make significant contributions to these through development levies. However, government expenditure on larger infrastructure projects like motorways and water is inadequate and will soon begin to dampen economic growth.
The ESRI has recommended that 25,000 houses is the level of output required to meet the demands of the Irish population as it grows towards five million in 2026. Hitting this level could net a potential €1.8bn for the Exchequer annually, so it’s vital we build the correct infrastructure to support this level of housebuilding.
Unfortunately, current projected levels of infrastructure spending are insufficient. The European Commission Ireland Report for 2016 derided our levels of infrastructure investment. It stated that: “Seven years of sharply reduced government investment have taken a toll on the quality and adequacy of infrastructure.” This includes weaknesses in housing, water, public transport and climate change mitigation capacity.
As ever, infrastructure investment drops during recession as politicians facing elections shift expenditure towards current spending. In 2010-2013, capital expenditure averaged only 4.8pc of the total, less than half the long term average during 1995-2008. General government spending on infrastructure averaged €3.8bn between 2013-2015. However, the annual depreciation of the government capital stock amounts to about €3bn.
The government’s capital investment plan is inadequate and lacks ambition. For example, it projects investments in the road network of close to €6bn in 2016-2021 but almost 75pc is for maintenance only. €3.6bn is earmarked for public transport projects. The extension of the Dart railway between Dublin city centre and the airport will consume the majority of these funds.
The Construction Industry Federation believes that capital expenditure will need to rise to between 8pc and 10pc of GDP from about 4.8pc of GDP at present. It’s generally accepted that each billion invested in infrastructure will yield 10,000 jobs. This will ensure balanced regional growth and enhance the lives of all Irish citizens.
Infrastructure investment is now, by omission, profoundly shaping Irish society. In everyday terms, this manifests itself in housing shortages, decrepit road networks, unsafe water infrastructure, and a lack of broadband, particularly in the regions. The regions feel this deficit most, resulting in reduced economic activity and opportunity. Young people are voting with their feet and moving to Dublin and other urban centres. Currently, Dublin generates 40pc of Irish GDP and has 25pc of the population. London generates 20pc of the UK’s GDP and this is considered unhealthy. Employment growth is outstripping that in the regions and Ireland’s economy is lopsided.
This is already putting pressure on the capital city. Recently, Dublin was identified as ninth out of 200 cities with the worst traffic congestion. Residential rents are spiralling upwards. Commercial rates have reached pre-recession levels. The ESRI think-tank recently found that commuting times for those working in Dublin were now back at 2007 levels.
Without balanced regional development, the Irish economy will continue to become unsustainably dependent on Dublin as our sole engine for growth. Anyone who doesn’t believe the infrastructure deficit and housing shortage are related should look at Nama’s plans for housebuilding; 78pc of its proposed activity centres on Dublin, the rest on Cork and Galway. It believes, like many builders, that it is not economically viable to build outside these urban centres. No housebuilding activity in these areas will only exacerbate the current problem.
It is estimated the Cork region accounts for 17pc of Ireland’s GDP. With such a significant economic base, the region can act as a complementary counter-balance to Dublin. Then connecting Cork to Limerick and Galway could create a powerful economic corridor that, marketed correctly, could yield regional balanced growth by attracting increased levels of foreign direct investment.
Transport infrastructure is critically important for spatial planning and economic development but suffers key weaknesses. A major expansion of the road network occurred during the 1990s and 2000s, in particular in terms of motorways. The completion of the regional network connecting urban centres like Waterford, Cork, Limerick, Galway and Sligo must happen.
Another area of key concern is our water infrastructure. The constraints or negative effects that poor water supply and wastewater treatment facilities impose on growth, competitiveness, housing development and the environment are fully apparent already. At a time when we need to update our network from a crumbling and unsafe Victorian system with a limited public capital budget, our politicians appear to be unthinkingly trying to put this significant cost back on our books.
So in short, the level of infrastructure spend will shape Irish society for the coming generations.
Tom Parlon is director general of the Construction Industry Federation