Budget Statement: CIF welcomes increases in infrastructure investment and affordability measures in housing but expresses disappointment on Help to Buy scheme

Director General Tom Parlon stated;

“The CIF welcomes the €2.3b housing package announced and the 24% increase in capital infrastructure funding in today’s budget.  However, we are disappointed that there was no clarity in relation to an extension of the Help to Buy scheme which is due to expire in December 2019. This will create uncertainty next year for both first-time house buyers and homebuilders.  The Help to Buy Scheme has significantly contributed to a 30% year on year increase in housing output since its introduction. This measure essentially resulted in making it financially viable to build starter homes again and freed up finance from banks for this segment.

We welcome the provisions announced for an affordable housing scheme of €300million.  However, more details on the deployment of this fund is required and we will continue to work with the Department of Housing on the mechanics of this scheme.

The industry will require further information from the department on exactly how this scheme will be implemented as soon as possible to avoid any uncertainty. It’s our view that this scheme should be modelled on that in the UK.

We welcome measures giving Local Authorities greater flexibility to develop social housing. If procurement practices in the public sector and at local authority can be modernised, there is every chance that thousands of social houses can be brought online over the next decade.

We’re encouraged by the announcement of the €300million human capital initiative.  We need to see details but we hope that the fund helps to stave off any looming shortage of skilled workers required to sustain the level of construction in housing, infrastructure and specialist construction.

There is much to be welcomed in this budget for the construction industry.  In 2016, SOLAS estimated that the industry would need an additional 100,000 workers to deliver on the Government’s stated ambition in housing delivery and in the National Development Plan.  However, we have not seen a concurrent increase in investment in increasing the numbers of skilled trades and craft people coming out of the education and training system.   We are concerned that, having put in place a number of legislative and budgetary measures over the past five years, essential housing and infrastructure delivery will be stymied by skills shortages in construction.

We hope that the increased contribution levied on industry for the National Training Fund is utilised to increase the number of skilled workers coming through the Irish education and training system.  Earlier this year, a DIT survey carried out of CIF members showed that 94% of large construction companies reported a lack of sufficiently skilled tradespeople in the market.  It also showed that the apprenticeship model is broken in the very trades we now require acutely to increase housing supply with 71% of companies not currently hiring apprentices.

We believe that it’s now essential that the Housebuilding Finance Ireland fund announced last year is deployed. We’re calling on the political system to accelerate the introduction of this measure. This will ensure that regional housebuilders have the financial capability to deliver homes outside the greater Dublin area where there is viable demand.

We are currently in a period of inflation in construction costs and we have already seen many construction companies have to enter examinership or go into liquidation. A large proportion of these companies are involved in public sector contracts and have got caught out because Government contracts place all risk and unforeseen costs on the contractor.  The Government must accelerate its efforts to modernise procurement practices otherwise the National Development Plan and housing delivery will be costlier with more overruns and delays in addition to a continuing trend of liquidation in the industry.

Finally, we welcome the restoration of 100% interest relief for investment in residential properties.

The CIF has called for more effective coordination between industry and government in three key areas: investing in skills and R&D, enhancing infrastructure delivery and removing barriers to sustainable housing delivery.

Head of Economic Policy, Jeanette Mair stated:

“From Ireland’s perspective, the timely implementation of the National Planning Framework (NPF) and the National Development Plan 2018-2027 (NDP) is essential to meet the critical physical and social infrastructure needs of a growing country – especially in areas such as transport, housing, health and education. These strategies will drive economic and social progress over the coming decade and quarter century respectively whilst failure to deliver will damage competitiveness of the wider Irish economy with resultant negative impacts on employment, GDP growth and exports.

It’s essential now that both the State’s apparatus and the construction industry have the capacity required to deliver on these ambitious strategies. The industry is in a strong recovery phase albeit a number of barriers to delivery remain that must be addressed. Ensuring we have sufficient levels of skilled workers in the coming years will be critical.  It’s in the wider economy’s interest for the Government to work with industry to attract more skilled workers into construction from within the education system and from the Diaspora.  In addition, in our budget submission, we call for a number of initiatives required to increase the number of apprentices coming into the industry and to increase investment in traineeships, training and education. Delaying action now may mean skills shortages in the near future at a time when demand for construction will be at its highest – this will see increasing wages, rising business costs and a loss of value for money for the exchequer.

Equally, skills gaps and resource issues in the local authorities and government bodies that impact on the delivery of housing and infrastructure need to be identified, prioritised and addressed. Important processes, controlled by the state that impact on the delivery of construction, such as planning, waste, utilities connections and procurement are delaying delivery of essential construction.

In this budget submission, we are also calling on the Government to ambitiously increase investment in research into construction products and services.  Increased innovation is a key step towards improved productivity in the industry.  This will improve the competitiveness of the economy and benefit all other sectors that rely on construction to deliver the housing and infrastructure businesses require.”

Jeannette Mair, Economic and Policy Research Executive, CIF said:

“Brexit is a key risk to the Irish economy and there is also a concern that as the economy approaches near full employment, upward pressure on wages and skills shortages, as well as infrastructure deficiencies, would threaten Ireland’s competitiveness. While it is too early to assess the full impact of Brexit on the economy, it is likely that there will be some reduction in economic activity in the medium term. Lower activity affects potential output and lower investment affects capital accumulation. Brexit could have a profound effect on the construction industry. A “no deal” would mean increased tariffs on construction material imports. The timely implementation of the NDP 2018-2027 and the commitments made to increasing capital expenditure and investment over the medium term will help to cushion its effects and safeguard the economy in the years ahead.

As the country approaches near full employment in 2018, the industry is faced with the challenge of attracting skilled workers. Construction has always had a major impact on employment. As output in the industry increases, so too does the number of those employed. Direct construction employment now stands at 145,700 persons in Quarter 2 2018 (+17,800 persons since Quarter 2 2017). This translates into almost 6.2 per cent of the total Irish workforce. During the 2007 to 2013 period, the construction industry shed approximately 160,000 jobs, representing almost 65 percent of all construction jobs according to the CSO. This loss was the most severe among all industries in terms of percentage lost and number of jobs lost.”

Editor’s Notes

According to the CIF Professional Pension Administration ( CPAS ), the pre-Budget papers had highlighted that any decisions on pensions would be in future budgets, in view of the Pensions Roadmap and various consultations and reviews currently taking place on pensions.

There were no major announcements in relation to pensions in today’s budget other than the €5 weekly increase in the highest rate of State Pension. This increase will take effect from the last week of March 2019 and bring the highest rate to €248.30 per week. Lower rates apply to those who do not meet the average PRSI contributions requirements.

 

Among the CIF’s recommendations contained within the submission, the representative body advised that the government:

Invest in People

  • Facilitate zero-rate employers PRSI contributions for those engaging apprentices in trades in need of stimulus.
  • Introduce an apprenticeship trainee grant for a limited time until the shortage of construction apprenticeships has been addressed.
  • Reintroduce payment of apprenticeship fees/levy in phases 4 and 6 as part of the apprentice’s training from the NTF budget, which was removed in 2014.
  • Introduce a tax allowance for relocation costs to assist the skilled diaspora return to Ireland and collaborate with industry to devise a marketing campaign and alleviate the barriers facing people returning home from abroad, e.g. the cost of insurance.
  • Establish a National Construction Research and Education Forum to increase funding to construction related areas at third-level and within the research community.

Infrastructure Delivery

  • Reform the public sector procurement process to ensure optimum delivery of quality infrastructure and long-term value for money for the Exchequer.
  • Replace the ‘lowest price’ award criteria with a collaborative model offering improved profits (+1%) in return for desired delivery outcomes and reduced likelihood of project delays and budget overruns.
  • Utilise appropriate Early Contractor Involvement (ECI) to improve the project management of the planning phase of major projects. This will not only mitigate any threat to the NDP but will improve project delivery significantly.
  • Develop a capital projects tracker that is dynamic and designed in an easy-to-use manner and that information is provided by the Department or Agency responsible for procuring each project.
  • Address pinch points in the construction and demolition waste treatment and disposal system that are impinging on construction activity.

Housing

  • Announce the extension of the Help to Buy Incentive Scheme beyond the 31st December 2019 to provide a stable investment environment for housebuilders.
  • Budget 2018 increased the rate of stamp duty from 2% to 6% on all commercial transactions including the acquisition of residentially zoned land. Amend the time limitations provided for under Section 61 of the Finance Act 2017 to provide for lodgement of the Commencement Notice within 60 months of the execution of the Instrument.
  • Enable the House Building Finance Ireland Initiative to lend funds to housebuilders on foot of being granted license agreements for development of State lands.
  • Housebuilding input costs remain high. Explore all options as to how all-in house construction costs can be reduced so that the market value of completed new homes exceeds the all-in construction costs.

CSO data shows that on an annual basis, the volume of output in building and construction increased by 20.6 per cent in the first quarter of 2018 when compared with the fourth quarter of 2017. Output volumes increased by 30.0 per cent, 10.1 per cent, and 8.1 per cent respectively in residential building, civil engineering and non-residential building work in the year to end Quarter 1, 2018. There was an increase of 18.1 per cent in the value of production in the same period. The value of construction output reached approximately €20 billion in 2017 or just under 7 per cent of GDP.

Ireland’s population, which stood at 4.74 million in April 2016, is projected to reach 6.69 million in 2051 (a rise of just under two million persons) if there is high net inward migration and high fertility. Even with lower net inward migration and declining fertility, Ireland’s population is still expected to reach 5.58 million in 2051.

Media Contacts:
Communications Director, Shane Dempsey, sdempsey@cif.ie / 087 9884465
Communications Executive, Joanna Kiernan, jkiernan@cif.ie / 087 1671306


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