HAS OUR BUILDING BUBBLE BURST?

Recent surveys and statistics suggest that the construction industry is on a downward spiral, but it’s not all doom and gloom as Jill Acheson finds out

The future of the house building industry has been creating headlines recently. The threat of job losses combined with a drop in housing output in comparison to 2006 have cemented the speculation that our housing sector may be past its golden era.

JOB LOSSES

In a recent Ulster Bank report it was forecast that there may be a loss of up to 30,000 jobs in the construction sector within the next two to three years. Central Statistics Office (CSO) figures have also confirmed that the overall level of employment in the construction sector is falling and in the first half of this year the number of building firms employing five or more workers has fallen from 110,000 to 108,800. On the topic of job losses, Martin Whelan of the Construction Industry Federation (CIF) comments that, “much of these will be absorbed into other industries. All talk regarding construction at the moment is only about the housing sector, which underestimates the size and the multi disciplinary aspects of the industry.”

For the first quarter of this year the level of new planning permissions for apartments has dropped by almost 20% in parallel with a fall in average house prices and overall investment in housing. Whelan says that our current housing construction sector is constantly being compared with 2006, which was an exceptional year for housing output. He says it is much more realistic to make a comparison with 2005 which was a very similar year in terms of growth.

NON-NATIONAL WORKERS

Overall, there are 282,000 people employed in the Irish construction sector with one third, or 38,000 of these being foreign nationals, many of whom come from EU accession states. It is predicted that non-nationals will be the most affected by future job losses as they are perceived to be more mobile and can relocate to other EU states where the construction industry has not been affected by a slump in the housing market.

As Whelan explains, those affected by job losses in the housing sector will be absorbed into the stronger areas within construction such as civil engineering. “We don’t expect to be at the same level of having 280,000 permanent employees in five years time but we don’t expect the effect to be quite as bad as what is being predicted. There are a number of very strong areas in the construction sector at present, particularly civil engineering, due to the on going maintenance and upgrading of our infrastructure, which accounts for 12% of construction work and is on the increase,” says Whelan, on the future prospects of the housing sector.

CONSTRUCTION AND SMEs

A recent ISME business trends survey says that the construction sector is the least positive at present with 41% of companies less confident than they were 12 months ago. The downturn in our construction industry will also have a knock on effect on our small and medium business enterprises.

The SME sector, which has already been hugely affected by inflation, wage increases and a rising cost environment, is according to ISME’s survey, also suffering from a lack of optimism. “We have strong concerns that the construction and domestic services sectors have been driving the economy in the last number of years and certainly our export levels have been falling as well as our international competitiveness,” says Patricia Callan of the Small Firms Association. Callan believes that once the National Development Plan is rolled out there will be natural cross over of skills so that employees from the housing sector can move into other areas of construction such as infrastructural development.

The CIF says that Ireland is in a unique catch-up stage, regarding infrastructure compared to other EU countries. Ireland is extremely reliant on fossil fuels and the construction industry is in huge need of modernisation in order to meet sustainability standards. General contracting and publicly funded sectors of construction are growing and will continue to grow. According to Whelan, Ireland is a young and dynamic country with the highest proportion of the house buying bracket of the population in Europe. Our current population of 4.2 million is estimated to grow by another million by 2020. Ireland is well below the EU average of 474 housing units per 1000 of the population, presently there are 411 units for every 1000 inhabitants.

DRIVING DEMAND

Therefore, it is necessary to complete a further 260,000 housing units to catch up with our EU neighbours. Ireland’s combination of demographic and economic factors will continue to drive the demand for housing. According to the Whelan, “there will be fewer houses built than the record high of last year but we expect to build around 75,000 new houses this year which is substantially more than anywhere else in Europe.”

Published in the September 2007 Issue of Irish Entrepreneur