CIF warns low infrastructure investment will confine regions to permanent lower growth

The Construction Industry Federation (CIF) has warned that the Government’s housing measures and job creation plans will not succeed without a significant increase in infrastructure investment.

The CIF met with officials from the Department of Finance and the Department of Public Expenditure and Reform today to outline their pre-budget proposals.  

CIF Director General, Tom Parlon said: “A key focus in the budget will be on the measures that the Minister will make to solve the housing crisis. Today, we are predicting that the low level of infrastructure investment across our economy will be the next crisis Ireland faces.  Nearly a decade of low level investment in infrastructure now risk economic growth and are confining regions outside the Greater Dublin Area to permanent lower growth levels.

National infrastructure, like the M20 connecting Cork to Limerick, could bring economic recovery to key regions and struggling rural communities.  The M20 project is estimated to cost €800 million and the Government’s original analysis showed the economics benefits would outweigh costs by a factor of 2 to 1.  This project will also provide a counter balance to Dublin’s economic gravity at 40% of GDP and most importantly provide equity of opportunity for people living outside the GDA.  

In our Budget submission, we outline a number of the key infrastructure projects that could generate a more balanced economy that harnesses our regions’ economic potential. It’s worth noting the UK will most likely announce a significant infrastructure stimulus in its upcoming budget to offset the effects of Brexit.  Both US Presidential candidates have promised to significant infrastructure investment aimed at stimulating the US economy.   Infrastructure investment is used by all Governments in times of recovery to stimulate economy activity and generate employment; every €1billion invested in infrastructure generates 10,000 jobs.

Without significant infrastructure investment, people will continue to migrate to Dublin and the budgetary measures to address the housing crisis may deliver housing into what may become unsustainable ‘ghost’ communities.  The CIF are proposing that any housing policy under consideration by Government should coincide with increased expenditure in national infrastructure investment. 

Ireland has one of the lowest levels of infrastructure investment in the EU, and successive bodies such as the European Commission, the OECD, the National Competitiveness Council, and several industry representative bodies have all called for an increase in infrastructure spend.  Prior to the recession our infrastructure spend was approximately 5%, now it is less than half of that at only 2%.  This is at a time when funding is at historically low levels and we could deliver infrastructure more cheaply than at any other time in our history.  We are allowing ourselves to be curtailed by EU fiscal rules that are wholly unsuitable for country emerging from a recession with a growing population and economy.  The Government must continue to press our case with the EU to facilitate this investment.”

In terms of resolving the housing crisis, the CIF has long sought the introduction of a help-to-buy scheme where the Government takes equity in the homes of first-time buyers.  This approach would be more effective than the simple grant scheme being suggested in some quarters.  It would also support 4-5 first-time buyer couples at a lower cost to the State than building an additional social housing unit.  

The prize here is huge as agreed sustainable demand is 25,000 houses per year.  We’re currently completing 12,500 and our research shows that every 12,000 additional housing units supports 30,000 direct and indirect jobs in the economy.  With every additional house built the Government take is approximately 36% so increasing house-building has a very positive impact on the Exchequer.

Finally, any housing measures announced in the budget must be complemented with a relaxation of the Central Bank’s application of mortgage rules.  Our research indicates that in Dublin an average couple (Garda, nurse, civil servant) with 5 years’ experience cannot secure a mortgage for the average house.  The resulting lack of mortgage approval makes it unviable for builders to build, and ironically, for banks to provide finance.  Those who can afford to service a mortgage can’t access one.  The CIF believes that the Central Banks could allow banks more exemptions to their rules to provide mortgages only to those first time buyers with appropriate income levels and a track record of paying rent.  This will ensure that who can afford a mortgage and home can access one without a return to unsustainable credit levels in the economy.”

Other key areas covered in the CIF budget submission include:

  • Increasing and maintaining infrastructure investment from 2% to 5% average over the next decade.
  • Connect those who can afford a mortgage to a supply of suitable homes by introducing a help to buy equity scheme.
  • Address current social housing crisis by, inter-alia, improving public procurement rules and identifying land banks owned by local authorities suitable for construction.
  • Making it easier for construction companies to provide employment through a range of measures.
  • Address taxation matters such as the introduction of a 9% VAT rate, amendments to the seven-year Capital Gains Tax rule and introduction of incentives for living in town centres to revitalise rural towns.