Labour shortage to constrain construction growth

Colm McGrath describes how the shortage of tradespeople and construction professionals could constrain housing output and overall construction growth and outlines the problems of rising costs and public procurement contracts.

Looking back over 2018, in January it was predicted by Aecom that the construction industry would grow by 14% which equates to €19.5 billion of construction projects.

This figure was revised by both Aecom and Linesight who predicted that it would end up being closer to €21 billion an increase of circa 15% on 2017 and representing growth of 64% over the last three years. That’s a phenomenal turnaround considering the deep recession Ireland had been plunged into in 2008.

Colm McGrath, MD,
Surety Bonds.

While this is positive continued growth, which started around 2015, it is not without its concerns. Labour being one major issue and increased cost of construction from other areas such as materials, financing, rising interest rates and utilities all culminating in the overall escalation in pricing. Growth could lead to a choke chain effect however as firms fish in a shrinking pool of skilled labour.

How is construction going to maintain momentum when labour shortages start to kick in? The construction industry according to CSO statistics employed 128,000 in Q2 2017 which increased to 146,000 in Q2 2018, a 14% increase.  The apprenticeship figures are startling and should be a cause for concern over future growth. Registrations for bricklaying & stone masonry was a total of 127, for plumbing it was 1,272, while electrical was 5,458, construction 2,837, engineering 1,888, and carpentry 1,136, which as of March 2018 was a total of 12,591. Who could blame the youth of today not wanting to go into apprenticeships particularly when many would have seen or heard about the planeloads of construction workers emigrating to other countries during the downturn with many never to return after setting up new lives abroad.

A recent report by Linesight consultants reports that Project Ireland 2040 estimates that 550,000 homes will be required over the next 20 years and the National Development Plan commits €11.6 billion to provide 112,000 new social homes by 2027. The report warns, as I have done in previous articles and above, that potential skill shortages could hamper the level of output, 14% – 18%, that we have seen in recent years or at least slow it down. To sustain that level of growth would require at least a further 40,000 to 50,000 construction workers and to be honest I don’t think we can fill those boots with skilled labour from our local resources, that pool is quickly evaporating.

While the construction industry increased the number of workers by 12,000 and hourly rates increased, the pool of unemployed workers with construction experience has nearly evaporated pushing up contractors’ costs and adding to completion times. Construction firms are going to have to go further afield to entice either Irish people that left during the recession to come home or encourage foreign workers to work and live in Ireland, further adding to future construction costs.

The impact of these additional costs can already be seen, the cost of building a family home according to Linesight increased by 7.5% in 2018. Similar figures of 7% and upwards in the cost of construction in 2019 have been bandied around; whether they will hit those heights will remain to be seen. These costs tend to have a greater impact on contractors tendering on construction projects, particularly public procurement contracts and create a significant challenge, particularly on GCCC contracts. It is my opinion that it is time to change the public procurement rules that dictate construction projects; price should not be the determining factor for winning a successful bid.

As I outlined in my previous article ‘Carillion – a case against cost certainty’, the true sign of an economic recovery is the return to acceptable profit margins. In every other industry this is the expectation, except for construction. While it is incumbent on contractors to continue to be astute and not abandon post-recession lessons and work to maintain bottom-line results it is also the responsibility of the Government to stop squeezing contractors though onerous contract terms, the race to the bottom benefits nobody.

In my opinion, in order to maintain a level construction industry that is not as affected by the cyclical nature of boom to bust contractors need to make reasonable margins, this, in turn, allows them to hire and maintain a highly educated workforce that can deliver on much-needed projects. Higher margins allow for financial buffers for when hard times return, such financial cushions help maintain a highly skilled workforce and the long-term stability of the industry.

Article prepared by: Colm McGrath, MD, Surety Bonds.

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