Public sector procurement reform essential
The CIF has welcomed the Help to Buy scheme but warned it will not address the affordability gap that faces the average couple together with rising construction costs.
Commenting the Director of the Irish Home Builders Association, James Benson said, “Our analysis shows that average couple, even with the Help to Buy, will struggle to save the required deposit. Couples earning under €93,000 are effectively frozen out of the Dublin housing market; even with the HTB they will have to save €20,000 approximately as a deposit. At current rent levels, this savings level is beyond most couples. A recent EY survey showed that the average couple in Dublin would have to save for 4.5 years, and up to 15 years plus Meath, Kildare and Wicklow. These couples are consigned to rental purgatory for the foreseeable future.
The Help to Buy, whilst helpful, on its own doesn’t address affordability issues or rising construction costs. We must address the cost of homebuilding where soft costs ie taxation, levies, finance and fees equate to over 30% approximately of the price of new homes. An increase in stamp duty announced today will mean a further land transaction fee adding to overall costs and potentially affecting viability of marginal projects.
Many housebuilders have reported that up to 80% of homes sold to first time buyers they are currently enabled by the Help to Buy Scheme. The measure is considered the most effective intervention by Government by Irish housebuilders in terms of enabling housing supply. However, it alone will not suffice in generating the 25,000-unit annual output envisaged in Rebuilding Ireland or the Government’s 2024 target of 45,000 units per annum.”
The CIF welcomed the increased investment of €1.1 billion in social housing that could deliver another 23,000 units over the next two years. More significantly, the allocation of €186 million for the Local Infrastructure Housing Activation Fund will help towards reducing the cost of construction. However, administration of the LIHAF at the local level must be streamlined to ensure this funding assists housing delivery.
The CIF also welcomed the 10.8% increase in capital investment in infrastructure announced in the budget. However, it warned that amendments to the public sector procurement must be accelerated or budget commitments will not translate into housing and infrastructure.
Tom Parlon, CIF Director General, said: “Over the last two budgets the Government has committed significant amounts to capital investment. However, at a local level, there is a slow-down in public sector project commencements. CIF members, particularly outside the Dublin Area, are reporting stalling project delivery. If cities like Galway, Cork and Limerick are going to grow at the rate required to cope with Ireland’s growing population, then delivering infrastructure more efficiently is essential. However, our public sector procurement system is wholly inadequate in terms of delivering strategic infrastructure. Improving this system is the most significant step the Government could take in reducing project delays and cost overruns. Unfortunately, large scale projects, particularly outside the GDA, are delayed or stalled meaning Brexit is much more likely to stymie growth in the region.”
The construction industry is undergoing a strong recovery with investment expected to reach €41 billion by 2023. The concern is to ensure growth is sustainable and the industry is insulated from the volatility that has beset construction in the past. The concentration of activity in the Greater Dublin Area should be of concern to the Government. The CIF’s recent crane count highlighted the fact that Dublin has over 120 cranes compared to only twelve in Cork, two in Limerick and two in Galway. This disparity of activity should be of grave concern considering that Cork, Galway and Limerick must grow at twice the rate of Dublin if Project Ireland 2040 is to succeed.
The CIF budget submission also highlighted several measures to ensure enough skilled labour in the industry to deliver essential housing and infrastructure over the coming decade. A key challenge is increasing the numbers of young people entering the industry. Recent CAO applications show only an additional 643 students selected third level courses in engineering, architecture and in construction as their first preference offer compared with last year (12,484 in 2019 versus 11,841 in 2018; this represents an increase of 5%).
The CIF believes the Government has missed an opportunity to review the funding model for apprenticeship to enable SMEs to take on apprentices in larger numbers. This budget was the time to reinstate state payments for off the job training removed in 2014 from the €70 million National Training Fund at no cost to the Exchequer.
Pat Lucey, CIF President, said: “Construction is a significant part of our economy and in overall numbers appears to be performing well. At a time when we should be accelerating investment in and delivery of infrastructure and housing, we are seeing the dial moving in the other direction.
Government can redress this if they finance the planning and procurement process of critical infrastructure projects. The timeline for such projects is unpredictable but relatively small spending can enable projects and prevent inflation reducing the value of the exchequer’s investment. In addition, the Government must commit to engaging with contractors earlier in the design process for major projects with a view to preventing delays and cost overruns when construction begins. More genuine collaboration between Public Sector clients, design teams and the industry can yield significant returns to the Exchequer and of course the world class infrastructure this economy requires.”
The CIF has warned that the increase in commercial stamp duty is an additional transactional cost that will increase overall development costs. This will impact on investment decisions and may affect the viability of many marginal developments; impacting on the delivery of residential, commercial and industrial unit delivery.
The CIF welcomes the Government’s commitment to ring-fence revenue from the carbon pricing measure to support climate action plan initiatives. The CIF believes a grant scheme for deep retrofit should be prioritised to build on the positive steps taken by industry to meet the Climate Action Plan goal of retrofitting 500,000 homes by 2030.
The CIF welcomes the proposed changes to the R&D tax credit scheme that will allow a 30% claim for SME and micro-enterprises with improvements to the appraisal system. The construction industry has a preponderance of SMEs with over 99% of enterprises classified as SMEs.
Annette Hughes, Director, EY-DKM Economic Advisory, commented on Help to Buy: “The retention of the Help to Buy (HTB) scheme for another two years will provide much-needed certainty to buyers and builders. It is three years since the Help to Buy scheme was introduced and to date there have been 14,722 claims by first-time buyers totalling €217 million. With 55% of claims for properties priced above €300,000 and given average property prices of €302,000 in July 2019, the decision not to lower the threshold at this point in time is welcomed. With one-third of HTB claims to date in Dublin and 70% in the Greater Dublin Area, the retention of the scheme in its current format will alleviate current affordability constraints for buyers in the main urban locations.”