Increased infrastructure critical to solving housing crisis and ending boom/bust cycle in construction industry
The CIF met with the Minister for Finance Pascal Donohoe and Minister for State in the Department of Finance Michael D’Arcy earlier today to present the CIF Pre Budget Submission and to chart a way past blockages in the supply of critical residential, specialist buildings and infrastructure.
The Construction Industry Federation (CIF) presented radical initiatives to increase investment in infrastructure and to establish a small builders fund to put the construction industry on a sustainable footing and to prevent the boom/bust volatility in the sector.
CIF’s analysis, supported by DKM consultants and Construction Information Services, shows that putting these policies in place will enable regional builders to deliver the essential housing and infrastructure required to deliver targets in the Government’s jobs, regional development, housing and FDI strategies. Without these measures, economic activity will continue to concentrate in Dublin, resulting in congestion in the capital and economic and social stagnation outside the greater Dublin area.
Government should utilise measures to increase the fiscal space
The industry has stated that initiating planning stages for major projects now would enable a quicker turnaround to the benefit of Ireland’s rapidly growing population and economy. This staged investment can be carried out within the limits of the fiscal space. The CIF repeated its request that the Government utilise measures available to increase the fiscal space such as the structural reform clause.
Director General, Tom Parlon said:
“Minister Donohoe has a firm grasp of the issues we’re facing in the industry and the knock-on impacts on housing supply, homelessness, regional imbalances, social inequality and increasing house prices. Within the constraints faced, the Minister has delivered a number of key initiatives such as the Help to Buy scheme and the local infrastructure fund to move house building forwards. In private residential, in Dublin mainly, we have seen these measures lead to an estimated 20% increase in output. It’s not enough to meet demand but it’s a significant step. The trick is now to develop initiatives to increase output across the housing spectrum including social and affordable. We’ve confidence that Minister Donohoe is approaching these issues in a pragmatic way.
Government should establish a National Infrastructure Commission
“We suggested the Government establish a National Infrastructure Commission with responsibility for analysing the long-term infrastructural needs of the Irish economy and society, which will depoliticise infrastructure policy. DKM’s analysis showed only €350million available for new construction of infrastructure up to 2019. All stakeholders now believe that the Government has the capacity to invest more to the benefit of the economy and long-term job creation. Ireland is currently last of the EU27 in terms of this type of investment, spending less than 2% of GDP on infrastructure. We must increase the rate of investment to 4% of GDP over the period 2018-2021.”
‘Rainy day fund’ should be redirected
According to the CIF, the commencement of planned contributions of €500 million per annum to the ‘Rainy Day Fund’ in 2019 should be redirected to investment in infrastructure for the period to 2021.
The CIF is also calling on the Government to retain The Help to Buy (HTB) scheme, a significant contributor to the recent growth in residential construction activity.
“Private residential housing output has grown by 45% nationally over the past few years. So, measures put in place in this area are making a difference. The HTB scheme has had a supply side impact on the first-time buyer market – with housebuilders again now able to acquire funding for building traditional starter homes. The recent statements about the abolition of the HTB scheme are unhelpful and are reducing the confidence of lenders to provide development finance to builders for this type of house building. If starter homes aren’t being built, first-time buyers continue to rent, live at home, or enter the second home market.
The problems we are seeing in terms of homelessness, increasing rents and social housing waiting lists all stem from this overall lack of supply. House-price inflation is being driven primarily by an overall scarcity of supply and within the second-hand home market. An early withdrawal of this scheme would have a detrimental impact on confidence and the ability of house builders to maintain and increase their residential building programmes,” Director General, Tom Parlon said.
Fund for small builders
The document recommends that the Government provide a fund for small builders who cannot access finance for viable construction projects.
Director General Tom Parlon said;
“As it becomes viable to build houses outside the urban centres, small builders will not be in a position to secure finance. Currently, traditional sources of finance such as the banks are not able to lend to these regional SMEs, often 3rd generation family businesses, to deliver the relatively small housing projects required to replenish the stock of towns outside the greater Dublin region. How can we build a balanced regional economy if small housebuilders cannot access finance outside Dublin? This issue has the potential to derail the Government’s housing strategy and its ambitions for regional development. The fund would only apply to builders where there is real demand and traditional sources of finance are not available.”
Government should amend the Seven-Year Capital Gains Tax Exemption
The CIF also contends that the Government should amend the seven-year Capital Gains Tax Exemption, which encourages the retention of property with no incentive to develop the land purchased during the relevant period and is also calling for the immediate restoration of a 100% tax deduction of the interest expense incurred on loans to acquire/ develop residential property for rental purposes.