Leading housebuilders speak with Barry McCall about the impact of Covid-19 house building in Ireland and the issues that need to be addressed if the government’s ambitious housing targets are to be met.
It might seem hard to believe, but less than 15 years ago, the biggest fears in relation to housing in this country were rampant price inflation and over-supply. Only a decade ago, we were faced with the spectacle of “ghost estates”, with many commentators predicting that Ireland would be dealing with a housing surplus for generations.
The speed with which the economy and the housing market righted themselves took even the optimists by surprise, with surfeit quickly turning into deficit. Homelessness and house price affordability became key electoral issues, and a variety of government initiatives were launched to revive housing construction and support homebuyers.
Government housing targets
The government target is for 35,000 new homes to be delivered each year, with around 10,000 of them falling into the social and affordable categories. Progress was being made until Covid hit. The industry was shut down for eight weeks in the spring and early summer of 2020, while many potential homebuyers were spooked by the economic fallout of the pandemic.
New home delivery fell slightly to 20,780 in 2020. This was a drop of just 411 on the number built in 2019. With large parts of the industry shut down again during the early part of 2021, this will have a knock-on effect on completions this year. But the industry was resilient in 2020, and it is hopeful of making up for lost time in 2021, despite some non-Covid related challenges.
One of the more recent entrants to the Irish housing market is Quintain. It was formally established in this country in 2019, although its roots date back to 2013 when joint managing partners Michael Hynes and Eddie Byrne worked for Hudson Advisors, Lone Star’s asset management unit.
Michael Hynes explains that there was nothing happening at the time, saying the country “was just moving out of the global financial crisis. Lone Star Funds was one of the more prolific buyers of loan books at the time.”
Quintain worked through the loan books to stabilise and maximise the value of the assets. It partnered with Cairn Homes to acquire the €500m Project Clear from Ulster Bank in 2016.
“That was a good fit, and we split Adamstown, Clonburris, and Portmarnock. Then, we teamed up with Castlethorn and Ballymore to develop those sites.”
Hynes and Byrne were in advanced preparations for an IPO for the Irish business when the market took a turn for the worse as a result of the Brexit vote and the incipient global trade wars. It was initially decided to postpone the IPO and then to abandon it altogether. Lone Star had acquired Quintain in the UK and decided to bring the company to Ireland under the leadership of Hynes and Byrne.
“That was 2018, and the idea of diversifying into Ireland made sense,” Hynes notes. “We bought a Cherrywood site at the same time and set up Quintain Ireland in 2019. I don’t think many companies in the development space started out with a pipeline of 9,000 homes. We started with a landbank fully formed. Our biggest challenge was growing from seven to 45 people in a very short period of time. Getting the right people with an economy running at such a fast pace was tough. We are aiming to go from zero to 1,500 homes a year within four years. We have the sites and a supportive shareholder. It’s a very exciting time despite Covid.”
Covid has been a real challenge.
“Like every company, we had to make the switch to working remotely. From a construction perspective, the first lockdown closed the industry for around eight weeks,” he continues. “The industry did a great job bringing in a standard operating procedure for Covid. As far as I can see, adherence to the guidelines was almost universal. There have been a very small number of cases across the whole industry.”
That track record paid dividends when the industry remained open during the second lockdown in 2020.
“The industry has clearly demonstrated that it was not a major contributor to the spread of the disease. Then the country got hit really hard in December. Nobody expected that. It was so severe that the whole country shut down.”
Michael Hynes says that the industry could have remained open.
“Ireland was the only country in Europe in full lockdown. I don’t think it was necessary. A large part of our workforce is international, and many of them have moved back home. Are they going to come back to Ireland? The workforce needs answers and security if they are going to come back. If they don’t, the industry won’t have the capacity to deliver housing targets.”
Roy Murray, Contracts Manager, Clancy, agrees.
“It’s very confusing when you look at the risk analysis,” Murray comments. “How can greenfield work, out in the open, be more of a risk than houses closer to finishing when all the work is indoors. It didn’t make sense in terms of a risk mitigation measure.”
Clancy took advantage of the shutdown to stand back and look at various aspects of its processes, from design through procurement to pricing, subcontract awards and so on.
“One benefit was more time to look at these things and get some value engineering out of it,” Murray explains.
The impact of the closure will be felt, but the overall effect is hard to measure.
“It is tough to take three or four months out of the year and then deliver the same level of output within the new timeframe,” he adds. “It’s just not going to happen. But we are on the better side in terms of the weather for the calendar year. We don’t get the best weather during January, February, and March. We may be able to accelerate construction in the coming months.”
Vision Contracting will celebrate its tenth anniversary in business in August.
“We work in a broad mix of areas including pharma, healthcare, commercial, residential, industrial and utilities,” explains Colm Fehily, Director, Vision Contracting. “Our annual construction business turnover had been increasing year on year and was forecast to exceed €70m before Covid, and the related government restrictions shut the industry down last year. This directly impacted on our construction operations, with 2020 revenues reducing to €60m or thereabouts. Our approach has always been to focus on steady and sustainable growth. When we started out in business, there was not much residential activity between 2011 and 2014, but it has come back into focus in the last two to three years.”
Vision Contracting is currently on site on several private residential developments, but one of the key challenges is costs.
“The main issue at the moment is the cost of delivery of homes,” says Fehily adds. “We are incurring significant raw materials price rises. We also have a lot of third-party costs and levies, utilities connections and fees to factor in as well. The market has to take this into account. The tightening of the mortgage rules also makes it more difficult.”
Planning delays are another issue.
“We applied for one development in January 2019, and between the local authority and An Bord Pleanála, we were finally granted permission in October 2020,” Fehily says. “It’s taking maybe three months longer because of Covid impacts, but it’s still a 12–15-month process with associated costs. New building regulations and design standards have added to the cost base as well. Outside of the Dublin market, it is difficult to make apartment development stack up. The costs involved make the end product expensive, and market prices outside of Dublin do not make this type of development feasible from our perspective.”
“Planning is a very slow process,” says Clancy’s Roy Murray. “It can take years for developers to get to a shovel-ready stage. Dealing with utilities can also be slow, and it can take anything up to six months to get a connection offer.”
The shortage of skills and talent is another issue highlighted by Murray.
“There is a real shortage of design people coming out of college,” he says. “It is really hard to get engineers, nigh on impossible actually. We are still suffering from the vacuum left by the last recession, when architects and engineers weren’t being produced. The students who started in 2015, when work started to come back, are only starting to come out now. They only have one or two years’ experience. That’s a real struggle for the industry. We need real investment in professional roles for the future.”
Adequate trades and labour resources are going to be a major issue in the years ahead, according to Vision Contracting’s Colm Fehily. He points to a shortage of people coming through with a traditional trades background.
“I don’t think enough is being done here. The industry and the educational bodies as a whole should be doing more. In 10 years, the trades persons coming through now will be in a very good position to take senior positions in firms. There are a large percentage of secondary school students who are not sure what to do with their careers, and the industry needs to do more to promote itself to them. We need to compete against the other sectors and industries to attract and retain more students and younger persons. We can do this by getting more involved at secondary school level, raising the profile and awareness of the building industry and explaining the training and the strong career opportunities that are readily available for all trades and labour disciplines involved.
“We also need to continue to attract more third-level graduates, but we need to invest in trade-based apprenticeships and to put this on a par with the focus on third-level education,” adds Fehily.
The industry image needs to change.
“The perception of construction remains one of long hours in dirty and wet conditions,” he continues. “That’s just not the case. The industry has come on so much. Health and safety standards are among the best of any sector. The bar is now very high for health and safety, site welfare and environmental standards. It’s all about the education of students in school. They need to know that the pay and conditions and prospects in our industry are as good as you will get anywhere.”
Fehily adds, “Carpenters and blocklayers are taking home as much if not more money than their friends who spend years in college. There are huge opportunities to progress in this industry.”
The overall mood is positive, however, as noted by Quintain’s Michael Hynes.
“During the first lockdown, people were wondering about prices and the economy. They saw reports from KBC and Davy and others signposting big falls, and some of them held back. They quickly saw that this was very different to the global financial crisis, and we are now in an acute undersupplied market. The savings ratio has gone up, and money is still available across all levels, and that is supporting very strong buyer demand.”
Indeed, Quintain has 7,000 expressions of interest from potential buyers for homes it has planned, and it recently sold 60 houses through a virtual online sale.
“Some people are regretting not buying last year,” Hynes adds. “We are seeing equally strong demand across all buyer types, including first-time buyers, trader uppers, and trader downers. We have lost a lot of time this year, but as an industry, we will work to address supply issues. The housing minister is less than a year in the job, and he knows one of the biggest problems is supply. He has extended the ‘Help to Buy’ scheme, and that is helping people to get a deposit together. It has improved access to mortgages. He is also looking to bring in a shared equity scheme for people that need a bit more than the Help to Buy scheme. He is also trying to introduce schemes to increase supply.”
The message is quite clear. The challenges faced by the industry when it comes to delivering housing remain the same as they were before Covid – building costs, lending rules, planning delays, design regulations, utility delays, skills shortages, and others besides. However, there is a sense that progress can be made on these issues and a belief that government targets can be met.